Several articles and books I’ve read refer to backdating as fraudulent. The wikipedia article (below) states:
“While options backdating is not always illegal, many options in corporations are granted to upper management”.
My question is to what extent are they legal and when are they deemed illegal?
I look forward to your feedback
Options backdating is the practice of altering the date a stock option was granted, to a usually earlier (but sometimes later) date at which the underlying stock price was lower. This is a way of repricing options to make them valuable or more valuable when the option “strike price” (the fixed price at which the owner of the option can purchase stock) is fixed to the stock price at the date the option was granted. Cases of backdating employee stock options have drawn public and media attention.
While options backdating is not always illegal, many options in corporations are granted to upper management. Backdating has been called “cheating the corporation in order to give the CEO more money than was authorized.” and a way of “rewarding managers when stock prices fall”. According to a study by Erik Lie, a finance professor at the University of Iowa, more than 2,000 companies used options backdating in some form to reward their senior executives between 1996 and 2002. In an “uncanny number of cases,” the “companies granted stock options to executives right before a sharp increase in their stocks.”