Definition of option backdating
To qualify as an ISO, an option must have an 'option price  not less than the fair market value of the stock at the time such option is granted.' I.
If you claimed that the options were granted earlier than they actually were, in an effort to gain a tax advantage (such as capital gains treatment based on holding period, or a lower basis / strike price), or to shift income or expense recognition from one tax and accounting period to another, then that could break any of a number of laws in the US and presumably elsewhere. In addition, discounted options that do not have a fixed exercise date are subject to an additional twenty percent penalty tax. Therefore, any executive who failed to account for backdated options under 409A and/or failed to pay the penalty tax for options lacking a fixed exercise date could be criminally liable for willfully failing to pay taxes, see, e.g., I. C.7202, or providing fraudulent and false statements in a tax return, see, e.g. Criminal charges for backdating could include alleged violations of Section 17(a), 15 U. C.77q, which prohibits fraudulent interstate transactions, and Section 10(b), 15 U. This means a company must properly disclose and account for any backdating practices in its financial statements. Furthermore, the failure to record an expense for discounted options granted to employees might result in understated financials, which could in turn make other financial reports inaccurate, particularly net revenues. The basic violation under these statutes is the same: an intent to defraud another by means of an untrue statement of material fact or an omission of a material fact necessary in order to make a statement not misleading. Regardless of which acceptable GAAP approach a company used in valuing options,a statement in a company's financials stating that the strike price was equal to the fair market value ('FMV') on the grant date would be false or inaccurate if the company backdated options. Aside from interest and penalties that might accrue if a company amends its income tax returns, executives who implemented backdating practices may also be criminally liable for willfully failing to pay taxes, see , e.g., I. C.7202, or providing fraudulent and false statements in a tax return, see , e.g., I.