Options Backdating

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Definition of 'Options Backdating'

Options backdating is a fraudulent practice in which an employer grants employees stock options with an artificially low exercise price. This can result in the employees realizing a windfall profit when they exercise the options, as they will be able to purchase the company's stock at a price that is significantly lower than the current market value.

Options backdating is a serious problem that can have a significant impact on companies' financial statements. In addition to the direct costs associated with the fraud, options backdating can also damage a company's reputation and make it more difficult to attract and retain top talent.

There are a number of steps that companies can take to prevent options backdating. These include:

* Having a strong code of ethics and a clear policy on options backdating.
* Implementing strong internal controls over the granting of stock options.
* Conducting regular audits of the company's stock option practices.

If you suspect that a company is engaging in options backdating, you should report it to the Securities and Exchange Commission (SEC). The SEC has a zero-tolerance policy for options backdating and will take action to prosecute companies that engage in this fraud.

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