What is wrong with backdating stock options

In order to prove reckless conduct, the government is required to prove an extreme departure from the standard of ordinary care.But what was that standard for stock option accounting?The key for attorneys confronted with this situation in the government's next accounting litigation fad is to recognize, and then neutralize, the government's use of unfair terms that will bias a jury into believing the defendant is guilty until proven innocent.Currently, defendants seeking to settle or defend claims under the Foreign Corrupt Practices Act face this challenge.Government attorneys would prefer the jury believe the general theory articulated by one SEC attorney in speaking to a news outlet that "…stock option backdating is, in fact, a fraudulent practice…" In reality, backdating is not a term of universal or defined meaning, nor a term used at the time of the underlying transactions.And as the results of these cases show, nor is backdating a universal fraudulent practice.Defendant prevailed on the fraud and false reporting charges.

As difficult as those statements are to defend, the most basic and harmful tactic was the government's use of the term backdating itself.Just as the nefarious-sounding term backdating was used as an undefined catch-all, so too the government relies on allegations of bribery and corruption to suggest fraudulent and illegal conduct.The reality, of course, is often a benign or well-intentioned series of business practices and accounting decisions.The SEC, although publicly indicating that it might re-file its complaint, never did so.Lesson 1: Identify, understand and distinguish the highly-charged terms In each of these cases, the government's complaint and arguments to the jury contained inflammatory rhetoric by characterizing the alleged conduct with phrases such as "secret scheme to defraud," "secretly grant[ing] backdated stock options," "self-dealing," "stealing," "cheating and lying." The following excerpts are actual statements made by the government during opening statements in three of the cases.

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