It allegedly failed to inform investors, or account for the options expense(s) properly.Since the advent of stock option backdating, corporate policies have moved first toward a posture of encouraging backdating as a standard business practice, but then toward a posture of avoidance as public scandals emerged and investigations into fraudulent or dishonest business practices increased despite a commonly held belief that backdating was an acceptable and legal practice.
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To help these poor people out, a few years ago there was a thriving cottage industry creating updates for Porsche 911s.
I’ve seen 911SCs and Carrera 3.2s updated to look like 964s and 993s, 944s face-lifted into 968 clones and, more recently, 996s fitted with the later 997 bodywork.
Cases of backdating employee stock options have drawn public and media attention.
According to a study by Erik Lie, a finance professor at the University of Iowa, more than 2,000 companies used options backdating in some form to reward their senior executives between 19.
Some of this plastic surgery was more effective than others but, in most cases, the effect was spoiled somewhat when you hopped into the cockpit and were confronted by early-style seats and instruments – things that were harder and more expensive to update than the bodywork.
It all sort of made sense, though, because people want the latest thing, don’t they?
In 1994, a new tax code (162 M) provision declared all executive income levels over one million dollars to be “unreasonable” in order to increase taxes on all applicable salaries by removing them from their previous tax deductible status 4.
To avoid having to pay higher taxes, many companies adopted a policy of issuing “at the money” stock options in lieu of additional income, with the idea that the executive or employee would benefit through the option by working to increase the value of the company without exceeding the one million dollar deductibility cap for executive income.
When company executives discovered that they had the ability to backdate stock option grants, thus making them both tax deductible and “in the money” on the date of actual issuance, the common practice of stock option backdating for financial gain began on a widespread level.