Backdating options sec

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The board of directors approves the compensation package on November 1st, when Acme's stock is worth /share.However, by backdating the grant date to the date when Mike was offered the stock options (September 1st), the option price is lowered to /share and Mike receives built-in gain on the "spread" between the exercise price and the fair market value of the stock of /share or ,000,000.Under the IRS initiative, employers will not report the additional taxes on the employee's W-2 and the employee will not be obligated to pay the additional taxes.Employers must submit a notice of intent to participate in the program by February 28, 2007.(Check to see whether the initiative has been extended).Nancy Heinen (pictured), the former general counsel at Apple has agreed to pay .2 million in disgorgement, interest and penalties and be barred from serving as an officer or director of any public company for five years to settle complaints arising from the alleged backdating of Apple options, according to a release put out today by the Securities and Exchange Commission.backdate two large options grants to senior executives of Apple — a February 2001 grant of 4.8 million options to Apple’s Executive Team and a December 2001 grant of 7.5 million options to Apple Chief Executive Officer Steve Jobs — and altered company records to conceal the fraud.In other situations, when a company believes its stock would dramatically increase in value based on a future event, options are granted just prior to the favorable event. Another type of backdating occurs when the company will announce bad news that could temporarily depress its stock price.

There are two potential tax advantages in this scheme: First, the earlier the date of exercise, the sooner the 12-month period will be reached for the favorable 15% long-term capital gains rate.

If the employee holds the stock for at least one year after the date of exercise and two years after the date of grant, he is entitled to the federal long-term capital gains tax rate of 15% on the spread.

In-the-money options, however, violate the ISO rules under IRC Sec.

This practice is called "bullet-dodging." To illustrate the effect of backdating options, consider Mike who is offered a job as CEO of Acme Corporation, a public company, on September 1st, when Acme's stock is worth /share.

As part of his compensation, Mike is offered a salary of

There are two potential tax advantages in this scheme: First, the earlier the date of exercise, the sooner the 12-month period will be reached for the favorable 15% long-term capital gains rate.

If the employee holds the stock for at least one year after the date of exercise and two years after the date of grant, he is entitled to the federal long-term capital gains tax rate of 15% on the spread.

In-the-money options, however, violate the ISO rules under IRC Sec.

This practice is called "bullet-dodging." To illustrate the effect of backdating options, consider Mike who is offered a job as CEO of Acme Corporation, a public company, on September 1st, when Acme's stock is worth $20/share.

As part of his compensation, Mike is offered a salary of $1,000,000 and 1,000,000 stock options that will vest immediately.

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There are two potential tax advantages in this scheme: First, the earlier the date of exercise, the sooner the 12-month period will be reached for the favorable 15% long-term capital gains rate.If the employee holds the stock for at least one year after the date of exercise and two years after the date of grant, he is entitled to the federal long-term capital gains tax rate of 15% on the spread.In-the-money options, however, violate the ISO rules under IRC Sec.This practice is called "bullet-dodging." To illustrate the effect of backdating options, consider Mike who is offered a job as CEO of Acme Corporation, a public company, on September 1st, when Acme's stock is worth $20/share.As part of his compensation, Mike is offered a salary of $1,000,000 and 1,000,000 stock options that will vest immediately.

,000,000 and 1,000,000 stock options that will vest immediately.

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