In much the same way that backdating is now prompting some companies to restate, corporate tinkering with options can damage the personal equivalent of a financial statement: your tax return.
Backdating — setting the grant date of an option earlier than the actual date it is granted, typically in order to take advantage of a lower stock prices — can create tax implications for the recipient, as well as the company.
District Attorney's Office has also issued several subpoenas in launching a criminal probe. The typical practice was to record a felicitously timed prior date as the grant date, such as the point when the stock had been at its lowest in recent months, instead of the date when the award was actually granted.
Only 7.7% of companies filing within the new two-day reporting window for options grants show a pattern of backdating, compared to 19.9% of companies that did not meet the requirements.
July 31, 2014 Over the last few years, Teknos has worked with thousands of companies preparing valuations to comply with IRC 409A and ASC 718.
During that time, we’ve been brought in to help fix a number of situations in which the company had issued stock options at a value that later was determined to be too low.
The pattern was somewhat more common in technology companies, smaller companies, companies granting options to more executives and directors, and companies with higher stock price volatility.
Volatility is especially significant: 29% of companies with high volatility appear to have manipulated grant dates, compared to 13% of those with low volatility.