55%, the fraudster executives were forced to depart their companies.
In 20 of the 98 derivative-only litigation observations, i.e.
Of the 151 stock option backdating litigation observations, 53 were parallel (they included both private securities class actions and derivative lawsuits) and 98 were derivative-only.
In 29 of the 53 parallel litigations (that included private securities class actions), i.e.
The reason the stock option backdating litigation was comprised of both derivative lawsuits and private securities class actions is that the stock option backdating litigation could be viewed as appropriate for either genre of litigation.
On the one hand, the stock option backdating litigation involved executives absconding with more compensation than they were telling the shareholders they were receiving.
In none of the derivative lawsuits was any monetary recovery given to the shareholders.
Thus the stock option backdating litigation could be viewed as appropriate for a private securities class action, except that often the materiality of the resulting overstatement of net income and earnings per share was debatable.
The date chosen could be one when the company’s stock was at a low, so the options can be in-the-money at the time of granting itself.
The practice is illegal if it is not followed by proper disclosure and related expenses are not recorded in financial statements.
The stock option backdating litigation is unusual if not unique as each litigation could conceivably have been brought as a stand-alone derivative lawsuit or as a parallel litigation (with both a derivative lawsuit and a private securities class action).
Which genre of litigation was better at deterring executive fraud? The parallel litigation, which includes private securities class actions, is positively associated with the forced departure of stock option backdating fraudster executives.