Options backdating - Wikipedia
A probe by Apple Computer found that Chief Executive Officer Steve Jobs The scandal over backdating stock options, used by companies to. Apple's former finance chief said on Tuesday he relied on Chief Executive Steve of backdated stock options, putting the spotlight on the company's the options scandal will hurt Jobs, 52, who co-founded Apple in and. In he was granted stock options amounting to million Apple shares, allegedly without the required authorisation from the company's.
The allegations of illicit sex, drugs, and rock and roll reminded me of the 60s Funny, I can't remember.
While the story was enthralling, I didn't understand what any of it had to do with a federal investigation into stock option backdating. But how does that relate to hiring prostitutes and drugging customers without their knowledge? Said another way, do the feds really need to dig that deep to find enough rope to hang executives with? After all, stock option backdating is all the rage these days.
You'd think they'd be up to their eyeballs in rope. I count no fewer than 38 top executives at 19 high-tech companies that have bit the dust over this stuff. And we're just getting started. That's serious fallout considering that options backdating is legit as long as the company reports it and accounts for it accurately. You see, if you backdate stock options to a date when the price of the stock was lower, then the options are "in-the-money" when granted.
That means the company incurs an expense equal to the difference in the share price between the two dates.
If you cover it up and fail to report that expense, the way Apple's folks allegedly did, well, that amounts to accounting fraud. While a few of those 38 terminations may turn out to be the result of such activity, it's likely that the vast majority fell on their swords to avoid sullying the good names of their companies.
Backdating: Insight Into A Scandal
Of course, they may have actually been pushed on their swords by their boards, but let? In the case of Apple, not only did the board send two sacrificial lambs to slaughter, but the feds hung some pretty hefty charges on their necks to boot. The lambs in question are former Sr. The SEC's complaint focuses on the backdating of two large option grants, one of 4. Since at-the-money options require a firm's share price to appreciate in order for the executives to profit, they meet the criteria for performance based-compensation and therefore qualify as a tax deduction.
Backdating: Insight Into a Scandal
By faking the issue date, they could guarantee themselves in-the-money options and instant profits. They could also cheat the IRS twice, once for themselves, since capital gains are taxed at a lower rate than ordinary income, and once for their employers since the cost of the options would qualify as a corporate tax write-off.
A Scandal Comes to Light A series of academic studies was responsible for bringing the backdating scandal to light. The study, published inidentified a strange pattern of extremely profitable option grants, seemingly perfectly timed to coincide with dates on which the shares were trading at a low.
A series of two follow-up studies by professors elsewhere suggested that the uncanny ability to time options grants could only have happened if the granters knew the prices in advance. As a result, firms restated earningsfines were paid and executives lost their jobs—and their credibility.
Apple investigation finds Jobs knew about backdated stock options
The Bottom Line Betting on stock prices when you already know the answer is dishonest. A business run without integrity is a scary proposition.
From a consumer's perspective, customers rely on companies to provide goods and services. When those firms have no ethical boundaries, their wares become suspect. From a shareholder's perspective, nobody likes to be lied to when providing the financing and paying the salaries. The Dangers of Options Backdating.