Grant backdating

Thus, the option becomes "in the money", meaning there was a built-in profit on the underlying stock, on the grant date.In some cases, the date of exercise, rather than the date of grant, was changed to an earlier date to convert ordinary income into capital gains.

Recording the exercise as having occurred on an earlier date when the stock price was lower would minimize the executive's income tax liability, but constitutes tax fraud.In our example, backdating the options is the same as giving John Doe a check for ,000 -- without recording that ,000 on the within two business days.ESOs are usually granted at-the-money, i.e., the exercise price of the options is set to equal the market price of the underlying stock on the grant date.In general, companies engaging in a classic backdating transaction chose a date when the stock price was at a low point and chose that favorable date as the grant date.Dozens of companies are under investigation by the Securities and Exchange Commission for backdating stock options. Alternatively, a company could hit a low without actually backdating its options by granting awards just before a major (positive) earnings announcement, a practice known as "spring-loading." A more extreme and more clearly illegal practice was to say that an award was exercised on a date other than its actual exercise date.