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For example, suppose an executive receives an option on April 15, when the company's stock price is .

Next, assume that on March 15 the company's stock price was only .

One of the prosecutors called Dull's attorney and essentially threatened to press charges for perjury if Dull testified as he did in the civil case.

Additionally, the prosecutor offered to "go soft" on Dull during cross-examination if he would testify that he had lost faith in Ruehle's integrity.

If the SEC filing represents that the option was granted on March 15, the executive makes an extra profit per share of stock.

As the other two criminal cases came to trial, Federal Judge Cormac Carney tried to preclude the introduction of statements made by Ruehle to Broadcom's corporate counsel during previous internal investigation. Ruehle's attorneys wanted to call Samueli and former general counsel David Dull to testify in Ruehle's defense, The prosecutors, who typically hold the power to grant immunity, refused to do so. On February 4, 2010, the government dropped the last case surrounding Broadcom's backdating scheme. Judge Carney left room for the SEC to re-file its civil case against the four Broadcom executives, but he indicated that he did not think such a case would be successful. Even more shocking, however, was Judge Carney's decision to vacate Samueli's guilty plea. After hearing Samueli's testimony regarding Ruehle, Judge Carney expressed that he was so "disturbed" by the government's actions that he decided to give the defendants all the breaks. So in granting immunity, Judge Carney sent a strong signal that he suspected prosecutorial impropriety. If prosecutorial misconduct had not already occurred, it certainly began after Judge Carney granted immunity to Samueli and Dull. Prosecutors can certainly address problems reflected in the Broadcom prosecutions by exercising greater restraint and respect for the rule of law. A much more effective deterrent against inevitable overreaching, however, is to moderate the underlying incentive: vague federal criminal laws. Before the enactment of SOX in 2002, a company had 45 days to file notice of an options grant with the SEC. With the passage of SOX, the 45-day window to legally backdate stock options shrank to two days.


  1. Apr 25, 2007. A former chief financial officer of Apple reached a settlement with the Securities and Exchange Commission yesterday over the backdating of stock options and said company founder Steve Jobs had reassured him that the questionable options had been approved by the company board.

  2. Feb 14, 2007. Of the FBI's 492 pending corporate fraud cases, 61 center on options backdating. Most corporate fraud cases involve accounting schemes designed to deceive investors and analysts about the true financial state of a company. Burrus said that while the number of those cases has remained fairly steady.

  3. Aug 18, 2009. A federal appeals court has thrown out the stock option backdating conviction of Gregory Reyes, the former CEO of Silicon Valley network equipment. The court found her conviction was valid, but sent her case back to district court for re-sentencing, finding that she had been unfairly punished her for her.

  4. It can be controversial as the Apple case shows. Yermack 1997, the precursor of the literature on option backdating, identified a pattern of abnormal stock price returns around executive stock option grants in the sense that there were abnormally high returns immediately after these options were granted. Other than pure.

  5. M. P. Narayanan, Cindi A. Schipani & H. N. Seyhun, The Economic Impact of Backdating of Executive Stock Options, 105 Mich. providing specific examples of U. S. executives who are receiving high levels of compensation;. A Case Study of Perverse Incentives, Nonperformance Pay, and Camouflage, 30 J. CORP.

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