US software firm Mercury Interactive recently admitted to granting improperly backdated options to senior officials, as part of an ongoing investigation into such activity by the Securities and Exchange Commission.
According to reports in the US media, Mercury is one of around 12 companies being scrutinised by the SEC, and its chief executive and two other high-ranking officials recently resigned after it emerged that they had "benefited personally" from the manipulation of option-grant dates.
Backdating options, whilst not illegal, can improperly increase gains for those who hold them by tying their so-called "strike price" (the specified price on an option contract at which the contract may be exercised) to an earlier date at which the market price was more favourable.
Speaking to the Wall Street Journal with regard to the practice, option-grant timing expert and NYU business associate professor, David Yermack observed that:
"The whole point of a stock option is that you only profit if the stock goes up. If you fix it in advance so that it's already deep in the money, it eliminates a lot of the risk."
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