Options Backdating

Backdating, as the name would imply, is the practice of dating a stock option prior to the date it was actually granted. The option value is higher when the exercise price is lower, so it is obviously best to be granted options when the market price was lowest.
While falsifying financial records and filings with the SEC and IRS is against the law, discounted stock options and backdating are not necessarily illegal. Backdated stock options incur additional taxes and penalties at vesting or exercise; legal issues only arise when the corporation makes improper disclosures to shareholders in order to obscure the backdating.