Impact of backdating

Law360, New York (June 15, 2006, AM EDT) -- It is virtually impossible to pick up a newspaper these days and not see an article about the ever-growing list of companies being caught up in investigations concerning allegations of backdated stock options.

Despite the attention paid to this issue, little has been written explaining why backdating options is problematic and potentially illegal.

Moreover, companies with strong positive reputations attract better talent and are perceived as providing more value in their products and services, which often allows them to charge a premium.

The risks of backdating (or misdating) documents accidentally is multiplied in modern commercial transactions by the practice of getting all the documents signed before “completion” and then rushing around dating them afterwards.

My father (who was also a lawyer) used to love telling a story about how he was able to triumphantly prove to the court that a yacht charter was backdated by showing the stamps which had been used to pay the nominal 15¢ stamp duty were in fact first issued by the post office some four months after the date stated on the face of the document.

However, he rarely adds that he actually ended up losing that trial, which brings us to my second point – even though the law generally deprecates the backdating of documents, the legal consequences of backdating are highly variable.

This article will try to unpick the various legal threads of when you can and cannot backdate documents, and what the consequences will be if you do.

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