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Backdating options sec

We study the Securities and Exchange Commission's (SEC) enforcement decisions in the context of the highly salient back-dating scandal.

We find that (1) the SEC shifted its mix of investigations significantly toward backdating and away from other accounting issues; (2) event studies of stock market reactions to the initial disclosure of backdating investigations shows that those reactions declined over our sample period; (3) later backdating investigations are less likely to target individuals and be accompanied by a parallel criminal investigation; (4) later investigations were more likely to be terminated or produce no monetary penalties; and (5) the magnitude of the option backdating accounting errors diminished over time relative to other accounting errors that drew SEC scrutiny.

The practice is not necessarily illegal, but it can violate securities laws and accounting rules when it is not disclosed to investors.

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Jobs' options were also subsequently canceled when the fraud was brought to light and resulted in no financial gain to the oh-so-neglected CEO.Steve Dowling, a spokesman for Apple, declined to comment on Jobs's conversations with Anderson.Dowling emphasized that the SEC did not "file any action against Apple or any of its current employees." Government authorities praised Apple for coming forward with the backdating problems last year and for sharing information with investigators.Last year, Apple restated its financial reports from 1997 to 2002 by million to cover options-related charges.The SEC did not file charges against Wendy Howell, who reported to Heinen in Apple's legal department and who completed paperwork on an option award for Jobs in 2001.ESOs are usually granted at-the-money, i.e., the exercise price of the options is set to equal the market price of the underlying stock on the grant date.Because the option value is higher if the exercise price is lower, executives prefer to be granted options when the stock price is at its lowest.Jobs has always maintained he was unaware of the accounting fraud involved with improper backdating of his options, and no government legal action was taken against the CEO and Apple.But the resulting investigation saw Apple's former financial chief Fred Anderson and ex-general counsel Nancy Heinen forced to settle with the SEC for a few million dollars apiece without admitting wrongdoing.The SEC charges are the first in the months-long Apple investigation.Jobs was interviewed by the SEC and federal prosecutors in San Francisco, but no charges have been filed against him.


  1. Jul 26, 2006. Stock Options. Backdating and Other Issues Involving Stock Option Grants New Rules from the SEC and a Game Plan for Avoiding Liability. Virtually every public company uses or has used stock options as a key component of its compensation package for employees. Despite their popularity, stock options.

  2. Dec 29, 2006. The iPod maker restates earnings and says CEO Steve Jobs was aware of some options backdating, but he was not involved with any other wrongdoing. that since the options backdating problems have affected so many companies, it's unlikely that Jobs will get singled out by the SEC for any wrongdoing.

  3. Backdating of managers' option grants. Section A explains that boards generally give executives at-the-money options, even though executives would prefer in-the-money options. Section B shows how secret grant backdating enabled boards to give executives in-the-money options disguised as at-the- money options.

  4. New SEC disclosure rules that will become effective later this year. Backdating, Spring-loading and. Bullet-dodging. A stock option is a right to buy stock at a given price the strike price or ex- ercise price during a set period of time. Employee stock options typi- cally have a strike price that is equal to the fair market value of.

  5. Apr 26, 2013. This paper offers empirical evidence on the SEC's allocation of enforcement resources in the wake of a recent, and particularly high profile, scandal involving option backdating. Option backdating involves retroactively assigning award dates for employee stock options to put the options “in the money” at the.

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