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Posted by / 16-Nov-2019 03:37

Karatz and Hirst cooperated with the internal investigation of options backdating, The Journal said, citing an unnamed person familiar with the matter and adding that Karatz, Hirst and Ray couldn't be reached for comment.

The stock-options scandal, which has now claimed the jobs of more than 50 executives and directors, The Journal said, and more than 130 companies, including KB Home, are under federal investigation in a wide government action.

The company said it hasn't negotiated any terms of departure with Karatz other than the agreement to repay profits from backdating, The Journal said.

ESOs are usually granted at-the-money, i.e., the exercise price of the options is set to equal the market price of the underlying stock on the grant date.

Backdating involves pretending that an option was granted on an earlier date when the market price was lower, conveying an opportunity for extra profit.

The practice can lead to overstated profits and significant tax problems for the companies and executives involved.

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.

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