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Back dating option stock

Frank writes: The magnitude of the settlement compared to the original claims demonstrates that it is an extortionate nuisance settlement, being made because it would cost more to defend the suit than to pay the attorneys to go away.

But it should be noted: the settlement is not just outrageous, it is illegal.

Eventually, Apple settled the case, to the tune of .5 million.

Here's how Ira Stoll from Future of Capitalism, describes the terms of the settlement: Ted Frank, the president of the Center for Class Action Fairness and a leading tort-reform advocate, is making the case that the settlement is worse than nutty and unfair. Indeed, it seems the center is planning to contest the settlement in court, provided it can find people who invested in Apple between 20 who are willing to be named as plaintiffs. Surely there are plenty of Apple investors who don't want to see Apple pay .5 million to settle this kind of nuisance lawsuit.

Which, of course, you shouldn't assume since any sensible employee can see that if his each stock option is worth less, he should get more of them.In the case of backdating, the only crime was the coverup. In-the-money options—but not at-the-money options—had to be recorded as an expense, which drove down reported earnings.Backdating allowed companies to reward employees with in-the-money options while getting the favorable accounting treatment of at-the-money options. Classifying the options properly would have lowered the number in the “earnings” box, and so C. O.s assumed that it would also drag down the company’s stock price.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.Given that the class attorneys are negotiating money for third parties instead of their own putative clients (for their own benefit, no less), there is also a breach of fiduciary duty that raises questions whether the class attorneys meet the Rule 23(a)(4) standard.The settlement is further problematic in that the vast majority of class members are entitled to zero compensation; it is far from clear that the sole lead plaintiff is a member of this subclass.Under the Ninth Circuit's Six Mexican Growers precedent, a court should not be issuing cy pres* that is not likely to benefit the class members.And as the Center for Class Action Fairness noted in recent Ninth Circuit briefing, the American Law Institute has said that cy presis inappropriate where class members are readily identifiable.The Dating Game, by James Surowiechi, The New Yorker: ..When news broke, earlier this year, that some companies had backdated stock-option grants ...

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