The backdating scandals
This pioneering study was published in the Journal of Finance in 1997, and is definitely worth reading.In a study that I started in 2003 and disseminated in the first half of 2004 and that was published in Management Science in May 2005 (available at I found that stock prices also tend to decrease before the grants.This process makes the granted option "in the money" and of value to the holder.This process occurred when companies were only required to report the issuance of stock options to the SEC within two months of the grant date.
The SEC would go on to investigate and sue companies and related parties that were found to backdate options, in some cases, as part of fraudulent and deceptive schemes.
For example, the SEC filed a civil lawsuit in 2010 against Trident Microsystems and two former senior executives from the company for stock option backdating violations.
Disordered, untimely paperwork was cited as the cause in some cases of unintentional backdating.
Initially, lax enforcement of the reporting rule was also blamed for allowing many companies to sidestep the rule adjustment that stemmed from Sarbanes-Oxley.