What is wrong with backdating stock options

06-Oct-2019 11:44

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They have also sought shelter under the banner that Jobs was no accountant, and thus didn't realize the effects that backdating would render. Critics of prosecuting options backdaters, and basically most of the Apple shareholders who've contacted me, believe that as long as the executive has otherwise performed admirably for shareholders, and as long as shareholders have personally been able to profit from a company's share price growth, it's OK to overlook a few failings.But you don't need an accounting to degree to know that backdating is wrong. Few tears were shed when William Mc Guire, CEO of United Health , was deposed for his role in backdating that company's stock options. Jobs' only sin, his defenders will say, was that he was an ignorant shmoe who didn't "appreciate the accounting implications" and didn't personally benefit from the scheme.In this article, the author writes: “Backdating by itself is not generally, at least with respect to private agreements, illegal.Rather, it is the use of the backdated documents by the parties or their counsel that may violate the law.” The US approach seems to be founded on the principle that parties to an agreement (or deed) are free to agree that the document is to take effect prior to the date of execution – this is often denoted by dating the document “as of” the earlier date. Bradley Real Estate Trust, the US Court of Appeals (7th Cir.He had led the firm to phenomenal gains over a 15-year period, but perhaps because he was also richly rewarded as a result, it was easier to oust him. As a matter of fact, they argue, he actually cancelled the big 7.4 million share option grant he was given.And surely few people had problems with the vilification of Kobi Alexander, the CEO of Comverse Technology , when he became a fugitive after his backdating scandal broke. While Saint Steve may not have really understood all the accounting mumbo jumbo that goes into play, it's hard to argue that he didn't benefit.

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The theory is that options are an incentive to have management work hard to ensure that the company's value increases, and that its share price grows, so that management and shareholders can profit together in the future.

Lawyers who were trained in commonwealth jurisdictions may have an ingrained concept that backdating a document is generally improper, if not illegal.

This is reflected in the Linklaters article Execution of Documents: Five Common Questions Answered, which offers the following advice for in-house lawyers: “(i) contracts may only be backdated, absent fraud, in circumstances where an original form has been lost or where terms have been fully agreed but signatures have been left to a later date and (ii) deeds may never be backdated.” Unfortunately, the article offers scant authority, and a search on Google reveals little else on the subject from the commonwealth world.

Apple shareholders have been particularly unfazed by the revelation that Jobs was not only aware that backdating was occurring, but also intimately involved in picking the dates to which the stock options were backdated.

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Many shareholders have rallied to defend Jobs' actions on the basis of his overall performance with the company.The grants he cancelled would have vested over a period of as much as 10 years.