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Under SOX, these companies and officers must make quarterly and annual certifications in which they state that (Any executive who knowingly and willingly signs a false certification may be subject to personal civil and criminal liability.Additionally, section 304 of SOX has a "clawback" provision which requires that a company restate its financial reports due to material non-compliance with financial reporting requirements and the CEO and CFO must personally reimburse the company for any bonus or incentive-based or equity-based compensation received within 12 months following the issuance of the financial statements.For example, in December 2007, the SEC settled an enforcement action in an options backdating case against William W Mc Guire, the former CEO and Chairman of United Health Group, Inc.for a record US8 million (about EUR301 million).
The following is a brief timeline of some of the major changes which have resulted in backdating becoming more difficult: Until the SEC adopted these new rules, detailed line-item disclosure about company share option grant practices was not required.
Although these developments have occurred since 2002, the prevalence of backdating was not discovered until 2005.
In that year, Professor Erik Lie at the University of Iowa published a study on the University website which found an alarming propensity for option grants to occur when company share prices were unusually low relative to their historical trading levels.
By backdating options, and misconstruing the exercise price (stating the price as at the money rather than accurately as "in the money" (that is, below the market price of the shares on the grant date)), a company may have understated its compensation-related expenses in its financial statements and other public disclosures.
Under APB 25, this expense would be recognised over the vesting period.
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The restating is subject to the requirements under section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) of accurate and timely financial reports.