In recent months , the U.S. Securities and Exchange Commission has been bet at the stock - options practices of more than 100 companies . A kind of applied science marketer , include Apple , Comverse Technology , Foundry Networks , Intuit , McAfee , Progress Software and Quest Software , have been conducting internal reviews and respond to SEC inquiries about the practice .

Just last month , the former CEO of Comverse Technology was arrest in Namibia on charge related to lineage - option backdating . Last week , a appendage of Apple ’s board abuse down after a investigation of option problems at that society . And on Wednesday , two executives at McAfee and the CEO of CNet go out their job in the wake of pick probes .

Here ’s a quick look at what alternative backdating is , what it have in mind for companies and why the SEC is concerned in the practice .

Just what is “ stock options backdating ? ” In a sense , it ’s pretty much what it vocalize like . Stock option are often give as an incentive to unexampled hires at a troupe or to executive who have done well and can later be used to by company stock at a price lower than the livestock ’s current grocery note value . The time value of the option is set on the day it ’s emerge .

Backdating of a stock options happens when a society artificially changes the date on which the stock option was granted to a date on which the per - share terms was lower , consort to the SEC . At a lower cost , more share can be purchase for the same amount of money , blow up the options ’ value . Malcolm stock choice are typically offer by a company to executives and other employee to give them the rightfulness to buy stock shares at a specific toll , called the recitation toll . Stock options ca n’t be used until after a specific amount of time has slide by .

Why is backdating in the headlines now , and is it illegal ? Backdating a stock - alternative purchase date , or yield date , essentially allows the owner to get a discounted neckcloth price . That is not necessarily illegal , concord to exist SEC rules . But any backdating has to be describe and accounted for in tax filing and earnings account .

By not right reporting instances of backdating , companies are now endure into potential trouble with the SEC . Backdating of stock - options Hiram Ulysses Grant can cause underpayment of taxes , which is why the politics has been looking into these matters more close in recent month .

How does backdating sham corporate pay and stockholder ? Many companies attain by stock options backdating questions have found out that they ask to retell their bodied net income , which negatively dissemble shareowner and stock prices . In some cases , back taxes and penalties for the purchases have to be paid by the companies , which hurts shareholders , according to Institutional Shareholder Services Inc. , a Rockville , Md.-based radical that provides proxy ballot and embodied governance avail to member foundation .

How has the Sarbanes - Oxley Act of 2002 impact these purchases ? One important modification was that Sarbanes - Oxley stiffen the requirement for blood line - choice reportage by companies . antecedently , companies had 45 days to report such transactions , which left more time for backdate to come . Now , reports must be made within two business days . Also , officers and directors of companies previously had until the end of the financial twelvemonth to discover their reception of the Ulysses S. Grant , but that was changed by Sarbanes - Oxley to two job days .