The Securities and Exchange Commission (SEC) previously allowed companies to report the issuance of stock options up to two months after the options were granted.That allowed companies to essentially pick the lowest stock price during that two-month period and report that as the exercise price on the options, giving companies a way to grant instantly profitable options to employees.In our example, backdating the options is the same as giving Jane Doe a check for ,000.If the company does so without recording that ,000 on the income statement as compensation, it understates its expenses and overstates its profits, which is a violation of generally accepted accounting principles (GAAP) and has been the grounds for a variety of fraud and miscellaneous charges from federal, state and local regulators.But the options scandal has never touched a more exciting company than Apple or a more thrilling executive than Jobs. In June 2006, a special committee of Apple outside directors, chaired by former Vice President Al Gore, hired its own attorneys to investigate options backdating at the company. It turns out there were literally thousands of examples of backdating at Apple—6,428 options grants on 42 dates over a period of several years.
On the day she decides to exercise her options, Company XYZ shares are trading at .But Jobs is the lone exception, as revered today as he ever was.Apple's 30-year history is divided into three phases: the golden early years in which Jobs and co-founder Steve Wozniak revolutionized the computer industry (1976-1985), the dark ages in which the company floundered after Jobs was ousted (1985-1997), and the glorious restoration (1997-present), in which Jobs ushered in a new golden age, making hip new computers and revolutionizing the music and entertainment industry with the i Pod. Employees love their visionary leader who has spread options throughout the company.Under normal circumstances, she pays the per share exercise price and can turn around and sell those shares on the exchange for each, netting a profit of per share, or ,000 total.But if Jane's options are backdated per the example above, then her exercise price would be only per share.