By backdating

For a shorter piece with a few practical tips see Backdating – it’s illegal isn’t it?

Setting aside such issues, avoiding unwanted side effects of backdating contracts can be tricky, especially when the purported effective date of an agreement is several months before the date it was actually signed, as can be seen in involves the ownership of a promissory note that was made to a bank in connection with a loan.

Companies would simply wait for a period in which the company's stock price fell to a low and then moved higher within a two-month period.

The company would then grant the option but date it at or near its lowest point.

(Jason Mark Anderman illustrates the logistics problem well in this comment to a backdating post on Ken Adams’s blog.) There’s nothing inherently illegal or unethical about backdating contracts, although backdating can certainly be both unethical and illegal, depending on the situation.

For those with an hour to kill thinking about the issues, Jeffrey Kwall and Stuart Duhl wrote an excellent article on backdating that was published in Business Lawyer in 2008.

Options backdating is the process of granting an option that is dated prior to the actual issuances of the option.

In this way, the exercise price of the granted option can be set at a lower price than that of the company's stock at the granting date.

The appellate court determined two separate issues: (1) whether the FDIC’s June 10, 2009 transaction with Weatherford was effective to retroactively transfer the loan to the FDIC as between the FDIC and Weatherford and (2) whether a retroactive effect applied to the FDIC’s earlier transaction with FH Partners.The facts are a bit complicated, involving circumstances surrounding the failure of a bank and transactions in the bank’s loans preceding the failure as well as transactions of the FDIC as the bank’s receiver.Here’s a simplified timeline: FH Partners made a demand on the debtor for payment of the loan and eventually sued the debtor and guarantors.The trial court granted the defendants summary judgment, holding that FH Partners didn’t own the loan and so it couldn’t enforce it.On appeal, the Missouri Court of Appeals, Western District agreed.

Leave a Reply