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Cases of backdating employee stock options have drawn public and media attention.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.Apple initiated this voluntary independent investigation after a management review discovered irregularities in past stock option grants.• In a few instances, Apple CEO Steve Jobs was aware that favorable grant dates had been selected, but he did not receive or otherwise benefit from these grants and was unaware of the accounting implications.• The investigation raised serious concerns regarding the actions of two former officers in connection with the accounting, recording and reporting of stock option grants.The company will provide all details regarding their actions to the SEC."I apologize to Apple's shareholders and employees for these problems, which happened on my watch.In researching this post, I came across a number of recent reports on Henry Nicholas III, the once high-flying CEO and cofounder of Broadcom. While the story was enthralling, I didn't understand what any of it had to do with a federal investigation into stock option backdating.The allegations of illicit sex, drugs, and rock and roll reminded me of the 60s ... Sure, Broadcom had to take a .2 billion charge to fix the accounting mess left by the company's former executives.The academics concluded that something funny was going on.The companies were awarding the options later but then marking the awards to earlier dates, when the stock's price was low.
You'd think they'd be up to their eyeballs in rope.
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.
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.
But how does that relate to hiring prostitutes and drugging customers without their knowledge?