Chuck Grassley, chairman of the Committee on Finance, and Sen. The news reportsmake it sound like the CEO had the board of directors over a barrel and helped himself to whateverhe could get, even with the taint of stock options backdating allegations against him. Congress has a duty to the taxpayers to find out what happened at UnitedHealth, and figure out what to do to stop this flood of backdating scandals. Just as in the Enroncase, we need to understand how and why abuses may have occurred, in order to craft responsiblelegislation and slow this trend. In September, the committee convened a hearing to hear from the Justice Department, theSecurities and Exchange Commission, and the Internal Revenue Service about how they areresponding to stock options backdating and what Congress can do to aid their efforts. The hearingalso featured testimony from experts on whether the federal tax treatment of executive compensationis working as intended to discourage excessive executive compensation. Thesame letter went to three different officials. James A.
Option Backdating: The Next Big Corporate Scandal?
Apple has postponed filing its quarterly results and says it will have to restate several years of earnings. This is due to “irregularities” in the granting of stock options, which companies routinely issue as an incentive to employees and senior executives. A stock option enables staff to buy the company’s shares at a future date at a price set in the present.
That has not yet been confirmed, but Apple could be one of a growing number of US companies believed to have repriced their stock options by backdating them to when the share price was low and doing so without properly disclosing and accounting for the action.
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Forbes’ latest cover story details Apple’s options-backdating scandal, and a copy of Steve Jobs’ sworn testimony provides a rare glimpse into a surprisingly vulnerable, humble CEO. Forbes obtained the page deposition, taken on March 18, at Apple headquarters, using the Freedom of Information Act. In his three-hour interview with the Securities and Exchange Commission, Jobs claimed he was ignorant of the backdating and accounting consequences, adding that he was pressured to ask for a generous stock-options package because his board was not supportive of him.
I just felt like there is nobody looking out for me here, you know So I wanted them to do something, and so we talked about it I thought I was doing a pretty good job. My body thanks you. Jobs in January announced his six-month medical leave due to “complex” health issues. Apple on Wednesday said it expects Jobs to return end of June. View Comments.
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Jacob “Kobi” Alexander has been on the run since , when the U. He is now living in Namibia and the U. Department of Justice said. The government had been trying to seize the holdings of two of Alexander’s investment accounts since he fled the country four years ago, but Alexander and his wife had been fighting the seizure. The practice of falsifying the date stock options were granted in order to make them more valuable to company executives was widespread in the technology industry over the past decade.
Around the time that Alexander fled the country, dozens of technology companies — including Apple, Broadcom and VeriSign — were forced to restate their financial results to take account of the backdating costs.
Discussion of “The impact of the options backdating scandal on shareholders” and “Taxes and the backdating of stock option exercise dates”. Author & abstract.
Yeah, neither do we. In recent weeks, this supposed national corporate stock options scandal has started to remind us of nothing less than the Duke lacrosse scandal — perhaps because in both cases the swarm of accusatory press coverage swirling around the developing story seems to have rapidly outpaced any actual proof of criminal wrongdoing. The current hubbub can be traced to an academic paper that a Norwegian economist in Iowa published last year in a seemingly obscure journal called Management Science.
That is, the grant date might be set to be an earlier date with a particularly low price. Over the past several months, short of actually proving chicanery, the Journal has suggested the possibility of chicanery at a long list of companies. For readers who like their schadenfreude catalogued, the Journal has even published a handy Options Scorecard , listing some 50 or so companies and noting which ones are currently being investigated by the SEC, the justice department, and so on.
UnitedHealth and the scandal blame game
Chief executive officers are driven by success, and the more they can get for their companies, the better their personal fortunes. At least that’s the theory behind corporations loading up their CEOs with stock or, as the experts put it, “aligning CEO and shareholder interests. But a new study from researchers at the University of Georgia, the University of Notre Dame, and Lehigh University shows that sometimes the opposite is true.
public scandal. We focus on the SEC’s investigations of option backdating in the wake of numerous media articles on the practice of backdating.
What is backdating? Backdating is the practice of marking a document with a date that precedes the actual date. What is the benefit of backdating ESO grants? ESOs are usually granted at-the-money, i. Because the option value is higher if the exercise price is lower, executives prefer to be granted options when the stock price is at its lowest. Backdating allows executives to choose a past date when the market price was particularly low, thereby inflating the value of the options.
Options scandal bites into Apple
A new threat to the perceived propriety of American business has emerged in the wake of past financial scandals. Paul Worth, partner and head of fraud and asset recovery at Eversheds, explains why a number of major US companies are now under investigation by American authorities over their approach to granting stock options. The options backdating problem stems from a number of practices adopted when granting employee stock options.
Stock options are generally granted to executives as an incentive. They tie executive pay to shareholder returns by allowing executives to earn compensation equal to the difference between the stock price at the date of the grant, the strike price, and the stock price at the date the option is exercised. The executive therefore has an incentive to increase the company’s stock price so that the option can be exercised for a profit.
It may include obsolete or out-of-date information. Enforcement Actions Related to Options Backdating; Commission Speeches and Testimony.
Basically, they made two types of lies to their users. In some cases, they told users that they were a 90 percent match, but in reality they were only 30 percent compatible or less. This means that some people were going on dates that never should have happened, and others missed opportunities as a result of being deceived. There must be a great explanation for this, right? Well, not really. There are so many disadvantages of using a dating website.
From the time investment, to the sifting through photos, to the unreliable no-shows, it can create a frustrating experience. That last bullet point is really the toughest.
Stock option backdating scandal could grow: report
This was one of many options backdating scandals to occur within the last decade. To prevent similar fraudulent activity in the future, Apple should take measures to increase consequences for bad behavior or incentivize whistle-blowers. Options backdating consists of granting an option that is dated prior to the date the option is actually granted. It allows the grantee to receive options that are already in the money, which allows him or her to glean a much higher profit.
of Apple, Inc. in a matter involving improper stock option backdating. in the fraudulent backdating of options granted to Apple’s top officers.
NEW YORK Reuters – The stock options timing scandal, which has already implicated at least companies, could include hundreds more, according to a new analysis that found lax enforcement of corporate governance reforms that should have prevented the practice. Beginning in August , the U. Securities and Exchange Commission required companies to disclose their stock-option awards in Form 4 filings within two days of options grants to comply with Sarbanes-Oxley.
Before that, companies did not have to report option grants for several weeks. The new regulations should have removed most opportunities for backdating. But Glass Lewis, in the report, said the SEC has not enforced the two-day filing rule, possibly leading to many more instances of backdating. More than companies have launched internal reviews or are under government investigation over possible manipulation of stock option grant timing.
Companies have said that many of the late Form 4 filings were unintentional — a result of sloppy paperwork— and their options grants have been accounted for correctly. O, told Reuters that Medis had been late in some of its Form 4 filings but did not engage in backdating of options.
Where’s the Thief? The ‘Options Scandal’ is a Dud
Tobak’s take on Steve Jobs’ role in the stock options backdating scandal at Apple. The allegations of illicit sex, drugs, and rock and roll reminded me of the 60s Funny, I can’t remember.
An executive who exercised stock options following the effective date of A Executive Tripped by A and Backdating Scandal.
NEW YORK Fortune — In every big corporate scandal, a company must make a decision about where to draw the line: Who to throw under the bus, and who to place in the driver’s seat. McGuire “. But the corporate blame game is almost never a black-and-white matter. Deciding who stays and who goes requires a tricky combination of weighing: 1 the facts; 2 the likely impact of firings on the company’s operations and on Wall Street; and 3 the reaction of the feds, who may treat the company with greater or lesser kindness in their own investigations, based on their assessment of how fully the company has cleaned house.
Here’s a closer look at how UnitedHealth Charts , Fortune weighed in on these tricky issues – and why. Like McGuire, Hemsley received millions of backdated stock options – in fact, he got one grant dated before he even started work at the company. And like McGuire, he received a huge windfall with the dubious decision to “suspend” two million executive options, replace them at a lower and apparently backdated price, then “reactivate” them 10 months later. Hemsley also faced a similar conflict of interest as McGuire, in retaining UnitedHealth director William Spears, chairman of the board’s compensation committee, to manage a chunk of his personal fortune.
UnitedHealth’s outside investigator, former SEC enforcement chief William McLucas, notes in his report that internal controls involving broad options grants to thousands of employees were “inadequate” and “senior management failed to ensure that the options granting practices were appropriate. UnitedHealth’s HR department, as a matter of policy, for years awarded grants to new and promoted employees that were backdated to the lowest stock price of the quarter.
McLucas found that “these practices were followed openly in the company, at least within the HR organization.
Forbes Uncovers Jobs’ Deposition From Backdating Scandal
Washington, D. Anderson, of Atherton, Calif. Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement, stated, “The Apple case demonstrates the Commission’s ongoing commitment to take action against stock options backdating and other executive compensation abuses. When corporate officers enrich themselves at the expense of a company’s shareholders, the Commission will hold the responsible individuals accountable, particularly where, as here, the responsible individuals are among those obligated to ensure that the company complies with all applicable securities laws and that its financial statements are accurate.
CEO’s Exit Compensation Package Amid Stock Options Backdating Scandal days without reading about corporate stock options back dating,” Grassley said.
But a recent paper , coauthored by Robert M. Daines of Stanford University, has unearthed a new and potentially more sinister version of the scheme — call it Dating Game 2. Under Dating Game 1. Revelations about backdating came to light in and sparked outrage on many fronts. Federal prosecutors filed criminal charges against more than a hundred executives, convicting 12 and sending five to prison. Under pressure from regulators, the media, and investor groups, most companies adopted reforms that seemed to stop the game.
One key reform: Companies began scheduling their upcoming option grants well in advance and on immovable dates. On top of that, regulators ordered all companies to disclose all of their option grants within two days of when they occurred. In Dating Game 2.
How CEOs Reinvented the Dating Game Scandal in Stock Options
Before Lehman Brothers imploded, before Bernard L. Karatz, the former chief executive of KB Home , to five years of probation. His case is likely to be the last criminal trial relating to backdating, a scandal that ensnared dozens of executives over allegations that the dates of stock-option awards had been manipulated to enrich recipients. When the first cases emerged in , they looked like low-hanging fruit for federal prosecutors. The Securities and Exchange Commission and the Justice Department investigated more than companies.
Forbes’ latest cover story details Apple’s options-backdating scandal, of backdating — the act of dating a grant of an employee stock option.
Fortune Magazine — It’s tempting to roll your eyes at the latest options backdating news – more evidence that in certain ways American executives are still the world’s most creative. But in fact it’s worth a closer look, because this type of conniving, which involves backdating exercise dates rather than grant dates, is different and in some ways worse.
Bizarrely, while this book-cooking appears to be a tax scam, it may actually leave the U. Treasury better off than if the executives had been honest. What it reveals most strongly is some executives’ utter contempt for their shareholders. Evidence of this new twist on backdating arose in a study by an economist at the Securities and Exchange Commission, first reported in the Wall Street Journal.
Thus far the backdating scandal, which has already involved well over companies, has centered on firms manipulating the dates on which options were granted to executives. Stock prices were lower on the bogus dates, so executives’ potential gain would be greater. But in the more recently discovered scam, executives allegedly fudged the date on which they chose to exercise options, citing some earlier date when the stock price was lower, thus reducing their own gain.