Although many companies have been identified as having problems with backdating, the severity of the problem, and the consequences, fall along a broad spectrum.
This is not always the case, according to a ruling by federal judge William Alsup of the U. District Court for the Northern District of California.
According to Alsup’s reasoning and subsequent ruling, it is improper to infer fraudulent activity based solely on the occurrence of options backdating – further facts must be present and proven before the act can be considered to be fraudulent.
Options backdating is the practice of altering the date a stock option was granted, to a usually earlier (but sometimes later) date at which the underlying stock price was lower.
This is a way of repricing options to make them valuable or more valuable when the option "strike price" (the fixed price at which the owner of the option can purchase stock) is fixed to the stock price at the date the option was granted.
There is a five-year statute of limitations for securities fraud, and under the Sarbanes-Oxley Act of 2002, option grants to senior management must be reported within two days of the grant date.