In the worst cases of options backdating abuse, the stock exchange on which the offending company's stock trades and/or regulatory bodies such as the Securities and Exchange Commission (SEC) or National Association of Securities Dealers can levy substantial fines against the company for perpetrating fraud.
(For more information, see .) The executives of companies involved in backdating scandals may also face a host of other penalties from a range of governmental bodies.
But ultimately, it can prove to be quite costly to shareholders.
This means that corporations will have less time to backdate their grants or pull any other behind-the-scenes trickery.If the company is punished for its actions, its value is likely to drop substantially, putting a major dent in shareholders' portfolios.A Real-Life Example A perfect example of what can happen to companies that don't play by the rules can be found in a review of Brocade Communications.This means they must wait for the stock to appreciate before making any money.(For more insight, see ) Although it may appear shady, public companies can typically issue and price stock option grants as they see fit, but this will all depend on the terms and conditions of their stock option granting program.Law360, New York (June 15, 2006, AM EDT) -- It is virtually impossible to pick up a newspaper these days and not see an article about the ever-growing list of companies being caught up in investigations concerning allegations of backdated stock options.