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20-Nov-2015 12:50

Whenever I write about backdating, many people write in to tell me that backdating’s not illegal; you just have to account for it correctly.

Since so many people think this is an important point, I thought I’d do a post addressing just that contention. What I assume people mean is that granting in-the-money options is not illegal, so long as you account for it properly. But the whole point of backdating is to pretend that you’re not granting in-the-money options when in fact you are.

Now the fair response in Jobs’s defense at this juncture would be to say: “Well, look, people just didn’t look at this stuff the way they do today, post-Sarbanes-Oxley, and so on.

Sometimes certain claims (such as insurance claims) can be backdated if the could not be completed at an earlier date, although there must be good reason for neglecting to claim in advance.

If your backdated claim is approved, you will be able to receive benefits from a certain date in the past.

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If someone presents you with a spreadsheet of the last month’s stock prices and asks you to pick the date on which you want to pretend that you granted, or were granted, several million options, might that not at least spur further inquiry?

When then-general counsel Nancy Heinen emailed Apple (AAPL) CEO Steve Jobs such a spreadsheet on January 30, 2001, she noted that it was a bad idea to choose January 2 as the grant date–even though that was the day the stock had been at its lowest–if they wanted “to avoid any perception that the Board was acting in appropriately [sic] for insiders prior to Macworld announcements.” (They ultimately chose one of the next-best dates from after Macworld.) Now isn’t it obvious to everyone on that email that shareholders are being misled?

Backdating is dating any document by a date earlier than the one on which the document was originally drawn up.

Under most circumstances, backdating is seen as fraudulent and illegal, although there are some situations in which backdating can be used in a legal and beneficial way, such as backdating a claim for a past period.

Sure the accounting rules are arcane and most people don’t know them.

If someone presents you with a spreadsheet of the last month’s stock prices and asks you to pick the date on which you want to pretend that you granted, or were granted, several million options, might that not at least spur further inquiry?

When then-general counsel Nancy Heinen emailed Apple (AAPL) CEO Steve Jobs such a spreadsheet on January 30, 2001, she noted that it was a bad idea to choose January 2 as the grant date–even though that was the day the stock had been at its lowest–if they wanted “to avoid any perception that the Board was acting in appropriately [sic] for insiders prior to Macworld announcements.” (They ultimately chose one of the next-best dates from after Macworld.) Now isn’t it obvious to everyone on that email that shareholders are being misled?

Backdating is dating any document by a date earlier than the one on which the document was originally drawn up.

Under most circumstances, backdating is seen as fraudulent and illegal, although there are some situations in which backdating can be used in a legal and beneficial way, such as backdating a claim for a past period.

Sure the accounting rules are arcane and most people don’t know them.

But if someone asks you to write down a date from a month ago on a legal document, rather than today’s date, doesn’t it give you pause?