They also fully disclose this compensation to investors, and deduct the cost of issuing the options from their earnings as they are required to do under the Sarbanes-Oxley Act of 2002.
(For more information, see .) The executives of companies involved in backdating scandals may also face a host of other penalties from a range of governmental bodies.
Among the agencies that could be knocking on the door are the Justice Department (for lying to investors, which is a crime), and the IRS for filing false tax returns.
As a result, the company has been forced to recognize a stock-based expense increase of 3 million between 19. It has also been the subject of a civil and a criminal complaint.
The total cost to shareholders, in this case, has been staggering.
This means that corporations will have less time to backdate their grants or pull any other behind-the-scenes trickery.
It also provides investors with timely access to (grant) pricing information.The Bottom Line Although more culprits in the options backdating scandal are likely to emerge, because standards such as Sarbanes-Oxley have been instituted, the assumption is that it will be more difficult for public companies and/or their executives to hide the details of equity compensation plans in the future. Maxim has agreed to settle the SEC complaint without admitting or denying the commission's allegations.(To learn more, read .) In short, it is this failure to disclose - rather than the backdating process itself - that is the crux of the options backdating scandal. To be clear, the majority of public companies handle their employee stock options programs in the traditional manner.That is, they grant their executives stock options with an exercise price (or price at which the employee can purchase the common stock at a later date) equivalent to the market price at the time of the option grant.In this litigious society, shareholders will almost certainly file a class-action lawsuit against the company for filing false earnings reports.