All companies have a certain degree of discretion when it comes to determining when stock options will be granted. In most cases, the price of employee options will be dictated by the market price of the underlying share on the day it was granted. However, some companies opt for retroactivity options, which means that the grant date will be different from the date the option was actually granted. While retroactive stock options are not technically contrary to law, they can lead to other actions that are considered fraudulent. To ensure that your company is not illegally backing down, contact an experienced white-collar criminal lawyer who can advise you.

Retroactive legal practices

The retrocession of option rights is not necessarily illegal. In fact, as long as companies take the following steps they should be able to avoid prosecution for retroactive action options:

  • Refrain from making documents
  • Approve and disseminate the practice to stakeholders
  • Treat options in accordance with the stock option plan
  • Comply with appropriate tax procedures
  • Accounting for and disclosing the practice of financial reporting

When these conditions are not met, companies could face fraud and tax evasion charges that can have serious consequences, including jail time.

Legal issues

Companies that practice stock options retrospectively are often suspected of also having inadequate disclosure procedures and internal controls, especially if inadequate compensation reports are submitted to the SEC. Lack of correct procedures can also lead to allegations of tax fraud. This is because options that are granted at a value less than fair market value do not qualify as incentive actions and therefore are subject to income taxes and other withholding requirements when the options are finally exercised. In addition, when options are granted at a value less than fair market value because they have been retroactive or because board approval was not obtained, companies could face penalties for violating the terms of their own options plan. This, in addition, would lead to the invalidation of the options themselves.

Companies that fail to comply with these tax procedures could be charged with tax fraud or tax evasion and would face monetary penalties and restitution, while officials could face criminal liability, especially if there are allegations of falsifying financial documents. Those who are accused of violating the Securities Exchange Act, for example, can be sentenced to five years in prison and a $ 10,000 fine if convicted. However, before a person can be convicted, prosecutors will have to prove that the defendant acted deliberately, which is generally understood to mean that the defendant knew the conduct was wrong.

Call today to speak to an experienced white collar crime attorney.

Retroactive action rights, while not technically illegal, can lead to other white collar crime charges. Therefore, if your company is currently using a retroactivity practice or if you have already been charged with a fraud related crime, please contact Jeffrey S. Weiner, PA, Criminal Defense Attorneys at (305) 670-9919 to Discuss your case with a Miami white collar crime attorney.