Backdating employee stock options tax implications


However, the influential Delaware Chancery Court recently issued two significant decisions denying defendants' motion to dismiss options backdating shareholder derivative actions. Gifford (a case involving stock option grant practices at Maxim Integrated Products, Inc.), the court speculated that it was unlikely that the director and officer defendants would be afforded the protection of the business judgment rule.If courts in other jurisdictions follow suit and allow the options backdating cases to survive motions to dismiss, at a minimum, these individual defendants (and their D&O insurers) may face substantial exposure in the form of increased discovery and defense costs.Some D&O polices also contain "Side C" coverage for loss incurred by the company itself.In the case of publicly traded companies, the entity coverage for D&O insurance typically is limited to claims against the company arising under federal or state securities statutes or under SEC rules and regulations.Under current law, the act of backdating stock options is not illegal if it is properly disclosed.Therefore, insureds will likely argue that, at most, they are liable for failing to disclose the practice of options backdating, and not for illegally profiting from the backdated stock options.Instead, the plaintiffs' bar has turned to shareholder derivative actions (brought on behalf of the company against its directors and officers for breaches of their fiduciary duties to the company) to seek disgorgement of improper profits and other relief on behalf of the company itself.It remains unclear how much exposure individual defendants will face in connection with the current wave of shareholder derivative lawsuits working their way through the courts.



Nevertheless, where stock option manipulation has occurred, a corporation and its directors and officers may be liable for violations of securities, tax and accounting rules.The stock option backdating scandal, being pursued through significant SEC regulatory activity and shareholder derivative lawsuits, is the first systemic Side A claim event, and these claims amply demonstrate the need for Side A coverage--even for buyers of traditional Side A, B and C D&O policies.However, Side A D&O coverage is not a financial guarantee or a panacea, and there are significant coverage issues that are triggered by stock option backdating claims.In addition, many D&O policies limit the scope of the conduct exclusions through severability provisions that do not permit the conduct of certain officers and directors to be imputed to others or to the corporation.


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  • The Criminal Implications Of Backdating Stock Options The. profil de paulette60

    paulette60

    The Criminal Implications Of Backdating Stock Options. tax fraud, and mail or wire fraud. Backdating is. unless and until the employee later.…