Stock options backdating back datedated dating option
Option backdating scandals: how management accountants can help: backdating of employee stock options can have a significant negative effect on a public company.
have led to the resignation of dozens of top executives and investigations by the Securities and Exchange Commission and federal prosecutors. 29, Apple discussed the report and accounted for the impact of the earnings restatements in its 10-Q.
But, once the announcement is made, the stock price might move to or or (based on the market for cures of hair loss, "performance issues", and low-interest mortgages), even higher.
If the stock price went to , for example, the options would be in the money to the tune of .
the stock price will exceed the exercise price), and 2) The profit (the difference between the stock price and the exercise price) will be greater in all cases where the option is in the money. In back-dating, the grant date (and therefore, the exercise price) is manipulated based on price patterns in the stock in the recent past.
In contrast, spring-loading is a "forward-looking" strategy.
So, the executives issue stock options in the period sometime before the announcement of the approval is made.
Since options granted have an exercise price that's equal to the stock price at the time of issue, the options will therefore have an exercise price of .
For a good piece in today's Wall Street Journal article on spring-loading, click here (note online subscription required), and for some general information on options, click here. And if your want to subscribe to our RSS feed, there are links on the sidebar.Click here to go to the main page - there's an RSS feed and links to archived posts in the right sidebar.The last few weeks have seen a large number of stories of companies who have "back dated" executive stock options.Here's an example: assume that the company's stock is currently per share.
However, the company executives know that the company has just gotten FDA approval for a new drug that will reverse pattern baldness, cure erecticle dysfunction, make you lose 20 pounds, and refinance your mortgage all in one fell swoop (the company researchers had been internet spammers in a previous life).
But the options scandal has never touched a more exciting company than Apple or a more thrilling executive than Jobs. In June 2006, a special committee of Apple outside directors, chaired by former Vice President Al Gore, hired its own attorneys to investigate options backdating at the company. It turns out there were literally thousands of examples of backdating at Apple—6,428 options grants on 42 dates over a period of several years.