Broadcom options backdating indictment importance of updating web content
Although this practice gave the senior executives significant stock holdings, since the grant was issued at-the-money, the share price had to appreciate before the executives would actually earn a profit.
The study, published in 1997 identified a strange pattern of extremely profitable option grants, seemingly perfectly timed to coincide with dates on which the shares were trading at a low price.
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.
This enabled companies to issue enormous compensation packages to senior executives without notifying shareholders.
In researching this post, I came across a number of recent reports on Henry Nicholas III, the once high-flying CEO and cofounder of Broadcom. While the story was enthralling, I didn't understand what any of it had to do with a federal investigation into stock option backdating.
The allegations of illicit sex, drugs, and rock and roll reminded me of the 60s ... Sure, Broadcom had to take a .2 billion charge to fix the accounting mess left by the company's former executives.