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To: inaflash who wrote (68711)	9/17/2007 12:28:53 PM
From: Lizzie Tudor	Respond to of 213177

I wonder what the current accounting requirement would be as far as setting the price, especially given the price variability even during a single day, and the volatility changes that apply to the options. Do they need to use the opening price? closing price? average price? Exact market price (bid or ask or mid?) I don't know that either. here is something REALLY IRONIC. Apparently in 2000 the in the money grants needed to be expensed on the balance sheets, using some kind of straight line method (not black Scholes) called variable accounting. I have never heard of variable accounting despite working on supply chains of some 70 companies (where GAAP rules are discussed constantly) so that says something right there - however these are not supply chain related expenses dealing with products, still- I think there should have been more widespread knowledge of variable accounting to conclude real premeditated criminal activity occurred. The "at the money" (meaning not backdated- but your post makes a valid point, what constitutes backdating with a stock that moves 10% a day) options needed to be documented in the footnotes using black scholes. Since the balance sheet method of expensing was not B/S, and B/S basically overcounts expense by applying a volitility charge- the expenses for all these backdated options were basically OVERSTATED in the footnotes! In other words the options were documented just not in the right place (footnotes with B/S vs balance sheet inline). Indeed, just doing the proper calculation for in-the-money options in 1999--a process called variable accounting--was hellishly difficult. The company theoretically would have had to recalculate the amount to expense each quarter, based on the fluctuations of the stock price vis-a-vis the strike price. The process was so complex that most companies avoided having to do it, and many accountants still aren't sure about how to handle certain details of the process. money.cnn.com

To: inaflash who wrote (68711)	9/18/2007 5:58:29 PM
From: Lizzie Tudor	Read Replies (1) \| Respond to of 213177

I wonder what the current accounting requirement would be as far as setting the price, especially given the price variability even during a single day, and the volatility changes that apply to the options. OK I am interested in this so I looked into it with the recent docs filed in the Reyes case. It looks like the implication is the FMV CLOSING PRICE of the options on the day the comp committee Approves the grant, closing price. Fortune has these docs online, from the trial. This doc is some kind of rebuttal where the government claimed Reyes cooked the books all by himself and deceived finance when in SV we know that this is the way its been done for years. One thing is for sure, there is major prosecutorial conduct issues here, I don't know if this is the way all prosecutors act. But this is interesting because it tells how options are supposed to be priced. Rossi is the controller I think. fortunelegalpad.files.wordpress.com So let??s look at the whole e-mail. . . . And then he says: ??Re grants, there is no rule for granting or pricing the options. Options would be granted on the date the comp committee or board approves the options and price is FMV, fair market value, on that date. The actual granting of options does not have to take place within any specific timeline.?? . . . You heard from Mr. Simpson, this is the right way to do it. Options would be granted on the date the comp committee, Mr. Reyes, approves the options, and price is the fair market value on that date. The prosecution tries to defend its arguments by claiming that Bossi never advised Mr. Reyes that look-backs were permissible. That is a straw man, because the defense never argued that Bossi had so advised Mr. Reyes.2 Rather, the defense proved that Bossi had advised the Human Resources department that look-backs within the quarter were permissible. Bossi did so because he ??thought that it might be allowable to ??look back?? within a fiscal quarter in the context of the committee of one.?? (7/13/07 Bossi 302, at 1); see 11/29/05 interview at 8 (??BOSSI did not initially see the look-back as posing any major accounting issues as long as a grant was made within the quarter.??).