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This made me think about the possibility that some of the grants had been backdated.I further found that the overall stock market performed worse than what is normal immediately before the grants and better than what is normal immediately after the grants.

In a study that I started in 2003 and disseminated in the first half of 2004 and that was published in Management Science in May 2005 (available at I found that stock prices also tend to decrease before the grants.Any remaining pattern is concentrated on the couple of days between the reported grant date and the filing date (when backdating still might work), and for longer periods for the minority of grants that violate the two-day reporting requirements.We interpret these findings as strong evidence that backdating explains most of the price pattern around ESO grants.A 2004 NY Times article describes this case in greater detail (the article is available here), and so does a 2006 article in Tax Notes Magazine (available here).In a 2004 CNBC interview, Remy Welling said that "this particular -- well, it's called a 30-day look-back plan, is even widespread in Silicon Valley and maybe throughout the country."The terms "spring loading" and "bullet dodging" refer to the practices of timing option grants to take place before expected good news or after expected bad news, respectively. This is what Professor Yermack hypothesized in his article discussed above, though he never used these terms.Remy Welling, a senior auditor at the IRS, was asked to sign the deal in late 2002.Instead, she decided to risk criminal prosecution by blowing the whistle.Most shareholder approved option plans prohibit in-the-money option grants (and thus, backdating to create in-the-money grants) by requiring that option exercise prices must be no less than the fair market value of the stock on the date when the grant decision is made. For example, because backdating is used to choose a grant date with a lower price than on the actual decision date, the options are effectively in-the-money on the decision date, and the reported earnings should be reduced for the fiscal year of the grant.(Under APB 25, the accounting rule that was in effect until 2005, firms did not have to expense options at all unless they were in-the-money.Unfortunately, these conditions are rarely met, making backdating of grants illegal in most cases.(In fact, it can be argued that if these conditions hold, there is little reason to backdating options, because the firm can simply grant in-the-money options instead.)David Yermack of NYU was the first researcher to document some peculiar stock price patterns around ESO grants.


  1. Oct 4, 2006. Apple Computer Inc. CEO Steve Jobs apologized to shareholders Wednesday after an internal investigation found that he had been aware of the company's practice of backdating employee stock options. "I apologize to Apple's shareholders and employees for these problems, which happened on my.

  2. This Article discusses the economic impact of legal, tax, disclosure, and incentive issues arising from the revelation of dating games with regard to executive option grant dates. It provides an estimate of the value loss in- curred by shareholders offirms implicated in backdating and compares it to the potential gain that.

  3. Aug 19, 2013. Before the clamor about the lack of prosecutions from the financial crisis and the current crackdown on insider trading, the practice of backdating stock options. For those whose memories have faded, options backdating became known publicly in March 2006 when a Wall Street Journal article questioned.

  4. Abstract. Thousands of U. S. companies appear to have secretly backdated stock options. This Article analyzes three forms of secret option backdating 1 the. Ex-CEO Found Guilty in. Backdating Case, WALL ST. J. ONLINE, Aug. 8, 2007, 1865. 123898699072 1last visited Sept.

  5. Some Observations on the Stock Option Backdating Scandal of 2006. Boston Univ. School of Law Working Paper No. 06-31. 36 Pages Posted.

  6. Feb 26, 2007. Article 7. March 2008. Stock Option Backdating The Scandal, the. Misconception & the Legal Consequences. Jodell R. Nowicki. Follow this and. J. Aug. 10, 2006 at Al hereinafter Slush Fund and Fake Employees. noting that stock options "have become the primary form of compensation for many top.

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