While options backdating has been used to enhance or increase the value of options contracts while reaping the tax benefits of having issued “at the money” contracts, the practice is also frequently necessary in order to accommodate situations in which lengthy issuance procedures or corporate policies require more than one day to complete an approval process, thus showing an earlier issue date than that on which the contracts are actually issued.
The SEC’s opinions regarding backdating and fraud were primarily due to the various tax rules that apply when issuing “in the money” stock options vs.
the much different – and more financially beneficial – tax rules that apply when issuing “at the money” stock options.
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.
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 .
Stock options are the right, but not the obligation, to purchase stock at a specific price no matter the current price.
According to Anderson, he was told by Jobs in late January 2001 that Jobs had an agreement with the board of directors to grant stock options on January 2.
Anderson "cautioned" Jobs that the grant for executives would have to be priced based on the date of the board agreement "or there could be an accounting charge," and also told Jobs the board would have to confirm it had given prior approval for the grant dates "in a legally satisfactory method." Jobs assured him that the board had given approval and Anderson "relied on these statements by Mr.