Apple Investigated Over Stock Options

blamanj writes "Apple has joined the list of over fifty companies (most in Silicon Valley) that possibly mishandled stock options by backdating them. The technique is not illegal, but it can cause a company to improperly deduct employee compensation expenses and result in an underpayment of taxes. So far, Apple is conducting the investigation itself, but it has notified the SEC."

Comments

Re:Once again...

[Fordiman]

I'm a linux fanboy, and even I know this is something that just has to happen for a lot of companies.

Apple, Goole and others lobbied hard against the new FASB rules that makes this step necessary; without them, these companies could continue to artifically inflate their bottom lines.

How it works:
The old FASB rules didn't force a company to expense stock options. As such, they didn't come out of their bottom lines.

Meanwhile, whenever an option was exercised, the company would get a tax break for the 'expense'.

In other words, a company could spend money without noting it, and get a tax break if it was converted to cash. Nice little loophole there. It's essentially tax fraud without the illegalness. It was a great boon for the internet startups of the mid to late 90's, since they could have a very large pile of capital they could pay their emplyees with without it looking like they were diminishing their capital.

Under the new rules, stock options must be written down as an expense. The tax break still exists, but now it doesn't inflate the stock price, leaving it more balanced.
Option is expensed. Stock price goes down.
Option is exercised. The added demand and tax break brings the stock price back up.