Steve Jobs and Michael Dell did it. Executives are sometimes tempted to swap those worthless options (issued before the crash…) with some shiny (…newly backdated…) and lucrative ones. However, we live in the days of electronic documents: getting caught (with the hand in the cookie jar…) is a risk, because embedded file metadata can show the accurate date of a Word or PDF document! And recently, more courts consider this vital piece of information as a part of the discovery process.
Besides its ethical issue, backdating stock options is illegal if you don’t tell the IRS, SEC and the company shareholders. Nevertheless, this hardly appears to be a deterrent – executives in more than 130 companies have done so in the past.
The Truth is in the File
All popular document file formats retain a large number of details that are not all obvious to the person that views or even edits it. Microsoft Word files reveal the date a document was created, last printed and last edited; some files even disclose details such as the name of the editor, revision number or the total edit time.
Some information can be stripped with a built-in functionality of Windows: a right mouse click on a Word file shows the properties dialog, and the tab Details has a nice function called ‘Remove Properties and Personal Information”. However, the date created and last edited will not be wiped off.
PDF files aren’t any less talkative, either: along with the creation date they typically show the name of the originating application and file (i.e., name of the Word file that was used to generate the PDF) and even its author.
Courts include Metadata
In the case Ryan v. Gifford (Delaware Court of Chancery, Nov. 30, 2007) , the court ordered the production of documents along with its metadata. It considered this relevant in a stock options backdating case in which the exact date granting stock options was at issue. It also ordered the production of communications with the SEC.
A major argument against considering metadata as a part of a document used to be cost and the time it takes. However, tools such as our very own FileMind (for Windows) are easy to use, very inexpensive and can even create reports (PDF or Excel) on the fly.