Backdating is a much misunderstood and largely unexplored subject. It involves a wide range of conduct, some of which is an integral part of everyday law practice. To the layperson, backdating connotes wrongdoing. The propriety of backdating, however, depends upon its purpose and effect. Every lawyer should be capable of distinguishing legitimate backdating from improper backdating. Unfortunately, the dividing line is often far from clear.
Little guidance exists on backdating, notwithstanding its pervasiveness, the complexity of determining its propriety, and the serious consequences of a misjudgment. An indepth examination of the day-to-day backdating issues that most business lawyers face cannot be found in the literature. This Article begins to fill that void.
This Article explains the different meanings of backdating, explores the reasons why it is difficult to distinguish legitimate backdating from improper backdating, examines the impact of disclosure on the propriety of backdating, and develops an analytical approach to assist business lawyers in wrestling with the difficult situations most will confront in their daily practices. By illuminating the subject, it is hoped that this Article will begin a much-needed dialogue about backdating.
Backdating describes a broad scope of conduct ranging from blatant fraud to the common practice of executing a document sometime after the event evidenced by the document occurs. Backdating is not right or wrong per se; rather, its propriety depends upon its purpose and effect. Whether a given instance of backdating is legitimate or improper is a complex, multifaceted question that frequently plagues lawyers.
Almost all business lawyers deal with situations where documents might be backdated. Some lawyers address these situations by carefully evaluating the legal, ethical, and moral issues each case presents; others respond to these situations in a more haphazard fashion. The stakes are high—lawyers who participate in improper backdating can be subject to disciplinary proceedings, civil claims, and even criminal prosecution.
Notwithstanding the pervasiveness and gravity of backdating, the literature is devoid of the much-needed dialogue to guide lawyers, judges, and disciplinary boards through this thicket.1 Attention has been focused on high profile backdating cases, like the recent options backdating scandal involving many large, publicly traded corporations.2 But no meaningful guidance exists as to the far more common day-to-day backdating questions stemming from clients of all sizes. Every lawyer should be equipped with the necessary tools to evaluate the propriety of these everyday backdating issues.
The goals of this Article are to illuminate the subject of backdating, alert lawyers to the necessity of evaluating every backdating situation with care, and provide an analytical approach to assist lawyers in resolving backdating questions. Part I defines backdating and explains the difference between backdating that fabricates and backdating that memorializes. Part II explains that the line between fabricating and memorializing is often unclear and that, even when that line can be discerned, it does not always separate improper backdating from legitimate backdating. Part III considers whether impropriety can be averted by disclosing backdating. Part IV delineates a set of problems to which the Article’s analysis is applied. Finally, Part V provides a series of guidelines intended to help lawyers navigate this minefield.
I. IS BACKDATING WRONG PER SE?
To the layperson, backdating connotes wrongdoing. It sounds like a bad thing. Backdating is just plain wrong—right?
In fact, backdating is neither right nor wrong, per se. Rather, its propriety depends upon its purpose and effect. Backdating can be utilized to perpetrate a fraud or it can be employed in legitimate commercial practice. Part I explores the different meanings of backdating and distinguishes backdating that fabricates from backdating that memorializes.
A. BACKDATING DEFINED