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A Backdating Case Actually About Dates

February 6, 2008

Stock option backdating cases have unfortunately become commonplace but a recent case out of Delaware’s Chancery Court has put an interesting spin on backdating suits. In motions filed November 2007 in the case of Ryan, et al. v. Gifford, et al., the plaintiffs sought an order compelling defendants, including nominal defendant Maxim Integrated Products, Inc., to “respond to plaintiffs’ document requests in native file format, with original metadata.” Chancellor William B. Chandler, III, granted the motion to compel, stating:

 

    [M]etadata may be especially relevant in a case such as this where the integrity of dates entered facially on documents authorizing the award of stock options is at the heart of the dispute.

 

This marks a subtle but important shift in the way stock option backdating cases are litigated. Until now the focus of such suits has been on the alleged misconduct of executives and their knowledge of the value of options. This case deals with the fundamental question at issue in all backdating cases – who did what when. The amount of all financial transactions being done electronically gives potential wrongdoers an easy way to change the date of an important event. While it’s nearly impossible to change a paper trail, altering electronic records take minimal skill and technical savvy and it’s not hard to imagine a case in which someone would change the date of a transaction to avoid criminal charges or a civil suit. Anyone dealing with electronic financial transactions would be wise to implement impenetrable records sealing and digital time-stamping to secure these important records.

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