Florida Health Insurance Terms:
"What does Backdating mean?"
Backdating: A procedure used to make the effective date of a policy earlier than the application date. Backdating is commonly used to make the insurance age of the insured at policy issue lower than it actually is in an effort to receive a lower premium. Most policies can be backdated up to six months. Backdating is also commonly referred to as "Saving Age".
Options backdating is the potentially illegal (depending on the country) practice of the grant of restricted Employee stock options at an exercise price equal to the value on the date that the grant is apparently made. However, the date chosen for the grant date is cherry picked to select an earlier date, one when the price of the underlying stock was lower. This results in a value of the option most favorable to the employee receiving it. This practice reduces the risk of share price going down for the year.
Backdating of stock options is not necessarily illegal. If the grantor of the stock options properly discloses the backdating at the actual time of grant, no fraud has taken place. It would only mean that it would not qualify for the favorable tax statutes carved out to encourage employee stock options like SARs or Stock Appreciation Right and ISOs or incentive stock options. Also since the Enron scandal, Congress enacted Section 409A of the Internal Revenue Code to deal with such non-qualified deferred compensation.
Most of the legal issues arising from backdating are a result of the grantor falsifying documents submitted to investors and regulators in an effort to conceal the backdating. This practice is a hot-button issue with investors all over the world and is currently being investigated/debated by the United States Securities and Exchange Commission.
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