Cases of backdating employee stock options have drawn public and media attention.According to a study by Erik Lie, a finance professor at the University of Iowa, more than 2,000 companies used options backdating in some form to reward their senior executives between 19.One of the larger backdating scandals occurred at Brocade Communications, a data storage company.

According to Alsup’s reasoning and subsequent ruling, it is improper to infer fraudulent activity based solely on the occurrence of options backdating – further facts must be present and proven before the act can be considered to be fraudulent.

While this conclusion is logical in cases of options backdating in which executives knowingly participated in the criminal actions, options backdating can be a result of normal accounting or corporate policies that are not criminal in nature, and is a legal practice as long as the backdated contract is appropriately reported for tax purposes.

Numerous financial analysts replicated and expanded upon the prior academic research, developing lists of companies whose stock price performance immediately after options grants to senior management (the purported dates of which can be ascertained by inspecting a company's Form 4 filings, generally available online at the SEC's website) was suspicious.

For instance, public companies generally grant stock options in accordance with a formal stock option plan approved by shareholders at an annual meeting.

Thus, backdating can be misleading to shareholders in the sense that it results in option grants that are more favorable than the shareholders approved in adopting the stock option plan.

The other major way that backdating can be misleading to investors relates to the method by which the company accounts for the options.The SEC’s opinions regarding backdating and fraud were primarily due to the various tax rules that apply when issuing “in the money” stock options vs.the much different – and more financially beneficial – tax rules that apply when issuing “at the money” or "out of the money" stock options.Erik Lie is a Norwegian finance professor at the University of Iowa who published a report about options backdating that led to many investigations by the SEC into the potentially illegal practice.He was the subject of profile in Business Week for his contribution to uncovering options backdating scandals.Options backdating is the practice of altering the date a stock option was granted, to a usually earlier (but sometimes later) date at which the underlying stock price was lower.