Disclaimer backdating options

12-Mar-2020 05:45

§ Recipients of stock options may have violated their reporting obligations under Section 16 of the Securities Exchange Act of 1934.

§ It is likely that insurance carriers of director and officer insurance policies will require representations about a company’s option grant practices in connection with policy renewals.

§ Incorporate any existing or developed procedures into the company’s general disclosure controls and procedures, and get approval of the procedures from the company’s auditors.

Other adverse consequences that could result from option backdating include: § The SEC may challenge a company’s public disclosures regarding its stock options, which could result in a potential securities disclosure violation.

§ Shareholders could initiate suits against the company on the basis of its option grant practices, alleging self-dealing, waste and other breaches of fiduciary or contractual duties.

Below are our recommendations with respect to oversight of stock option grant and other equity compensation programs.

Recently, media and regulatory attention has been directed at two types of potential problems with respect to option grant practices.Although backdating is not an illegal practice in and of itself, the grant of backdated options can create a host of unintended consequences.