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New rules under the Sarbanes-Oxley Act have reduced the practice to 10% of the companies granting options.

Only 7.7% of companies filing within the new two-day reporting window for options grants show a pattern of backdating, compared to 19.9% of companies that did not meet the requirements.

After accounting for forfeitures, Apple was forced to recognize stock-based compensation expense of 5 million on a pretax basis that it hadn't done so previously.

Apple has essentially blamed former chief financial officer Fred Anderson and former general counsel and board secretary Nancy Heinen, both of whom are no longer with the company.

Whether executives will be criminally liable depends on whether they were consciously trying to cover up the practice of backdating. Like securities fraud, the criminal tax fraud statutes require an intent element.

Securities Fraud The primary source of criminal liability for backdating are the federal securities acts, which regulate the sale of securities by publicly traded companies.

There are three major areas of potential criminal liability for former executives involved in stock options backdating: securities fraud, tax fraud, and mail or wire fraud. Backdating only becomes illegal when executives fail to disclose the practice in financial reports, and fail to properly account for backdated options according to Generally Accepted Accounting Principles (GAAP) and the relevant tax laws. Three possible violations of the Internal Revenue Code ('Code') could create criminal liability for backdating: (1) exceeding the compensation deduction limits of Section 162(m), (2) failing to qualify options under the rules that govern incentive stock options in Section 422, and (3) violating the provisions of Section 409A regulating deferred compensation.

District Attorney's Office has also issued several subpoenas in launching a criminal probe. The typical practice was to record a felicitously timed prior date as the grant date, such as the point when the stock had been at its lowest in recent months, instead of the date when the award was actually granted.

Nejat Seyhun of the University of Michigan for the newspaper showed that that options granting practices between 20 often failed to comply with the Sarbanes-Oxley requirement that grants of awards to executives be reported within two days of board approval (T"he Dating Game: Do Managers Designate Option Grant Dates to Increase Their Compensation? Prior research at Erik Lie at the University of Iowa found a pattern of probable options backdating in a number of companies prior to 2002.

have led to the resignation of dozens of top executives and investigations by the Securities and Exchange Commission and federal prosecutors. 29, Apple discussed the report and accounted for the impact of the earnings restatements in its 10-Q.

But the options scandal has never touched a more exciting company than Apple or a more thrilling executive than Jobs. In June 2006, a special committee of Apple outside directors, chaired by former Vice President Al Gore, hired its own attorneys to investigate options backdating at the company. It turns out there were literally thousands of examples of backdating at Apple—6,428 options grants on 42 dates over a period of several years.