Backdating of stock option grants


08-May-2014 01:05

This problem occurs most often when boards or committees act by unanimous written consent but there is a delay in the receipt of all of the signed consents.Even though no documents are backdated and there may be no intent to select a lower exercise price, backdating issues may arise if the stock price increases before the corporate formalities have been completed.My paperwork has my vest date dated before the grant date.From my understanding typically the grant date is dated a year before vest date.I work at a startup and have been working for the startup for almost two years.We got funding a year ago and our CEO said that everyone who has been on the team since day 1 ( me and a few others) will have our agreements backdated to when we started working two years ago.A Series A funding doesn't necessarily bump up the appraisal of common stock all that much, but if you have a lot of stock that will mean a lot to pay.You might want to speak to the CEO to see if he can find a way to make up for that, like giving you some extra options, or promising that the company will front the exercise price as a loan when it comes to it.

As a result, to keep favorable ISO tax treatment you'll have to wait at least two years from the grant date — and one year from exercise date — to sell your stock (in a secondary transfer, company repurchase, or company acquisition), and also you'll have to pay a higher price to exercise your option based on the funding event.

Several companies have expressed their intent to restate financial statements due to option timing issues, and opportunistic attorneys have already filed derivative and class action lawsuits.

The author of the academic study who is credited with focusing regulators on this issue estimates that at least 10% of “at-the-money” grants of options to CEOs between 19—before Sarbanes-Oxley shortened the reporting period for option grants—were backdated.

In its most basic form, backdating can range from the blatant falsification of a document to take advantage of a lower stock price to allowing executives to select a grant date during a specified period, for example during the 30 days after the grant is approved by the board or committee.

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Although these practices involve different types of conduct, both create problems because the date when the exercise price is set is not the same as the date on which the option is awarded.

I'm not sure why the contract didn't say something stating that on a certain date I was granted x number of shares that automatically vested rather than how it was written...



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