The SEC is investigating many companies, ranging from small to Fortune 500 companies, for options irregularities.

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Options were also backdated for new employees to dates prior to the date employment actually commenced.

In addition, hundreds of thousands of backdated options were issued to fictitious employees and parked in a slush fund to be awarded at the CEO’s discretion.

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.

With its attendant investigation, legal actions and executive fallout, the practice of options backdating is expected to have a short shelf life.

But while options backdating may have a truncated life expectancy, its current impact is robust.Two indictments have been issued and multiple guilty pleas have been entered in the most egregious cases. To a public corporation, the potential consequences of engaging in options backdating are manifold and can range from none whatsoever to having founders and CEOs going to prison. For example, in the case involving Brocade Communications, the SEC charged the former CEO and the former Vice President of Human Resources with criminally violating the securities laws.In addition to the governmental investigations, more than 200 companies have completed, or are conducting, internal investigations — either because they want the comfort of knowing that they have not engaged in options backdating or they have an inkling that they did and want to be proactive in addressing the problem. In a follow-up study to his earlier work, Professor Lie estimated that 29 percent of 7,774 companies he surveyed backdated option grants to executives between 19. The facts of that case as set forth in the indictment were egregious.Under previous regulations, corporations could wait 45 days or, in some cases, over a year to report options, thus providing ample time for backdating.Other similar practices are being reviewed by government officials as well.And in addition to officer and director bars imposed by government authorities, internal investigations have led to numerous officer resignations from at least 25 companies including Quest Software, KB Homes, United Health Group, Inc., Mc Afee, Inc., CNET Networks, Inc., and Monster Worldwide.