Backdating Share options wasn't (or isn't?) illegal. It's only when it is not fully disclosed to the shareholders/factored into the accounts. Companies can give money/or stock to their employees (or who ever they want) period. Would you include Mr Jobs as a possible candidate for your thirsted hard penalties?
While it's true that there was no special law that prohibitted backdating share-options before lately, I'm sure it still falls under other laws like fraud, insider-trade, even theft...
Let's imagine Steve Jobs himself was granted a bunch of options today, let's say a hundred thousand of them, that he can transform into normal stock in two years to the price of today, but since he can't wait that long, he lets them be backdated to two years before today, and he tranforms them to normal stock today at the price that the stock had two years ago.
Thus he would immediately benefit from the stock-option and espescially from the guaranteed profit because the stock-price went up considerably during the last two years..
I'm not sure I have understood everything, but if I'm right with my description of the events, then that would amount at least to insider-trade, and if that's the case then I would want to see Steve Jobs punished for it, just like anybody else, noone should be above the law.
While it's true that there was no special law that prohibitted backdating share-options before lately, I'm sure it still falls under other laws like fraud, insider-trade, even theft...
That's incorrect. Even today, simply backdating options is not illegal.
What is illegal about it is the way it is done, or not done.
It's the PROCESS that makes it illegal or not. The Board of Directors must be informed. The stockholders must be informed.
The financial situation that is affected by it must be resolved. The taxes owed must be paid, etc.
If that is done properly, then there is NO violation.
Quote:
Let's imagine Steve Jobs himself was granted a bunch of options today, let's say a hundred thousand of them, that he can transform into normal stock in two years to the price of today, but since he can't wait that long, he lets them be backdated to two years before today, and he tranforms them to normal stock today at the price that the stock had two years ago.
Thus he would immediately benefit from the stock-option and espescially from the guaranteed profit because the stock-price went up considerably during the last two years..
I'm not sure I have understood everything, but if I'm right with my description of the events, then that would amount at least to insider-trade, and if that's the case then I would want to see Steve Jobs punished for it, just like anybody else, noone should be above the law.
Nightcrawler
The rest of your post doesn't apply if the rules I posted are adhered to.
That's incorrect. Even today, simply backdating options is not illegal.
What is illegal about it is the way it is done, or not done.
It's the PROCESS that makes it illegal or not. The Board of Directors must be informed. The stockholders must be informed.
The financial situation that is affected by it must be resolved. The taxes owed must be paid, etc.
If that is done properly, then there is NO violation.
The rest of your post doesn't apply if the rules I posted are adhered to.
Hmm, I still don't get it, why backdating options should be legal, if all are informed. Options make only sense when they keep people from selling them at the moment, so what is the justification for backdating options, why not simply granting normal stock? Where's the difference between backdated options and normal stock?
Hmm, I still don't get it, why backdating options should be legal, if all are informed. Nightcrawler
The company wants to give Mr Jobs say nx$10Million as a bonus. They could just give it too him as cash or as stock - All they've got to do is write it in the accounts in expenditure -nx$10Milion to Mr Jobs. But somehow they want it to be tied to the companies performance so they think options are the best idea. OK so with the options Mr Jobs can only exercise them after a few years or whatever so if he does well the money goes up and he gets more.
But they think the stock looks a bit high, why not give him the options when the price was less, or give them to him just before some good news or whatever. OK no problem. But they have to write exactly what they do in the accounts -nx100 options to Mr Jobs with the the price of option set at the real price which would be different to the price of options on the day - if they were backdated.
Without doing it properly the accounts are screwed the profit looks more than it is and Apple is defrauding it's investors.
But they think the stock looks a bit high, why not give him the options when the price was less, or give them to him just before some good news or whatever...
Perhaps it's time to chew on this a little bit more..
from bloomberg.com:
Quote:
Apple's Jobs Should Give Back the $85 Million: Graef Crystal
By Graef Crystal
Oct. 11 (Bloomberg) -- Apple Computer Inc.'s Steve Jobs should give it up.
What am I talking about?
Some $85 million or so that the chief executive officer collected because of a sleight-of-hand the maker of the iPod music player and Macintosh computers engaged in when it awarded Jobs some mammoth stock option grants. That's money that should go back to the shareholders.
Apple's well-oiled public relations machine has said that because of ``irregularities'' in the grants, the options were canceled ``and resulted in no financial gain to the CEO.''
Nothing could be further from the truth.
Here are the facts:
In January 2000, Jobs was granted what was, and I believe still is, the largest option grant on a single day. It covered a staggering 40 million split-adjusted shares.
The strike price of that grant was equal to the lowest closing price of Apple stock in the 56- and 30-calendar day periods preceding the grant and in the 30- 56- and 90-day periods following the grant. In other words, perfectly timed to Jobs's advantage.
Because Apple's stock plunged when the Internet bubble deflated, that grant wound up underwater, with the market price of Apple's stock below the options' strike price.
Indulgent Board
Apple's indulgent board decided that Jobs didn't need to be punished for the decline in the share price; rather, he needed to be rewarded. He was given a second grant covering 15 million split-adjusted shares in October 2001.
Apple's shares slid more, with the result that the second grant also went underwater.
Then in March 2003, Jobs ``voluntarily cancelled'' all 55 million option shares, according to the company's proxy statement. That cancellation is the basis for Apple's statement that he did not benefit from these options.
But hold on. In its report to shareholders that year, Apple's board compensation committee noted the voluntary surrender of the options and then disclosed that ``in exchange for his cancelled options'' Jobs had been given 10 million split- adjusted shares. At the time the shares were worth about $75 million.
The free shares were restricted from sale for three years. When the restrictions lapsed on March 19, 2006, they were worth some $640 million.
It's hard to think of any Apple shareholder -- or anyone else for that matter -- who wouldn't welcome such a non-benefit.
So how did Apple's board come up with 10 million free shares as the amount to exchange for Jobs's 55 million underwater option shares?
Perfect Hindsight
I don't know the answer to that question, but I strongly suspect that the company employed the Black-Scholes model or one of its derivatives to value those underwater options.
Remember that even an underwater option has value if it has time remaining until its expiration. One chunk of shares would have been exercisable until January 2010, while the other until October 2011.
I calculated the options' value based on the Black-Scholes model. And what do you know, my estimate of their present value at the time they were ``voluntarily'' surrendered was $77 million, a figure almost identical to the value of the shares given to Jobs.
I asked Apple spokesman Steve Dowling whether the term ``irregularity'' was a synonym for ``backdating'', or deciding after the fact, and with perfect hindsight, what day would have been ideal for the grant of an option. He declined to comment.
Blowing Smoke
Rather than answer that question, Apple has chosen to blow a lot of smoke in its shareholders' direction.
Witness this statement from an Oct. 4 filing with the U.S. Securities and Exchange Commission: ``In a few instances, Apple CEO Steve Jobs was aware that favorable grant dates had been selected, but he did not receive or otherwise benefit from these grants and was unaware of the accounting implications.''
``Did not receive'' these grants? Come on. The grants were made. There's no rewriting history allowed here.
Did not ``otherwise benefit from these grants?'' Again, come on. I'd sure like it if someone gave me a $75 million non- benefit.
Later, Apple became a bit more forthcoming, saying that there was something wrong with one or maybe both of Jobs' two option grants, but he was never aware of those ``irregularities.''
Forget Apologies
So what's to be done here?
For my part, I don't think an apology from Jobs, which he has already proffered, is a sufficient remedy.
Maybe it's true he didn't know that someone had put his finger on the options scale in his behalf. But he surely did benefit from that thumb on the scale.
Had those two options carried a strike price equal to the daily average closing prices in the two fiscal years in which they were made, and not the much lower strike prices actually assigned, their estimated present value as of March 19, 2003, when they were exchanged for free shares, would have been about $67 million. That's about $10 million less than I estimated they were worth that day due to their more favorable, lower strike prices.
A more proper exchange, then, would have been to grant Jobs only, say, $65 million in free shares, or about 8.7 million shares instead of 10 million.
Under this scenario, Jobs's free shares would have been worth $557 million as of March 19, 2006, when the restrictions on his free shares lapsed, not $640 million.
On that basis, an appropriate remedy could be for Jobs to give back to the company's shareholders that difference, or a rounded $85 million.
Either that, or declare that he won't take any further compensation from the company for several years.
Jobs may be innocent of wrongdoing. But that doesn't mean he should be the beneficiary of wrongdoing.
He needs to say he's sorry with the one thing CEOs cherish most: Money.
Not sure if I agree here. If the options were cancelled they were cancelled so Apple or the shareholders didn't lose any money. So if Apple wants to give Jobs a load of restricted shares after that why is he ripping the shareholders off? AFAICS he ain't!
Hmm, I still don't get it, why backdating options should be legal, if all are informed. Options make only sense when they keep people from selling them at the moment, so what is the justification for backdating options, why not simply granting normal stock? Where's the difference between backdated options and normal stock?
Nightcrawler
Why shouldn't it be legal?
It's a gift for performance. It's also used to keep key executives and employees from leaving. This simply gives them a better deal if the stock isn't performing as well as it was thought when the option was issued.
As long as it's done in the open, there is no deception involved. And if the financial issues are taken care of, everything's fine.
It has nothing to do with when the options are sold. That's not an issue.
Perhaps it's time to chew on this a little bit more..
from bloomberg.com:
Not sure if I agree here. If the options were cancelled they were cancelled so Apple or the shareholders didn't lose any money. So if Apple wants to give Jobs a load of restricted shares after that why is he ripping the shareholders off? AFAICS he ain't!
The article is "blowing smoke". We were well aware of the 10 million options he received later, and what happened with them.
The article is "blowing smoke". We were well aware of the 10 million options he received later, and what happened with them.
You're right but lets reflect for a minute. If those original (dodgy) options had not become unviable then the possibility is that Jobs would have exercised them - and now Apple would be without their CEO... Close call.
You're right but lets reflect for a minute. If those original (dodgy) options had not become unviable then the possibility is that Jobs would have exercised them - and now Apple would be without their CEO... Close call.
We don't know that. As they weren't exercised, we don't know if they would have been reported properly or not.
I never speculate on these things if they don't matter. I leave that up to the kids who love to make a big deal out of nothing.
Comments
Backdating Share options wasn't (or isn't?) illegal. It's only when it is not fully disclosed to the shareholders/factored into the accounts. Companies can give money/or stock to their employees (or who ever they want) period. Would you include Mr Jobs as a possible candidate for your thirsted hard penalties?
While it's true that there was no special law that prohibitted backdating share-options before lately, I'm sure it still falls under other laws like fraud, insider-trade, even theft...
Let's imagine Steve Jobs himself was granted a bunch of options today, let's say a hundred thousand of them, that he can transform into normal stock in two years to the price of today, but since he can't wait that long, he lets them be backdated to two years before today, and he tranforms them to normal stock today at the price that the stock had two years ago.
Thus he would immediately benefit from the stock-option and espescially from the guaranteed profit because the stock-price went up considerably during the last two years..
I'm not sure I have understood everything, but if I'm right with my description of the events, then that would amount at least to insider-trade, and if that's the case then I would want to see Steve Jobs punished for it, just like anybody else, noone should be above the law.
Nightcrawler
While it's true that there was no special law that prohibitted backdating share-options before lately, I'm sure it still falls under other laws like fraud, insider-trade, even theft...
That's incorrect. Even today, simply backdating options is not illegal.
What is illegal about it is the way it is done, or not done.
It's the PROCESS that makes it illegal or not. The Board of Directors must be informed. The stockholders must be informed.
The financial situation that is affected by it must be resolved. The taxes owed must be paid, etc.
If that is done properly, then there is NO violation.
Let's imagine Steve Jobs himself was granted a bunch of options today, let's say a hundred thousand of them, that he can transform into normal stock in two years to the price of today, but since he can't wait that long, he lets them be backdated to two years before today, and he tranforms them to normal stock today at the price that the stock had two years ago.
Thus he would immediately benefit from the stock-option and espescially from the guaranteed profit because the stock-price went up considerably during the last two years..
I'm not sure I have understood everything, but if I'm right with my description of the events, then that would amount at least to insider-trade, and if that's the case then I would want to see Steve Jobs punished for it, just like anybody else, noone should be above the law.
Nightcrawler
The rest of your post doesn't apply if the rules I posted are adhered to.
That's incorrect. Even today, simply backdating options is not illegal.
What is illegal about it is the way it is done, or not done.
It's the PROCESS that makes it illegal or not. The Board of Directors must be informed. The stockholders must be informed.
The financial situation that is affected by it must be resolved. The taxes owed must be paid, etc.
If that is done properly, then there is NO violation.
The rest of your post doesn't apply if the rules I posted are adhered to.
Hmm, I still don't get it, why backdating options should be legal, if all are informed. Options make only sense when they keep people from selling them at the moment, so what is the justification for backdating options, why not simply granting normal stock? Where's the difference between backdated options and normal stock?
Nightcrawler
Hmm, I still don't get it, why backdating options should be legal, if all are informed. Nightcrawler
The company wants to give Mr Jobs say nx$10Million as a bonus. They could just give it too him as cash or as stock - All they've got to do is write it in the accounts in expenditure -nx$10Milion to Mr Jobs. But somehow they want it to be tied to the companies performance so they think options are the best idea. OK so with the options Mr Jobs can only exercise them after a few years or whatever so if he does well the money goes up and he gets more.
But they think the stock looks a bit high, why not give him the options when the price was less, or give them to him just before some good news or whatever. OK no problem. But they have to write exactly what they do in the accounts -nx100 options to Mr Jobs with the the price of option set at the real price which would be different to the price of options on the day - if they were backdated.
Without doing it properly the accounts are screwed the profit looks more than it is and Apple is defrauding it's investors.
...
But they think the stock looks a bit high, why not give him the options when the price was less, or give them to him just before some good news or whatever...
Ah, I see, thanks for the clarification.
Nightcrawler
from bloomberg.com:
Apple's Jobs Should Give Back the $85 Million: Graef Crystal
By Graef Crystal
Oct. 11 (Bloomberg) -- Apple Computer Inc.'s Steve Jobs should give it up.
What am I talking about?
Some $85 million or so that the chief executive officer collected because of a sleight-of-hand the maker of the iPod music player and Macintosh computers engaged in when it awarded Jobs some mammoth stock option grants. That's money that should go back to the shareholders.
Apple's well-oiled public relations machine has said that because of ``irregularities'' in the grants, the options were canceled ``and resulted in no financial gain to the CEO.''
Nothing could be further from the truth.
Here are the facts:
In January 2000, Jobs was granted what was, and I believe still is, the largest option grant on a single day. It covered a staggering 40 million split-adjusted shares.
The strike price of that grant was equal to the lowest closing price of Apple stock in the 56- and 30-calendar day periods preceding the grant and in the 30- 56- and 90-day periods following the grant. In other words, perfectly timed to Jobs's advantage.
Because Apple's stock plunged when the Internet bubble deflated, that grant wound up underwater, with the market price of Apple's stock below the options' strike price.
Indulgent Board
Apple's indulgent board decided that Jobs didn't need to be punished for the decline in the share price; rather, he needed to be rewarded. He was given a second grant covering 15 million split-adjusted shares in October 2001.
Apple's shares slid more, with the result that the second grant also went underwater.
Then in March 2003, Jobs ``voluntarily cancelled'' all 55 million option shares, according to the company's proxy statement. That cancellation is the basis for Apple's statement that he did not benefit from these options.
But hold on. In its report to shareholders that year, Apple's board compensation committee noted the voluntary surrender of the options and then disclosed that ``in exchange for his cancelled options'' Jobs had been given 10 million split- adjusted shares. At the time the shares were worth about $75 million.
The free shares were restricted from sale for three years. When the restrictions lapsed on March 19, 2006, they were worth some $640 million.
It's hard to think of any Apple shareholder -- or anyone else for that matter -- who wouldn't welcome such a non-benefit.
So how did Apple's board come up with 10 million free shares as the amount to exchange for Jobs's 55 million underwater option shares?
Perfect Hindsight
I don't know the answer to that question, but I strongly suspect that the company employed the Black-Scholes model or one of its derivatives to value those underwater options.
Remember that even an underwater option has value if it has time remaining until its expiration. One chunk of shares would have been exercisable until January 2010, while the other until October 2011.
I calculated the options' value based on the Black-Scholes model. And what do you know, my estimate of their present value at the time they were ``voluntarily'' surrendered was $77 million, a figure almost identical to the value of the shares given to Jobs.
I asked Apple spokesman Steve Dowling whether the term ``irregularity'' was a synonym for ``backdating'', or deciding after the fact, and with perfect hindsight, what day would have been ideal for the grant of an option. He declined to comment.
Blowing Smoke
Rather than answer that question, Apple has chosen to blow a lot of smoke in its shareholders' direction.
Witness this statement from an Oct. 4 filing with the U.S. Securities and Exchange Commission: ``In a few instances, Apple CEO Steve Jobs was aware that favorable grant dates had been selected, but he did not receive or otherwise benefit from these grants and was unaware of the accounting implications.''
``Did not receive'' these grants? Come on. The grants were made. There's no rewriting history allowed here.
Did not ``otherwise benefit from these grants?'' Again, come on. I'd sure like it if someone gave me a $75 million non- benefit.
Later, Apple became a bit more forthcoming, saying that there was something wrong with one or maybe both of Jobs' two option grants, but he was never aware of those ``irregularities.''
Forget Apologies
So what's to be done here?
For my part, I don't think an apology from Jobs, which he has already proffered, is a sufficient remedy.
Maybe it's true he didn't know that someone had put his finger on the options scale in his behalf. But he surely did benefit from that thumb on the scale.
Had those two options carried a strike price equal to the daily average closing prices in the two fiscal years in which they were made, and not the much lower strike prices actually assigned, their estimated present value as of March 19, 2003, when they were exchanged for free shares, would have been about $67 million. That's about $10 million less than I estimated they were worth that day due to their more favorable, lower strike prices.
A more proper exchange, then, would have been to grant Jobs only, say, $65 million in free shares, or about 8.7 million shares instead of 10 million.
Under this scenario, Jobs's free shares would have been worth $557 million as of March 19, 2006, when the restrictions on his free shares lapsed, not $640 million.
On that basis, an appropriate remedy could be for Jobs to give back to the company's shareholders that difference, or a rounded $85 million.
Either that, or declare that he won't take any further compensation from the company for several years.
Jobs may be innocent of wrongdoing. But that doesn't mean he should be the beneficiary of wrongdoing.
He needs to say he's sorry with the one thing CEOs cherish most: Money.
Not sure if I agree here. If the options were cancelled they were cancelled so Apple or the shareholders didn't lose any money. So if Apple wants to give Jobs a load of restricted shares after that why is he ripping the shareholders off? AFAICS he ain't!
Hmm, I still don't get it, why backdating options should be legal, if all are informed. Options make only sense when they keep people from selling them at the moment, so what is the justification for backdating options, why not simply granting normal stock? Where's the difference between backdated options and normal stock?
Nightcrawler
Why shouldn't it be legal?
It's a gift for performance. It's also used to keep key executives and employees from leaving. This simply gives them a better deal if the stock isn't performing as well as it was thought when the option was issued.
As long as it's done in the open, there is no deception involved. And if the financial issues are taken care of, everything's fine.
It has nothing to do with when the options are sold. That's not an issue.
Perhaps it's time to chew on this a little bit more..
from bloomberg.com:
Not sure if I agree here. If the options were cancelled they were cancelled so Apple or the shareholders didn't lose any money. So if Apple wants to give Jobs a load of restricted shares after that why is he ripping the shareholders off? AFAICS he ain't!
The article is "blowing smoke". We were well aware of the 10 million options he received later, and what happened with them.
The article is "blowing smoke". We were well aware of the 10 million options he received later, and what happened with them.
You're right but lets reflect for a minute. If those original (dodgy) options had not become unviable then the possibility is that Jobs would have exercised them - and now Apple would be without their CEO... Close call.
You're right but lets reflect for a minute. If those original (dodgy) options had not become unviable then the possibility is that Jobs would have exercised them - and now Apple would be without their CEO... Close call.
We don't know that. As they weren't exercised, we don't know if they would have been reported properly or not.
I never speculate on these things if they don't matter. I leave that up to the kids who love to make a big deal out of nothing.