I don't think the rule that was violated here is very complicated at all. I'll get the technical details wrong, I'm sure, but the underlying ethic of the situation is obvious:
If you issue a stock option with a strike price equal to the day's market price of an option, it's "at the money". These options are tax-favored, presumably because it doesn't have intrinsic value (until it's "in the money", when the company shares later appreciate).
What you can instead do, if you're a cheat, is to pretend you're issuing tax-favored incentive options "at the money", but backdate them so that their price at issuance is the low price within some window. These options are effectively "in the money" (whatever the difference is between the low price set for the option and the current higher price is locked-in profit) when issued, have intrinsic value, and should be fully taxable, but you're falsely claiming otherwise.
These options are effectively "in the money" (whatever the difference is between the low price set for the option and the current higher price is locked-in profit) when issued, have intrinsic value, and should be fully taxable, but you're falsely claiming otherwise.
For what it's worth, options that are not "in the money" are still worth a lot of money and have intrinsic value. I'm not making a ridiculous claim here, this is what the Black Scholes model would say for example and it's why companies don't just hand out options freely to anyone. Yet according to our tax law they do not have value and are not taxable. (This is why options exist in the first place.) So, IMO the whole thing is complicated because the tax law has a somewhat arbitrary rule for determining what options are taxable.
IANAL but it is also not required to give out strike prices that match the exact day someone is hired. You have some flex in the time period. So these rules just aren't as simple as one might hope.
I guess my argument would just be that it seems pretty clear why it would be shady to go back in time and pick a false issuance date to create the impression that options issued at a higher price were really issued at a lower price in order to lock in untaxable profit.
I used to think that too. But I also thought it would be shady to claim that options had no value when those same options can be traded for money, to lock in an untaxable transfer. That, however, is a key part of how options tax law works. So my current claim is just that intuition is not a good guide to what is or is not legal or ethical for options taxation.
I don't think it's accurate to say that it has no intrinsic value by definition. If you do a fundamental analysis on the options without reference to their market value, the Black Scholes formula will tell you that an option, even an option out of the money, is worth something. That is the definition of intrinsic value.
Options out of the money also clearly have a market value, for public companies at least.
According to the first sentence in the article you link, "Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, using fundamental analysis." That's precisely what I am talking about.
If you issue a stock option with a strike price equal to the day's market price of an option, it's "at the money". These options are tax-favored, presumably because it doesn't have intrinsic value (until it's "in the money", when the company shares later appreciate).
What you can instead do, if you're a cheat, is to pretend you're issuing tax-favored incentive options "at the money", but backdate them so that their price at issuance is the low price within some window. These options are effectively "in the money" (whatever the difference is between the low price set for the option and the current higher price is locked-in profit) when issued, have intrinsic value, and should be fully taxable, but you're falsely claiming otherwise.