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.
Securities and Exchange Commission Chairman Shelby, Ranking Member Sarbanes, and Members of the Committee: Thank you for inviting me to testify today about options backdating.
The stock plans of many public companies prohibit the granting of below-market options; other companies disclose in their SEC reports that stock options are granted at market and prepare their financial statements on that basis.
The term “backdating” refers to a number of option granting practices in which the reported grant date is different from the date on which the option is actually awarded, resulting in an option that is already “in-the-money” at the time of the grant.
I appreciate the opportunity to explain the Commission's initiatives to deal with abuses involving the backdating of options.
I am especially pleased to testify together with Chairman Mark Olson of the Public Company Accounting Oversight Board.