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Re: I Must be a Sick Pup...I Find this Funny

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By mhm6487
September 22, 2006

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Cablevision Systems Corp., the fifth-largest U.S. cable-television provider, awarded stock options to a dead executive in 1999, then backdated them to give the illusion they were granted when he was alive.

It's not funny, it's very practical. If you were planning this fraud, you'd want auditors to think the grants were actually made on the back date. So, if you left this guy, who presumably was alive on the back date, off the list, would you not have raised a big red flag? I think so.

Looks like they got caught anyway; oh well, the best laid plans. BTW, did you ever consider all the advantages to the company for perpetrating this fraud?

First, the corporation gets no income tax deduction for executive salaries over $1 million per executive. So, if they just pay the executive the amount awarded through the back dated option, they get no income tax deduction for the amount exceeding $1 million. However, if they give him the same amount in a sure lock through a back dated option, the amount qualifies as "incentive compensation" which is deductible.

Second, if the amount awarded through the option were paid as salary, the entire amount would reduce corporate cash (assets), and be recognized as an expense thereby reducing reported net income.

Third, by issuing a backdated option prior to this year, the executive received a guaranteed payment, which cost the company no cash, and which the company could deduct on its income tax return, and which did not reduce its reported assets or income.

A no brainer except for one small detail; the options had to be reported in at least a footnote to SEC filings. Since they intentionally lied about the grant date on the filings, they committed fraud. If they had just reported the back date as it happened, they would have committed no crime and would have, probably, been home free.


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