Under previous regulations, corporations could wait 45 days or, in some cases, over a year to report options, thus providing ample time for backdating.Other similar practices are being reviewed by government officials as well.The date of an agreement is an important part of most business transactions and M & A is no exception.Many acquisition agreements begin with an “Agreement between” the parties “effective as of” a given date.Kwall of Loyola University of Chicago’s law school, depends largely on which of the two actions has occurred.Also see: 5 things to know about the Panama Papers In a written response to questions from ICIJ and its media partners, the firm said that backdating documents “is a well-founded and accepted practice” that is “common in our industry and its aim is not to cover up or hide unlawful acts.” Erik Lie, a finance professor at the University of Iowa, published an initial study in 2005 and then another in July 2006 that said more than 2,000 companies had used options backdating between 19 to reward senior executives.There are unfortunate cases, however, and there are criminal sanctions in both federal and state law to deter and punish malfeasance, fraud, deception and other defined misdeeds.
Contrast that with an agreement dated “effective as of December 31, 2012” when the parties did not reach agreement until January 2013, but used the 2012 date to get last year’s substantially lower long term capital gain rates. For a very good article on this topic from an excellent resource for the M & A lawyer, see Backdating (63 Bus. Finally, although ERISA preempts or supersedes state laws relating to pension plans, it generally does not preempt state criminal laws as they may be applied to the act of fraud, embezzlement or otherwise interfering with a participant's rights or benefits.Only state statutes that are written to apply specifically to crimes against pension plans or welfare benefit plans risk preemption.Law360, New York (June 15, 2006, AM EDT) -- It is virtually impossible to pick up a newspaper these days and not see an article about the ever-growing list of companies being caught up in investigations concerning allegations of backdated stock options.Despite the attention paid to this issue, little has been written explaining why backdating options is problematic and potentially illegal.Subsequently, the Securities and Exchange Commission (SEC) took an interest, followed by the securities plaintiffs’ bar and many corporations. The practice of options backdating, apparently widespread from 1996 through 2002, is widely believed to have been short-circuited by the enactment of Sarbanes-Oxley in 2002.