From a shareholder's perspective, nobody likes to be lied to when providing the financing and paying the salaries.(See also: .) In the early 2000s, new accounting provisions were enacted that required companies to report their option grants within two days of their issue and also required that all stock options be listed as expenses.A series of two follow-up studies by professors elsewhere suggested that the uncanny ability to time options grants could only have happened if the granters knew the prices in advance.
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(See also: .) As a result, firms restated earnings, fines were paid and executives lost their jobs—and their credibility.
The SEC reported that investors suffered in excess of $10 billion in losses due to share price declines and stolen compensation.
The first was in 1995, when a professor at New York University reviewed option-grant data that the SEC forced companies to publish.
The study, published in 1997, identified a strange pattern of extremely profitable option grants, seemingly perfectly timed to coincide with dates on which the shares were trading at a low.
In the mid-2000s, an investigation by the Securities and Exchange Commission resulted in the resignations of more than 50 senior executives and CEOs at firms across the spectrum from restaurant chains and recruiters to home builders and health care.
High-profile companies including Apple, United Health Group, Broadcom, Staples, Cheesecake Factory, KB Homes, Monster.com, Brocade Communications Systems, Inc., Vitesse Semiconductor and dozens of lesser-known technology firms were implicated in the scandal. .) The essence of the options backdating scandal can be summarized simply as executives falsifying documents in order to earn more money by deceiving regulators, shareholders and the Internal Revenue Service (IRS).“The Justice Department took a long time and scrubbed this matter very thoroughly, and they concluded no charges should be brought against anyone,” said Miles Ehrlich, an attorney for former Apple general counsel Nancy Heinen.“In our view that was the only fair conclusion one could reach.” The Securities and Exchange Commission, however, is still pressing its civil complaint against Heinen and one of her lieutenants, who were deemed responsible for altering financial records in a way that enriched company insiders without proper disclosure. Attorney’s Office in San Francisco, which had spearheaded the investigation, declined to comment Thursday. government looked at everything and decided that there is no basis to file a charge, which is consistent with what we said all along,” Arguedas said.The process became so prevalent that some investigators believe 10% of the stock grants made nationwide were issued under these false pretenses.A series of academic studies was responsible for bringing the backdating scandal to light.The roots of the scandal date back to 1972, when an accounting rule was put in place permitting companies to avoid recording executive compensation as an expense on their income statements so long as the income was in the form of stock options that were granted at a rate equal to the market price on the day of the grant, often referred to as an at-the-money grant.