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Other similar practices are being reviewed by government officials as well.“Spring loading” involves the issuance of options immediately prior to the announcement of favorable financial news expected to have a positive impact on the underlying share price, thereby providing an immediate profit to the option holder.In addition, hundreds of thousands of backdated options were issued to fictitious employees and parked in a slush fund to be awarded at the CEO’s discretion.Not surprisingly, the defendants themselves earned millions of dollars from backdated options.Even Apple Computer CEO Steve Jobs was implicated by an internal investigation into backdating, although he apparently did not receive, or otherwise benefit from, the backdated grants.

The backdating problem was first highlighted by Professor Erik Lie of the University of Iowa, who published his initial study in 2004.Professor Lie concluded that the robust profitability of so many options was statistically impossible absent some artificial influence such as backdating.Subsequently, the Securities and Exchange Commission (SEC) took an interest, followed by the securities plaintiffs’ bar and many corporations. The practice of options backdating, apparently widespread from 1996 through 2002, is widely believed to have been short-circuited by the enactment of Sarbanes-Oxley in 2002. As a consequence, the option is immediately profitable, or “in the money,” to the option holder. All stemming from the practice known as “options backdating.” Options backdating occurs when a company issues stock options on one date, but reports in its financials an earlier issue date to create a “strike” or exercise price equal to the earlier date’s lower price.

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