Backdating stock scandal

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Many privately held companies rely on an HM Revenue and Customs-agreed valuation to fix a market value option price, typically for Enterprise Management Incentive ("EMI") option.These HMRC agreed valuations usually remain valid for 30 days only.Protections don't just apply to big listed firms, though.Even for privately held companies the scope to backdate an option grant is very limited indeed.One explanation was that options were being backdated to before major rises.That idea broke from academia into the business mainstream in 2006, and backdating scandals swept like wildfire in 2006, involving companies as famous as Apple, Dell and Broadcom.US technology employees may live on their salaries, but whether they get truly rich or not depends on their share of the company.While lucky early employees might get actual shares, most workers will depend on stock options to cash in on the tech boom.

It was a tax advantaged way for companies to pay executives. Shareholders were correctly told the number of options granted and the price of the options.Also, the backdating of options brings with it accounting obligations: the backdating has to be recognised as a compensation expense.Academics had long recognised an odd phenomenon of share prices appearing to rocket on the day after senior executives were given stock options.The academics concluded that something funny was going on.The companies were awarding the options later but then marking the awards to earlier dates, when the stock's price was low.

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