Read about this form of fraud, and more, in the book "financial shenanigans" !<p>Quoting from this review of the book: <a href="https://100investmentbooksayear.wordpress.com/2014/12/17/review-financial-shenanigans-by-howard-m-schilit/" rel="nofollow">https://100investmentbooksayear.wordpress.com/2014/12/17/rev...</a><p>> Failure to proper account for stock option backdating expense, where management secretly give themselves stock options that had already increased in value. By not reporting the compensation expense resulting from these “in-the-money” stock options grants, companies are overstating their earnings. Look out for unusually “lucky” timing on the issuance of stock options.<p>Edit: from the old thread, here's the SEC's statement:<p><a href="https://www.sec.gov/litigation/litreleases/2009/lr20964.htm" rel="nofollow">https://www.sec.gov/litigation/litreleases/2009/lr20964.htm</a><p>> On May 31, 2007, the Commission charged Abrams and three other former senior Mercury officers with perpetrating a fraudulent and deceptive scheme from 1997 to 2005 to award themselves and other Mercury employees undisclosed, secret compensation by backdating stock option grants and failing to record hundreds of millions of dollars of compensation expense. The Commission's complaint alleges that during this period certain of these executives, including Abrams, backdated stock option exercises, made fraudulent disclosures concerning Mercury's "backlog" of sales revenues to manage its reported earnings, and structured fraudulent loans for option exercises by overseas employees to avoid recording expenses.<p>Backdating options is one thing. Failure to report the additional expenses incurred by backdating options fraudulently overstates the profitability the company, harming all other investors