As in other enforcement areas, the SEC has a penchant for pursuing through civil actions matters that involve blatant and intentional misconduct.
Of course, the imposition of an officer and director bar against those who are intimately involved with the backdating process can result in a corporation losing its founder or other key management personnel.
With its attendant investigation, legal actions and executive fallout, the practice of options backdating is expected to have a short shelf life.
Even Apple Computer CEO Steve Jobs was implicated by an internal investigation into backdating, although he apparently did not receive, or otherwise benefit from, the backdated grants.
Class actions ostensibly are brought on behalf of the shareholders of the company who have been impacted by the option grants.
Shareholder claims typically are grounded in some allegation of misrepresentation.
Fortunately, the government appears to appreciate the difference between backdated options that involve the “intentional alteration of documents or faulty internal control and dating issues arising from ministerial or logistical delays.” Unfortunately, the plaintiffs’ bar is not so discerning.
Public announcements that a company or the SEC is investigating possible backdating issues have spawned a rash of civil suits.