Spread of options backdating
New research (July 2006) by Eric Lie and Randall Heron found that 29.2% of companies issuing options to executives and/or directors between 19 have grant date patterns that suggest backdating or other manipulative practices (such as "spring-loading," the announcement of a grant before good news is released), and 23% of options issued to executives appear to have been backdated or spring-loaded.The pattern was somewhat more common in technology companies, smaller companies, companies granting options to more executives and directors, and companies with higher stock price volatility.Thus, the option becomes "in the money", meaning there was a built-in profit on the underlying stock, on the grant date.In some cases, the date of exercise, rather than the date of grant, was changed to an earlier date to convert ordinary income into capital gains.Apple has essentially blamed former chief financial officer Fred Anderson and former general counsel and board secretary Nancy Heinen, both of whom are no longer with the company.But Apple makes clear that Jobs was directly involved in some instances of backdating.
The bull put strategy hits its maximum profit potential if the underlying stock rises above the higher put strike price.Bizjak, University of Utah finance professor Michael L. Dozens of companies are under investigation by the Securities and Exchange Commission for backdating stock options. Alternatively, a company could hit a low without actually backdating its options by granting awards just before a major (positive) earnings announcement, a practice known as "spring-loading." A more extreme and more clearly illegal practice was to say that an award was exercised on a date other than its actual exercise date. Nejat Seyhun of the University of Michigan for the newspaper showed that that options granting practices between 20 often failed to comply with the Sarbanes-Oxley requirement that grants of awards to executives be reported within two days of board approval (T"he Dating Game: Do Managers Designate Option Grant Dates to Increase Their Compensation? Prior research at Erik Lie at the University of Iowa found a pattern of probable options backdating in a number of companies prior to 2002.Recording the exercise as having occurred on an earlier date when the stock price was lower would minimize the executive's income tax liability, but constitutes tax fraud.