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The most common stock options are known as “at the money” options, which let you buy the company’s stock at the price that it had on the day of the grant.They’re valuable only if the stock price rises after you get them.A much stronger view came from Lynn Turner, managing director of research at Glass Lewis, an investment research and proxy advisory firm.Turner, a former chief accountant at the SEC, strongly denounced spring-loading.

As long as revenues and expenditures are reported honestly, [several studies show that] accounting legerdemain doesn’t fool the market.

The companies involved in the recent scandal were backdating options to a time when the stock price was lower, making them immediately lucrative. stock options by claiming that they’re an incentive for performance: the executives get rich only if they do a good job and the stock goes up.

As it happens, companies are perfectly free to issue options priced below the current market: those are called “in the money” options, and they’re worth something right when they’re issued. But there’s a rule that companies have to follow when they issue “in the money” options: they have to disclose it in their financial statements. Unless executives can time-travel, though, it’s hard to make that case for backdated options.

The backdating companies broke this rule: they reported how many options they were issuing, but conveniently omitted the fact that they had been backdated. The bigger reason for choosing to backdate is to get around some bothersome accounting regulations.

In Washington, people say that it’s not the crime that gets you—it’s the coverup. [C]ompanies didn’t need backdating to lavish huge sums of money on their executives: they could have issued more at-the-money options to make up the difference, or they could have just handed out grants of stock. Until recently, the regulations distinguished, for no good reason, between in-the-money and at-the-money options.

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