Company stock option plans are on file with the SEC, with a description of how the strike prices are calculated.
But if the company later provides options at another price without further disclosure, then the company is violating its own plan.
Dozens of companies – including United Health Group, Comverse Technology, Vitesse Semiconductor and Affiliated Computer Services – have caught the eye of the Securities and Exchange Commission and the Department of Justice for the timing of their stock option grants.
The question: did these companies backdate options grants – and falsify records – to make them more lucrative for their top employees?
That exercise price, or strike price, usually takes one of three forms: the closing price on the day of the grant; an average of the highs and lows of the day; or the closing price from the previous day.
The lower the strike price, the greater the potential for making money when exercising the options.
But if the grant date was a month earlier and the stock then was at, say , the options would bring in an extra million."Such backdating is not necessarily illegal.
Exercising them after it has reached would bring a profit of times 100,000, or million.
Clearly, the Enron trials have not closed the book on corporate fraud.
A new boardroom scandal is roiling Wall Street: stock options backdating.
Or did a lot of CEOs just have amazingly good luck?
A stock option gives the recipient the right to purchase stock at a set price.
Backdating may also violate accounting rules because the stock options, which are equal to extra pay, affect the company's bottom line.