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Court Rulings Set Stage For Backdating Suits

Martinek Paul J. | February 21, 2007

The Delaware Chancery Court issued two rulings earlier this month that suggest the nation’s most influential tribunal on corporate law is going to be tough on companies embroiled in litigation over stock option backdating.

The two cases, one against chip manufacturer Maxim Integrated Products and the other involving Tyson Foods, rejected the argument that companies are shielded from backdating-related complaints under the business judgment rule. The Tyson case also allowed complaints to proceed against specific officers and directors and squarely put “springloaded” grants—where options are issued ahead of good news that pushes a stock price higher—in the same disapproving light as options backdated to inflate their value artificially.

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