From a shareholder's perspective, nobody likes to be lied to when providing the financing and paying the salaries.(See also: .) In the early 2000s, new accounting provisions were enacted that required companies to report their option grants within two days of their issue and also required that all stock options be listed as expenses.The process became so prevalent that some investigators believe 10% of the stock grants made nationwide were issued under these false pretenses.A series of academic studies was responsible for bringing the backdating scandal to light.From a consumer's perspective, customers rely on companies to provide goods and services.When those firms have no ethical boundaries, their wares become suspect.
They could also cheat the IRS twice, once for themselves, since capital gains are taxed at a lower rate than ordinary income, and once for their employers since the cost of the options would qualify as a corporate tax write-off.
These changes reduced the likelihood of future backdating incidents. Check out Investopedia Academy's Options for Beginners course.
With over 4 hours of video content and interactive exercises, you'll learn the fundamentals of options trading and how to employ effective strategies within the options market.
After all, stock option backdating is all the rage these days.
You'd think they'd be up to their eyeballs in rope.