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Fifty-two companies currently under criminal investigation. Moreover, the company avoids having to expense the options as current compensation, thus increasing earnings in the near term. As a consequence, the option is immediately profitable, or “in the money,” to the option holder.In sum, Title I of ERISA defines and proscribes criminal acts relating to (i) reporting and disclosure violations; (ii) coercive interference with plan and statutory rights; and (iii) prohibits persons convicted of specified crimes from working with, or serving as trustees of plans.In addition to ERISA, other provisions found in Title 18 of the Federal Criminal Code proscribe certain conduct related to ERISA-covered pension or welfare benefit plans.The backdating problem was first highlighted by Professor Erik Lie of the University of Iowa, who published his initial study in 2004.Professor Lie concluded that the robust profitability of so many options was statistically impossible absent some artificial influence such as backdating.Subsequently, the Securities and Exchange Commission (SEC) took an interest, followed by the securities plaintiffs’ bar and many corporations. The practice of options backdating, apparently widespread from 1996 through 2002, is widely believed to have been short-circuited by the enactment of Sarbanes-Oxley in 2002.
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.Kwall of Loyola University of Chicago’s law school, depends largely on which of the two actions has occurred.Also see: 5 things to know about the Panama Papers In a written response to questions from ICIJ and its media partners, the firm said that backdating documents “is a well-founded and accepted practice” that is “common in our industry and its aim is not to cover up or hide unlawful acts.” Erik Lie, a finance professor at the University of Iowa, published an initial study in 2005 and then another in July 2006 that said more than 2,000 companies had used options backdating between 19 to reward senior executives.Under previous regulations, corporations could wait 45 days or, in some cases, over a year to report options, thus providing ample time for backdating.Other similar practices are being reviewed by government officials as well.