What it is
For those who want a quick explanation of backdating :
Execs often get stock options, which can read something like this :
"12 months from now, and for 5 years after that, you can purchase up to 1 million shares of apple stock from apple at the price of the stock at close on the date this option is issued."
Backdating is when you write up a stock option for an exec like the above statement, and then put the 'date option issued' earlier than the current date.
ie, a clearly illegal and egregious example would be to issue such an option to an exec today (1/19) and put the issue date of the option to 6/19/06 - a date where the stock sold for $54.10
The stock today closed at $88.50. So, naturally the exec then buys a million shares from apple at $54.10, and promptly sells them on the market for $88.10 - making a net of (88.60-54.10) x 1million = 34.4 million.
This money does not grow on trees. One of two things happen :
1 - The shares apple sells are 'new' and were never on the market. The exec has now diluted the value of the stock the other shareholders hold by introducing this 1 million new shares into the market, hence effectively ripping off the shareholders of the stock.
2 - Apple had previously purchased the shares and held them as an asset. Now, it has sold its asset that was worth 88.6 million to this exec for 54.1 million, and the exec of course promptly sells them for 88.6 million. In this case, Apple effectively just paid the exec 34.4 million.
This is a very bad thing.