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The backdating scandals

The lower this “strike price” is, the cheaper the executive can buy the stock.

When these options “vest” after a period of time, the executive can sell them at the new share price.

Pervasive option backdating scandals have affected many public companies.

As of April 2007, more than 264 companies have been the subject of internal reviews, inquiries by the Securities & Exchange Commission (SEC), or subpoenas by the Department of Justice (Do J) in regard to option backdating.

Options backdating is the practice of altering the date a stock option was granted, to a usually earlier (but sometimes later) date at which the underlying stock price was lower.

This is a way of repricing options to make them valuable or more valuable when the option "strike price" (the fixed price at which the owner of the option can purchase stock) is fixed to the stock price at the date the option was granted.

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Backdating was then carried out to give Jobs a lower share price which, on paper, made him million richer.In the mid-2000s, an investigation by the Securities and Exchange Commission resulted in the resignations of more than 50 senior executives and CEOs at firms across the industry spectrum from restaurants and recruiters to home builders and healthcare.High-profile companies including Apple Computers, United Health Group, Broadcom, Staples, Cheesecake Factory, KB Homes, Monster.com, Brocade Communications Systems, Inc., Vitesse Semiconductor Corp.The roots of the scandal date back to 1972, when an accounting rule was put in place permitting companies to avoid recording executive compensation as an expense on their income statements so long as the income was in the form of stock options that were granted at a rate equal to the market price on the day of the grant, often referred to as an at-the-money grant.This enabled companies to issue enormous compensation packages to senior executives without notifying shareholders.In 1972, a new revision (APB 25) in accounting rules resulted in the ability of any company to avoid having to report executive incomes as an expense to their shareholders if the income resulted from an issuance of “at the money” stock options.In essence, the revision enabled companies to increase executive compensation without informing their shareholders if the compensation was in the form of stock options contracts that would only become valuable if the underlying stock price were to increase at a later time.and dozens of lesser-known technology firms were implicated in the scandal. .) Read on to find out how the scandal emerged, what brought it to and end and what you can learn from it now.Options Backdating The essence of the options backdating scandal can be summarized simply as executives falsifying documents in order to earn more money by deceiving regulators, shareholders and the Internal Revenue Service (IRS).The amendment labeled executive compensation in excess of

Backdating was then carried out to give Jobs a lower share price which, on paper, made him $20 million richer.

In the mid-2000s, an investigation by the Securities and Exchange Commission resulted in the resignations of more than 50 senior executives and CEOs at firms across the industry spectrum from restaurants and recruiters to home builders and healthcare.

High-profile companies including Apple Computers, United Health Group, Broadcom, Staples, Cheesecake Factory, KB Homes, Monster.com, Brocade Communications Systems, Inc., Vitesse Semiconductor Corp.

The roots of the scandal date back to 1972, when an accounting rule was put in place permitting companies to avoid recording executive compensation as an expense on their income statements so long as the income was in the form of stock options that were granted at a rate equal to the market price on the day of the grant, often referred to as an at-the-money grant.

This enabled companies to issue enormous compensation packages to senior executives without notifying shareholders.

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Backdating was then carried out to give Jobs a lower share price which, on paper, made him $20 million richer.In the mid-2000s, an investigation by the Securities and Exchange Commission resulted in the resignations of more than 50 senior executives and CEOs at firms across the industry spectrum from restaurants and recruiters to home builders and healthcare.High-profile companies including Apple Computers, United Health Group, Broadcom, Staples, Cheesecake Factory, KB Homes, Monster.com, Brocade Communications Systems, Inc., Vitesse Semiconductor Corp.The roots of the scandal date back to 1972, when an accounting rule was put in place permitting companies to avoid recording executive compensation as an expense on their income statements so long as the income was in the form of stock options that were granted at a rate equal to the market price on the day of the grant, often referred to as an at-the-money grant.This enabled companies to issue enormous compensation packages to senior executives without notifying shareholders.In 1972, a new revision (APB 25) in accounting rules resulted in the ability of any company to avoid having to report executive incomes as an expense to their shareholders if the income resulted from an issuance of “at the money” stock options.In essence, the revision enabled companies to increase executive compensation without informing their shareholders if the compensation was in the form of stock options contracts that would only become valuable if the underlying stock price were to increase at a later time.and dozens of lesser-known technology firms were implicated in the scandal. .) Read on to find out how the scandal emerged, what brought it to and end and what you can learn from it now.Options Backdating The essence of the options backdating scandal can be summarized simply as executives falsifying documents in order to earn more money by deceiving regulators, shareholders and the Internal Revenue Service (IRS).The amendment labeled executive compensation in excess of $1 million as unreasonable, and thus not eligible to be taken as a deduction on the firm's taxes.Performance-based compensation, on the other hand, was deductible.

million as unreasonable, and thus not eligible to be taken as a deduction on the firm's taxes.Performance-based compensation, on the other hand, was deductible.

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