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Class actions ostensibly are brought on behalf of the shareholders of the company who have been impacted by the option grants.Shareholder claims typically are grounded in some allegation of misrepresentation.

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Public announcements that a company or the SEC is investigating possible backdating issues have spawned a rash of civil suits.

All stemming from the practice known as “options backdating.” Options backdating occurs when a company issues stock options on one date, but reports in its financials an earlier issue date to create a “strike” or exercise price equal to the earlier date’s lower price.

Another consequence is that the company underrepresents the real nature of an executive’s compensation, perpetuating the myth that options are performance-based incentive compensation.

Options were also backdated for new employees to dates prior to the date employment actually commenced.

In addition, hundreds of thousands of backdated options were issued to fictitious employees and parked in a slush fund to be awarded at the CEO’s discretion.

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