Apple backdating scandal
Options Backdating 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 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.
It was a tax advantaged way for companies to pay executives. Shareholders were correctly told the number of options granted and the price of the options.The academics concluded that something funny was going on.The companies were awarding the options later but then marking the awards to earlier dates, when the stock's price was low.(who broke the backdating story), Jobs was awarded 7.5 million shares approved at Apple’s August 29, 2001, board meeting. However, because Jobs continued to argue over the point at which they would vest, Apple missed the deadlines it needed to file the right information with the Securities and Exchange Commssion and its auditors.It took until December that year until terms were finally agreed upon, at which point Apple’s stock price was $21.01.(who broke the backdating story), Jobs had an award of 7.5 million shares approved at Apple’s August 29 board meeting, at which point Apple’s share price was $17.83.
However, because he continued to argue over the point at which they would vest, Apple missed the deadlines it needed to file the right information with the SEC and its auditors.
When these options “vest” after a period of time, the executive can sell them at the new share price.
It’s a nice bonus if the company has increased in value.
Backdating was then carried out to give Jobs a lower share price which, on paper, made him $20 million richer.
News of the Apple backdating scandal didn’t find its way into the public consciousness until late 2006.
Today’s “Today in Apple history” is significant, though, because it was one of the big scandals which rocked Apple during its big climb back to the top in the mid-2000s. In the aftermath, Apple spokesman Steve Dowling said: “Following an exhaustive independent investigation, the special committee found no misconduct by Steve Jobs or any other current management.