Setting the date of an employee stock option to an earlier time than when the option was actually granted. Backdating the option is not illegal, but the improper disclosure of the activity to the Securities and Exchange Commission is considered illegal.In the context of mutual funds, a feature allowing fundholders to use an earlier date on a letter of intent to invest in a mutual fund in exchange for a reduced sales charge, e.g.Giving retroactive value to purchases from the earlier date.
The practice of allowing a mutual fund shareholder to use previous purchases of the fund's shares so as to qualify for reduced commission charges on subsequent purchases.
Backdating is used when a fund offers declining proportional sales charges on larger purchases.
Awarding employees with stock options those are dated prior to the actual grant date.
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.