Description: The Michigan Law Review come at stock option scandals are increasingly prevalent.

Several investor groups, including the Council of Institutional Investors, the New York City Pension Funds, and the ...

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sec stock option backdating-64

In that first set of grants, Heinen, Anderson, and four other executives benefited. Anderson immediately settled the charges without "admitting or denying the allegations," an approach the SEC allows when the agency perceives public interests are served by closing the affair instead of proving guilt or losing a case.

Anderson will give up nearly $3 million in stock option gains and nearly $700,000 in interest and penalties.

The SEC’s opinions regarding backdating and fraud were primarily due to the various tax rules that apply when issuing “in the money” stock options vs.

the much different – and more financially beneficial – tax rules that apply when issuing “at the money” stock options.

"As alleged in our complaint, RIM and its highest level executives engaged in widespread backdating of options which provided them and other employees with millions of dollars in undisclosed compensation," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement.

"This enforcement action underscores the SEC's resolve to assure full and accurate disclosure to U. investors by foreign issuers." Antonia Chion, Associate Director of the SEC's Division of Enforcement, added, "Companies and executives who attempt to conceal their fraudulent conduct from investors and regulators will be held accountable." The SEC's complaint alleges that RIM and its execs made false and misleading disclosures about how RIM priced and accounted for options.

, intentional backdating that coincides with low underlying stock prices and an accounting report that claims the contracts to have been issued on those low dates as “at the money” – rather than “in the money” – contracts has resulted in the SEC’s public view that backdating could be considered fraudulent.

While options backdating has been used to enhance or increase the value of options contracts while reaping the tax benefits of having issued “at the money” contracts, the practice is also frequently necessary in order to accommodate situations in which lengthy issuance procedures or corporate policies require more than one day to complete an approval process, thus showing an earlier issue date than that on which the contracts are actually issued.

In 1972, a new revision (APB 25) in accounting rules resulted in the ability of any company to avoid having to report executive incomes as an expense to their shareholders if the income resulted from an issuance of “at the money” stock options.