Apple corporation stock option backdating scandal
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.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.This adjustment to the filing window came with the Sarbanes-Oxley legislation.After the two-day reporting rule went into effect, the SEC found numerous companies were still backdating options in violation of the legislation.Corporations, however, have defended the practice of stock option backdating with their legal right to issue options that are already in the money as they see fit, as well as the frequent occurrence in which a lengthy approval process is required.
This scheme was allegedly used to the benefit of officers and employees of the company as well as its directors.
This process makes the granted option "in the money" and of value to the holder.
This process occurred when companies were only required to report the issuance of stock options to the SEC within two months of the grant date.
The problem with this practice, according to the SEC, was that stock option backdating, while difficult to prove, could be considered a criminal act.
One of the larger backdating scandals occurred at Brocade Communications, a data storage company.