Stock backdating definition beste datingsite van nederland
For instance, if the board meeting is on January 3, 2012, and Company XYZ stock closes at per share that day, then the exercise price of John's 2012 stock option grant is per share.
That is, he has the right but not the obligation to purchase 1,000 shares of Company XYZ stock for per share.
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.
Under normal circumstances, he pays the per share exercise price and can turn around and sell those shares on the exchange for each, netting a profit of per share, or ,000 total.
But if John's options are backdated, then his exercise price is only per share.
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.
In 1972, a new revision (APB 25) in accounting rules resulted in the ability of any company to avoid having to report executive incomes as an expense to their shareholders if the income resulted from an issuance of “at the money” stock options.
That, in turn, understates the company's expenses and overstates its profits, which is a violation of generally accepted accounting principles and has been the grounds for a variety of fraud and miscellaneous charges from federal, state and local regulators.
To avoid having to pay higher taxes, many companies adopted a policy of issuing “at the money” stock options in lieu of additional income, with the idea that the executive or employee would benefit through the option by working to increase the value of the company without exceeding the one million dollar deductibility cap for executive income.
When company executives discovered that they had the ability to backdate stock option grants, thus making them both tax deductible and “in the money” on the date of actual issuance, the common practice of stock option backdating for financial gain began on a widespread level.
Those options give John the right but not the obligation to purchase 1,000 shares of Company XYZ stock at the market price on the date of the grant.
The board formally grants the stock options to John every year at its January board meeting.