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For example, in early November 2006, United Health reported that it would have to restate earnings for the last 11 years, and that the total amount of restatement (related to improperly booked options expenses) could approach, or even exceed, 0 million. While reports of past indiscretions are likely to continue to surface, the good news is that companies will be less likely to mislead investors in the future. Prior to 2002, when the legislation was adopted, an executive didn't have to disclose their stock option grants until the end of the fiscal year in which the transaction or grant took place.
Among the agencies that could be knocking on the door are the Justice Department (for lying to investors, which is a crime), and the IRS for filing false tax returns.Clearly, for those who own shares in companies that don't play by the rules, options backdating poses serious risks.If the company is punished for its actions, its value is likely to drop substantially, putting a major dent in shareholders' portfolios.(To learn more, read .) In short, it is this failure to disclose - rather than the backdating process itself - that is the crux of the options backdating scandal. To be clear, the majority of public companies handle their employee stock options programs in the traditional manner.That is, they grant their executives stock options with an exercise price (or price at which the employee can purchase the common stock at a later date) equivalent to the market price at the time of the option grant.
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They also fully disclose this compensation to investors, and deduct the cost of issuing the options from their earnings as they are required to do under the Sarbanes-Oxley Act of 2002.