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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."
Boring....
Religion for nerds. Stuff that really matters
So, Apple investigates itself over something that isn't exactly illegal?
Funnypics
Apple: officially "beleaguered" again.
And now, a PSA from David Lynch.
Slashdot headline creation in a nutshell...
MustardMan decides to take his dog to the vet to check for diseases.
Slashdot headline: MustardMan's dog being investigated for deadly pathogens!
This headline is complete BS. Apple's own internal auditors found something that might be an issue, and Apple reported it to the SEC themselves.
-jcr
The only title of honor that a tyrant can grant is "Enemy of the State."
Apple is one of 57 companies being investigated. Who are the other 56 companies? No links, no nothing.
Stock options in the Valley are definitely a problem, and if Apple screwed up, they deserve whatever they get. However, they did inform the SEC, so it seems a bit early to get out the stakes and holy water.
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deserves to be on slashdot.
what next, a deep look inside Apples accounting practices? Followed by an investigative report on which urinal cakes Apple uses?
None of that is News for Nerds, or stuff that matter..
The Kruger Dunning explains most post on
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According to The San Francisco Chronicle:
"Regulators are investigating whether companies broke securities and tax laws by backdating stock-option grants to coincide with the lowest possible price. The practice of backdating is drawing scrutiny because it maximizes the amount of money executives can make in exercising options."
It seems like plenty of As need Cing, but I think it's way to early to say "the technique is not illegal".
In light of recent events, I think it's difficult to call Warren Buffet greedy or pathetic. As a self-made man, he lives remarkably frugally, and is exceptionally philanthropic. For more information, check the Wikipedia article on him.
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And you know what they say about a cowboy with slight hands, don't you?
Sigh...a six-word subtitle, and it contains a typo. (It's sleight. sleight of hand, not slight of hand.)
Viper is the preferred editor of the Emacs operating system.
You know, I'd put my entire Karma on the line to say that if this was M$, instead of "Yawn, is this news?" posts, this entire story would be "M$ Anti-trust! Evil! Screwing their workers!" posts.
Your hair look like poop, Bob! - Wanker.
If this were IBM, Microsoft or even Red Hat, all the usual slashdot mac-zealots would be calling for their heads.
No, if any of those companies found a problem in the course of their own audits and reported it as Apple has, it would be just as much of a non-event as this is.
-jcr
The only title of honor that a tyrant can grant is "Enemy of the State."
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.
110100 1101000 1101000 1100110 0 1101111 1101000 1100011 1
When the employee exercises a stock option they are paying the company for the share. If the company back-dates an option to lower the strike price for an employee, the employee pays less for it.
Scenario:
The employee makes a bigger profit, the company loses. This is the worst
side-effect of back-dating stock options. You're cheating the other shareholders.
Accuracy lacking on this one:
Options that went to the CEO were cancelled, never used.
Get your facts straight, dude.
Tax and accounting are two different things. (Maybe they shouldn't be, but that's a different story.) The tax issue you're discussing isn't fraud, it's the way the compensation taxes are supposed to work. There is a different tax issue related to backdating. I will discuss it below and I suppose it could be described as fradulent.
Suppose an option gives an employee the right to buy $100 shares for $20. The right to do this is worth $80. When the employee exercises, the company gets a deduction for $80 and the employee is taxed on $80 of ordinary income. This is the standard treatment for compensation: a tax on one side is a deduction on the other. A payment of $80 cash to the employee yields the same treatment (tax deduction for the company, tax for the employee).
The *accounting* treatment under the old rules was definitely screwed up by failing to *ever* recognize expense. However the IRS didn't make the same mistake.
There is a different and more subtle tax issue that arises with backdating. Under the 1993 Clinton tax act, compensation in excess of $1 million is not deductible unless it is performance related. There is a possibility that backdating will lead to the option grant being deemed "not performance related" (since it has a baked-in gain due to backdating). In this case the company will lose the deduction when the option is exercised. The employee would still have to pay taxes. If an executive had exercised $100 million of backdated options, the company could lose the deduction on this amount. When news stories refer to tax issues related to backdating, I think this is mainly what they're talking about.