A tale of fake workers and a slush fund makes it harder to deny that backdating was abusive. While options backdating is not always illegal,  it has been called "cheating the corporation in order to give the CEO more money than was authorized. The unnamed assistant who kept track of the phantom account so named it after seeing the movie version of "The Phantom of the Opera," according to an FBI affidavit filed in support of the government's case against the Comverse executives. While it is true that many forms of backdating are not fraudulent or criminal in nature, there is a largely prevalent public opinion that all forms of backdating are the equivalent of fraud. Who wouldn't want such a deal? At least companies have disclosed internal or federal investigations into whether the value of options awarded to senior executives was inflated by backdating, or timing the grants to coincide with days when the stock price was low.
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Juicy Details in Option Scandal
Much more frightening to tech executives is that the Justice Department is bearing down with criminal cases, and has filed two in a period of three weeks. Glass Lewis also raised concerns about late Form 4s that could have resulted in higher profits for executives at Hansen Natural Corp. A tale of fake workers and a slush fund makes it harder to deny that backdating was abusive. Both McGuire and his replacement have agreed to reprice their stock options to eliminate any gain from backdating. Academic researchers had long been aware of the pattern, exhibited by some companies, of share prices rising dramatically in the days following grants of stock options to senior management. However, if the exercise price is below the market price so that the options are in the moneythen the compensation will not be performance based, as the options would have intrinsic value immediately.