Several companies have expressed their intent to restate financial statements due to option timing issues, and opportunistic attorneys have already filed derivative and class action lawsuits.
The author of the academic study who is credited with focusing regulators on this issue estimates that at least 10% of “at-the-money” grants of options to CEOs between 19—before Sarbanes-Oxley shortened the reporting period for option grants—were backdated.
When the matter makes court, Apple’s former general counsel pays .2 to settle the charges that she had backdated stock options for Jobs, herself and others — as well as creating fake paperwork to hide this fact.
SEC Chairman Christopher Cox recently stated that the proposed SEC rules on disclosure of executive compensation will “almost certainly address options backdating explicitly.” I. Companies have considerable discretion in determining the timing of stock option awards.
Most employee stock options are, or purport to be, granted “at-the-money,” meaning that the exercise price of the option equals the market price of the underlying stock on the date of the grant.
The backdating companies broke this rule: they reported how many options they were issuing, but conveniently omitted the fact that they had been backdated. The bigger reason for choosing to backdate is to get around some bothersome accounting regulations.
In Washington, people say that it’s not the crime that gets you—it’s the coverup. [C]ompanies didn’t need backdating to lavish huge sums of money on their executives: they could have issued more at-the-money options to make up the difference, or they could have just handed out grants of stock. Until recently, the regulations distinguished, for no good reason, between in-the-money and at-the-money options.
Anderson settled his case, but Heinen is still on the hook and expects to go to trial sometime next year.
Mather, Anderson and Heinen, through their lawyers, have strenuously denied wrongdoing.
in order to make them more valuable, it seemed like a problem that would come and go quickly... What’s distinctive about this one is that the benefits companies got from backdating were so small.
Never, you might say, have so many cheated so much to gain so little.
It took until December that year until terms were finally agreed, at which point Apple’s stock price was now .01.