You see, if you backdate stock options to a date when the price of the stock was lower, then the options are "in-the-money" when granted.That means the company incurs an expense equal to the difference in the share price between the two dates.After all, stock option backdating is all the rage these days.
District Attorney's Office has also issued several subpoenas in launching a criminal probe. The typical practice was to record a felicitously timed prior date as the grant date, such as the point when the stock had been at its lowest in recent months, instead of the date when the award was actually granted.
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.
And he never cashed in those options because they were replaced in 2003 by a grant of restricted stock.
CEOs at other companies have been forced to resign for such activities. His job may be saved by the fact that he did not directly profit.
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.