Ironically, the law encourages the backdating malpractice.
Clause 25 of the Listing Agreement states that in the event of the company granting any options, it will promptly notify the exchange of the number of shares covered by such options, of the terms thereof and of the time within which they may be exercised.
That made backdating more difficult and it was believed this would curb the malpractice.
But SOX did not eliminate backdating; a study has found that about 24% of stock option grants were reported late. More companies are now restating earnings, as backdated options essentially provided executives with extra compensation, an expense that has to be provided for.
It is a securities fraud if one presents financial statements that dont comply with accepted accounting principles.In any case, despite many of them doing nothing extraordinary, executives compensation has grown bigger by the day.The issue now is whether some top executives committed fraud when obtaining options.A study could be commissioned to review if an unusual number of stock options grants were clustered around dates when the stocks were trading at a low value.Reporting grant of options within 24 hours of the close of the concerned board/committee meeting should be mandatory.
The shares increase in value and the options are worth more.