Backdating softwae trading stock stocks
News of the Apple backdating scandal didn’t find its way into the public consciousness until late 2006.The company was the most prominent of several to have engaged in similar behavior, including Broadcom, Novell, Mc Afee and CNET.
Under most circumstances, backdating is seen as fraudulent and illegal, although there are some situations in which backdating can be used in a legal and beneficial way, such as backdating a claim for a past period.According to a study by Erik Lie, a finance professor at the University of Iowa, more than 2,000 companies used options backdating in some form to reward their senior executives between 19.The SEC’s opinions regarding backdating and fraud were primarily due to the various tax rules that apply when issuing “in the money” stock options versus the much different – and more financially beneficial – tax rules that apply when issuing “at the money” or "out of the money" stock options.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.The scandal also challenged people’s perception of Apple as “the good guys” and Jobs’ as a CEO who wasn’t money-hungry.
(Over the next year, this perception that Apple was no longer a scrappy underdog fighting the establishment would again be challenged when Apple sought legal action against bloggers for reporting on the company’s trade secrets.) In the end, the SEC announced in April 2007 that it would not pursue a case against Apple — in part because the company had set up an internal investigation into the stock scandal so rapidly.
When company executives discovered that they had the ability to backdate stock option grants, thus making them both tax deductible and “in the money” on the date of actual issuance, the common practice of stock option backdating for financial gain began on a widespread level.
The problem with this practice, according to the SEC, was that stock option backdating, while difficult to prove, could be considered a criminal act.
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.
Cases of backdating employee stock options have drawn public and media attention.
Apple stock fell 9 percent based on the initial news about the scandal, although it didn’t take long for things to rebound. A shiny new product Jobs would show off for the first time less than two weeks later, in January 2007.