Backdating: Not a victimless crime
A reader who knows more about accounting than you do had this to say about my intimation Tuesday that stock-option backdating was a nearly victimless crime:
Nobody got hurt? I'm not so sure. If these companies had been accounting for the compensation they were paying these guys, earnings would have looked a lot different. I can't believe that decisions would NOT have been affected. Maybe some people would have been scared off by the big paydays, and not bought companies that turned out doggy. Maybe some would have waded in anyway and gotten rewarded. I don't know. But I do know that the allocation of capital wasn't based on all the information in earnings at the time, and maybe some tech bubble madness wouldn't have occurred.
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1
Under a provision of the Internal Revenue Code added in 2004, Section 409A, backdating options may amount to tax fraud on the part of the issuing Company and the executive who holds/exercises the options. Look it up.
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