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The number of shares subject to option was 250,000 and the exercise price was (the trough in the stock price graph below.) Given a year-end price of , the intrinsic value of the options at the end of the year was (-) x 250,000 = ,750,000.In comparison, had the options been granted at the year-end price when the decision to grant to options actually might have been made, the year-end intrinsic value would have been zero.Backdating does not violate shareholder-approved option plans.Most shareholder approved option plans prohibit in-the-money option grants (and thus, backdating to create in-the-money grants) by requiring that option exercise prices must be no less than the fair market value of the stock on the date when the grant decision is made. For example, because backdating is used to choose a grant date with a lower price than on the actual decision date, the options are effectively in-the-money on the decision date, and the reported earnings should be reduced for the fiscal year of the grant.
In particular, he found that stock prices tend to increase shortly after the grants.Increasing the consequences of corporate fraud is one way in which a company can discourage fraud.If Apple had developed a more strict punishment to anyone involved in financial misstatements, such as immediate dismissal from the company or the board, the participants in options backdating may have acted more carefully.Some firms have attempted to teach ethical behavior and instill an ethical corporate culture within their firms.This would have likely have been ineffective in preventing options backdating at Apple.