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Backdating scandal

Backdating is legal so long as the company discloses the practice correctly.

Today, we’re used to the fact that Apple can be both a shrewd business titan and a “force for good” in the world.

The Apple stock backdating scandal was one of the first times these two seemingly opposite poles — Apple’s countercultural ethos and the realities of big business — seemed to collide.

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.

Backdating stock options refers to writing an agreement concerning stock options to make it look like they were awarded earlier than they were.

Stock options frequently tie into executives’ compensation.

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).

When these options then “vest” after a period of time, the executive can sell them at the new share price.

That can mean a nice bonus if the company increased in value.

Although this practice gave the senior executives significant stock holdings, since the grant was issued at-the-money, the share price had to appreciate before the executives would actually earn a profit.