SEC to Issue Stock Option Backdating Guidance

June 14, 2006 ( - The Securities and Exchange Commission (SEC) plans to issue a statement, possibly as early as next month, clarifying the agency's view of when current law allows backdating of stock options.

The Wall Street Journal reports that SEC Chairman Christopher Cox said in an interview, “We will issue guidance on the backdating of stock options that will more clearly circumscribe the bounds of acceptable conduct.”

The Justice Department, SEC, and Internal Revenue Service (IRS) are conducting a widening probe into companies who have allegedly backdated executive stock option grants (See Stock Option Probe Biggest Since Abusive Fund Trading Cases ).

The 2002 Sarbanes-Oxley Act changed the period companies were given to disclose stock options from 40 days to two days. Recent research from universities suggests that the shorter reporting period has done nothing to discourage the practice of backdating, according to the WSJ. However, SEC spokesman John Nester disagreed, telling the WSJ that the evidence the agency has seen so far suggests the “vast majority” of backdating occurred before the shorter filing deadline took effect.

Cox expects the SEC’s new guidance will probably be issued at the same time the agency votes on a final set of new rules requiring companies to disclose more information about executive compensation, including how stock options are awarded, when company policy permits backdating, and what is the added cost of backdating (See SEC Unveils Proposed Exec. Comp. Disclosures Mandate ).