backdating

1. In stock option grants, pretending an option was granted on a date before the grant was awarded. Backdating allows a company to select a date on which the stock price was low, thereby giving the grantee an immediate boost in profits. Backdating can violate securities laws.
2. The practice of allowing a mutual fund shareholder to use previous purchases of the fund's shares so as to qualify for reduced commission charges on subsequent purchases. Backdating is used when a fund offers declining proportional sales charges on larger purchases.
3. See antedate.

Case Study Backdating of stock options is not illegal so long as certain conditions are met. For example, the practice must be reported to shareholders and reflected in a firm's earnings and taxes. Unfortunately, backdating is sometimes conducted behind closed doors. Dozens of executives and directors have resigned or been fired as a result of investigations into the illegal granting of stock options. In 2007, Myron Olesnyckyj, former general counsel of Monster Worldwide, pleaded guilty to securities fraud and conspiracy to commit securities fraud, and agreed to forfeit $381,000 he claimed represented illegal gains. The Securities and Exchange Commission had charged Olesnyckyj with securities fraud for participating in a multiyear scheme to secretly backdate stock options granted to thousands of Monster officers, directors, and employees, including himself. The complaint alleged that, from 1997 through 2003, Olesnyckyj backdated stock option grants to coincide with the dates of low closing prices for the firm's stock. Certain officers and employees would select a low closing stock price, and Olesnyckyj, or others acting under his direction, prepared backdated documentation for the firm's compensation committee. The SEC complaint alleged the general counsel also misled the firm's outside auditors by granting undisclosed compensation to employees, failing to recognize the expense, and overstating net income by $340 million from 1997 through 2005.