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.Professor Lie concluded that the robust profitability of so many options was statistically impossible absent some artificial influence such as backdating.Subsequently, the Securities and Exchange Commission (SEC) took an interest, followed by the securities plaintiffs’ bar and many corporations. The practice of options backdating, apparently widespread from 1996 through 2002, is widely believed to have been short-circuited by the enactment of Sarbanes-Oxley in 2002.The investigation "found that CEO Steve Jobs was aware or recommended the selection of some favorable grant dates." The committee hastens to add that Jobs "did not receive or financially benefit from these grants or appreciate the accounting implications." In other words, he didn't recommend backdating his own option grants.
And he never cashed in those options because they were replaced in 2003 by a grant of restricted stock.
An example illustrates the potential benefit of backdating to the recipient.
The Wall Street Journal (see discussion of article below) pointed out a CEO option grant dated October 1998.
Apple has essentially blamed former chief financial officer Fred Anderson and former general counsel and board secretary Nancy Heinen, both of whom are no longer with the company.
But Apple makes clear that Jobs was directly involved in some instances of backdating. As a consequence, the option is immediately profitable, or “in the money,” to the option holder.