Backdating derivative

The thing I liked about the Journal's treatment of the Alexander case was how the reporter managed to be respectful toward the Namibian legal system while at the same time hinting to readers that not every society has the same attitude toward Option backdating scandals: how management accountants can help: backdating of employee stock options can have a significant negative effect on a public company.Management accountants are in a position to help their companies address a number of factors that could help prevent a backdating scandal investigations and shareholder derivative lawsuits sweeps through the D&O industry, this is a good time to step back, consider what is at stake in these cases, and anticipate some of the D&O coverage issues that will implicated by settlements of these cases.We are also grateful to Sandro Andrade, Jennifer Carpenter, Jay Emerson, Doug Emery, Yaniv Grinstein, Shane Heitzman, Xi Li, Evgeny Lyandes, Howard Mulcahey, Robert Neal, Katherine Schipper, Douglas Skinner, Jerry Zimmermann, seminar participants at the University of Miami and the Securities & Exchange Commission (SEC), and participants of the 2007 Journal of Accounting & Economics Conference and the Western Finance Association 2008 Meetings for their comments and suggestions; and to Hernan Awad for his invaluable help in designing the Monte-Carlo simulations used to compute the grant dates’ odds.Finally, we gratefully acknowledge the special efforts and contributions in support of this study by Michael Schwert, Duke University, and Erin Redoutey and Raul Izquierdo, Univeristy of Miami. Law360 (June 18, 2008, AM EDT) -- After denying the original settlement proposed in the derivative options backdating suit against Zoran Corp., a district judge has approved a revised deal that includes a larger cash recovery for the company.In an order handed down on June 12, Judge William Alsup of the U. District Court for the Northern District of California gave preliminary approval to a settlement that will hand the company .4 million to bring an end to a derivative suit filed over options-granting practices. The reason the stock option backdating litigation was comprised of both derivative lawsuits and private securities class actions is that the stock option backdating litigation could be viewed as appropriate for either genre of litigation.

Backdating is used when a fund offers declining proportional sales charges on larger purchases.For example, studies have shown the companies with poor corporate governance scores have 5-year returns that are 3 .95% below the industry average, while companies with good corporate governance scores have 5-year returns that are 7.91 % above the industry-adjusted average.The difference in performance between these two groups is 11 .86%. Student, Georgia State University Faruqi & Faruqi, LLP has achieved all three of the above stated goals of a derivative action.On the other hand, the financial reporting to the shareholders was fraudulent, since compensation expense was understated, resulting in overall expenses being understated, and net income and earnings per share being overstated.Thus the stock option backdating litigation could be viewed as appropriate for a private securities class action, except that often the materiality of the resulting overstatement of net income and earnings per share was debatable.The purpose of the derivative action is threefold: (1) to make the company whole by holding those responsible for the wrongdoing accountable; (2) the establishment of procedures at the company to ensure the damaging acts can never again occur at the company; and (3) make the company more responsive to its shareholders.

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