Brocade backdating stock options merry dating russian girls
Let’s say that the market price a week ago was .00, and you backdate the options to a week ago.What happens under our tax regime is when you go to cash in those options at .00, the .00 profit is now taxed as ordinary income and you don’t get the capital gains treatment or its equivalent. 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.It is difficult to imagine the perpetration of a backdating scheme without the complicity—or at the very least dereliction of fiduciary duty—of a company’s general counsel.In addition to manipulating the documentation of stock option grants (the sine qua non of backdating), these general counsels often directly profited from the fraud through their own receipt of back-dated options.The pattern was somewhat more common in technology companies, smaller companies, companies granting options to more executives and directors, and companies with higher stock price volatility.Volatility is especially significant: 29% of companies with high volatility appear to have manipulated grant dates, compared to 13% of those with low volatility.
In the United States, 55 individuals and 17 companies currently face SEC scrutiny over options backdating. In the first stock-option backdating case to reach trial, Brocade Communications CEO Gregory Reyes was sentenced to 21 months in jail, two years’ probation and fined US-million for 10 counts of securities fraud in 2007. There’s a reason for that – and it has nothing to do with securities laws.The legal theory involved here could open the door for other interventions in potentially abusive executive compensation issues.Soon thereafter, two public pension funds in Ohio indicated they will be suing United as well, followed by a retirement fund for Pirelli Armstrong Tire.The results focused on the 51% of the grants during the period that were unscheduled and at-the-money.A separate analysis of grants issued at other than the current price of the shares at grant also shows a pattern of manipulation, but it was only about 60% as prevalent for this type of award (these awards were not very common at the time, however, because of adverse accounting rules).
More telling, only 0.9% of the scheduled grants showed a pattern of fortuitous timing, strong proof that the pattern in unscheduled grants could not be the result of random variation.