When is options backdating legal leonette dating
The finding demonstrated a well-timed coincidence that triggered a number of further investigations by the SEC and the DOJ. It replaced the long-standing Accounting Principles Board Opinion No.
25 (APB 25), under which companies were only required to account for options which had an exercise price that was below the market price of the shares on the "measurement date".
For instance, if the board meeting is on January 3, 2012, and Company XYZ stock closes at per share that day, then the exercise price of John's 2012 stock are backdated, then his exercise price is only per share.
He pays the per share exercise price and can turn around and sell those shares on the exchange for each, netting a profit of per share, or ,000.
Those options give John the right but not the on the date of the grant.
This is important to note, because the grant date is what determines the exercise price on the options.
Although these developments have occurred since 2002, the prevalence of backdating was not discovered until 2005.
In that year, Professor Erik Lie at the University of Iowa published a study on the University website which found an alarming propensity for option grants to occur when company share prices were unusually low relative to their historical trading levels.
By backdating options, and misconstruing the exercise price (stating the price as at the money rather than accurately as "in the money" (that is, below the market price of the shares on the grant date)), a company may have understated its compensation-related expenses in its financial statements and other public disclosures.
Under APB 25, this expense would be recognised over the vesting period.