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The Wall Street Journal reports that the Justice Department has ended its criminal investigation into whether Apple executives broke the law when they backdated some options without proper accounting and disclosure.Neither Apple nor the Justice Department has made a statement confirming that the investigation is over, but lawyers representing some of those under a cloud told the Journal that they were informed the probe is finished.A civil action by the SEC and private lawsuits are still underway, however.The SEC looked into Apple's revelation that they had issued stock options to a variety of employees, including Steve Jobs and other executives, that tied the options to a date prior to that on which the options were granted, so called .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.In essence, the revision enabled companies to increase executive compensation without informing their shareholders if the compensation was in the form of stock options contracts that would only become valuable if the underlying stock price were to increase at a later time.By using a sample of 126 US companies under investigations related tobackdating, I find them larger, younger, having lower cash holding and higherstock volatility.
By backdating options, a company can assure a windfall to the recipients.
Companies may backdate options in many circumstances, but must account for them as a higher expense than merely granting current-dated options, as there's a negative effect on the equity of a firm's shareholders.
An academic researcher and The Wall Street Journal blew the lid off this widespread and long-running practice; executives at other firms were indicted, sued by shareholders, fired, or all three.
Options backdating is the practice of altering the date a stock option was granted, to a usually earlier (but sometimes later) date at which the underlying stock price was lower.
This is a way of repricing options to make them valuable or more valuable when the option "strike price" (the fixed price at which the owner of the option can purchase stock) is fixed to the stock price at the date the option was granted.