The backdating scheme involved moving an effective date for the exercise of stock options from when the options were 'out of the money' to a date that made the options 'in the money' in order to allow certain executives to exercise their options profitably.
Companies such as Verisign, F5 Networks, Brocade Communications, Intuit and Mc Afee - as well as Home Depot, Michael's Stores and United Health Group, to name a few - all engaged in this fraudulent activity to varying degrees and were forced to pay fines and penalties and conduct time-consuming and expensive restatements of their books.
As from that date, customers may have been invoiced by the transferee, employees may have been paid by the transferee, and accounting entries may have been made to reflect the purchase price payable for the assets.
Together, these factors may indicate that the beneficial interest in the relevant assets has passed from a legal point of view.
Documenting a transaction which has already happened One possible scenario is that the relevant transaction has already happened, but just hasn’t been documented yet.
For example, there may have been a transfer of trade from one group company to another on a particular date.
For example, a reduction of share capital using the UK solvency statement procedure only takes effect in law when it is actually registered with Companies House.
Consider the following examples of common backdating scenarios that are disallowed: There was a spate of backdating stock options in the 2000s, mostly at technology firms that rely heavily on stock options for executive compensation, but also at some companies not in the tech sector.Drafting and executing a document after an event occurs, but in a manner that accurately reflects the date on which the event transpired, is a permissible form of backdating.This is backdating that memorializes, something the United States Court of Appeals for the Seventh Circuit has recognized as a legitimate practice.This is one of the most common issues which comes up in the context of group reorganisations or intercompany agreements. Giving a document a date which is earlier than the date when it was actually signed, would almost certainly constitute fraud.Although it may have been intended to put in place a new arrangement by a particular date – often a year end – that date may now have passed. Obviously the ideal position is to put in place the legal documents in advance. Well, it depends on what was transferred, and whether it can be said that the relevant transaction has already happened.The transaction should be ratified by minutes or resolutions of the participating entities.