This means they must wait for the stock to appreciate before making any money.
Take the beloved and equally reviled Martha Stewart.
In the 1990s, Stewart was revered for her homemaking skills, her cookbooks and TV shows, and the empire built around the Martha Stewart brand.
But their weightiest charges of securities fraud were thrown out.
Ironically, Martha Stewart's case surfaced in the early days of disclosures about options backdating, when an anonymous lawyer was quoted by Business Week as saying Brocade Communications Systems Inc.
That is, they grant their executives stock options with an exercise price (or price at which the employee can purchase the common stock at a later date) equivalent to the market price at the time of the option grant.
They also fully disclose this compensation to investors, and deduct the cost of issuing the options from their earnings as they are required to do under the Sarbanes-Oxley Act of 2002.
But ultimately, it can prove to be quite costly to shareholders.
(To learn more, see .) Cost to Shareholders The biggest problem for most public companies will be the bad press they receive after an accusation (of backdating) is levied, and the resulting drop in investor confidence.
For the scores of companies swept up in the options-backdating scandal, repercussions have included financial restatements, regulatory investigations and executive resignations.
In what would ordinarily seem like bearish news, however, there may be some buying opportunities.
A number of bets have paid off as many stocks have dipped on adverse disclosures about possible backdating, only to bounce back within weeks, days -- or even...