Brocade backdating scandal

Posted by / 01-May-2020 23:21

Brocade backdating scandal

The essence of the options backdating scandal can be summarized simply as executives falsifying documents in order to earn more money by deceiving regulators, shareholders and the Internal Revenue Service (IRS).The roots of the scandal date back to 1972, when an accounting rule was put in place permitting companies to avoid recording executive compensation as an expense on their income statements so long as the income was in the form of stock options that were granted at a rate equal to the market price on the day of the grant, often referred to as an at-the-money grant.

By faking the issue date, they could guarantee themselves in-the-money options and instant profits.

A series of academic studies was responsible for bringing the backdating scandal to light.

The first was in 1995, when a professor at New York University reviewed option-grant data that the SEC forced companies to publish.

A Pulitzer Prize-winning story published in The Wall Street Journal finally blew the lid off of the scandal.

(See also: As a result, firms restated earnings, fines were paid and executives lost their jobs—and their credibility.

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On May 25, 1999, the company went public at a split-adjusted price of $4.75.