Such relation back or forward contravenes no principle of law and is determined by the intent of the parties as deduced from the instrument itself.” As a practical matter, the proper date to put on an agreement is something that corporate counsel is likely to have to make a judgment call on quite often.This is because documents take time to draft, negotiate and execute.
Legally speaking, this is something that you should not do – or more accurately, there will only ever rarely be occasions when this is appropriate to do.A quick examination of the cases against Brocade clearly identifies why backdating is synonymous with fraud, even though no U. The practice involves using hindsight to assign a stock-option contract an earlier date than its actual grant date.By pushing the date into the past, to a time when the underlying stock traded at a lower price than it did the day the grant was issued, the option holder is, in effect, being given the promise of cash.There is no statute that explicitly outlaws backdating stock-option grants, but it seems virtually impossible to backdate options and achieve the ultimate goal of putting grants “in the money” without first deliberately falsifying documents and then covering up the sham.At least that seems to be the conclusion reached by the Department of Justice and the Securities and Exchange Commission regarding their first case against executives charged with fraud related to backdating.Last week the Do J brought criminal charges against two Brocade Communications Systems executives, while the SEC filed a civil suit against the same two and the CFO.
As expected, the charges focused on backdating stock options by doctoring employment documents, neglecting to record the stock-option expense on the company’s books, and misleading investors.
According to the nonpartisan Legislative Fiscal Bureau, the pay progression plan consists of 17 hourly salary steps and the money approved would allow DDAs and ADAs to move up one full salary step.
This salary step totals $1.97 per hour or $4,098 annually.
My father (who was also a lawyer) used to love telling a story about how he was able to triumphantly prove to the court that a yacht charter was backdated by showing the stamps which had been used to pay the nominal 15¢ stamp duty were in fact first issued by the post office some four months after the date stated on the face of the document.
However, he rarely adds that he actually ended up losing that trial, which brings us to my second point – even though the law generally deprecates the backdating of documents, the legal consequences of backdating are highly variable.
The cascading litany of alleged charges is not likely to stop with the Brocade case.