The backdating problem was first highlighted by Professor Erik Lie of the University of Iowa, who published his initial study in 2004.

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Not surprisingly, the defendants themselves earned millions of dollars from backdated options.

Another troublesome outcome for a corporation is that the SEC will bring civil fraud charges stemming from options backdating in all cases where criminal charges have been filed.

Subsequently, the Securities and Exchange Commission (SEC) took an interest, followed by the securities plaintiffs’ bar and many corporations. The practice of options backdating, apparently widespread from 1996 through 2002, is widely believed to have been short-circuited by the enactment of Sarbanes-Oxley in 2002.

Although backdating had not yet been recognized as a problem, the provisions of Sarbanes-Oxley requiring that insiders report the acquisition of securities, including options, within two days of receipt greatly hindered the ability of corporations to backdate options.

However, the fact of the option grants, their strike price and their eventual profitable exercise are in most instances disclosed.

Thus, in the context of options backdating, substantial doubt exists as to the viability of shareholder claims.

Fortunately, the government appears to appreciate the difference between backdated options that involve the “intentional alteration of documents or faulty internal control and dating issues arising from ministerial or logistical delays.” Unfortunately, the plaintiffs’ bar is not so discerning.

Public announcements that a company or the SEC is investigating possible backdating issues have spawned a rash of civil suits.

Class actions ostensibly are brought on behalf of the shareholders of the company who have been impacted by the option grants.

Shareholder claims typically are grounded in some allegation of misrepresentation.

But even if no criminal charges are filed, the SEC still can bring a civil fraud action in federal court.