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MacRumors
Jan 23, 2007, 08:53 AM
http://www.macrumors.com/images/macrumorsthreadlogo.gif (http://www.macrumors.com)

According to a report from Bloomberg, Steve Jobs was questioned by the SEC (http://www.bloomberg.com/apps/news?pid=20601103&sid=angrvQzz8UTA&refer=us) last week regarding the ongoing stock options backdating investigation.

The meeting, which took place the same week Apple announced record sales of its best-selling iPod music player, shows the U.S. government is still seeking information about Jobs's role in the backdating even after the company's report clearing him and others, said Nell Minow, editor at the Corporate Library, a corporate governance research firm in Portland, Maine.

"It is after all the SEC's view on his culpability that matters, not the internal investigation at Apple," Minow said.

An independent investigation by Apple cleared current management from wrongdoing (http://www.macrumors.com/pages/2006/10/20061004180455.shtml), but had found serious concerns regarding the actions of two former officers (later identified as former CFO Fred Anderson and former general counsel Nancy Heinen).

Nevertheless, Jobs has reportedly hired independent counsel (http://www.macrumors.com/pages/2006/12/20061227164408.shtml) beyond Apple's lawyers to deal with his involvement in the matter. Apple's board has previously expressed confidence (http://www.macrumors.com/pages/2006/12/20061229124724.shtml) in Jobs.



geerlingguy
Jan 23, 2007, 08:59 AM
Even if the SEC decides Jobs did something wrong, would Apple can him?

I would think not...

AidenShaw
Jan 23, 2007, 08:59 AM
http://www.mercurynews.com/mld/mercurynews/16452862.htm

U.S. attorney opens probe into Apple options rigging

By Troy Wolverton, Therese Poletti and Mark Schwanhausser
Mercury News

The U.S. Attorney's Office said late Friday that it has opened a criminal investigation into the stock options backdating scandal at Apple.

Luke Macauley, a spokesman for the U.S. Attorney's Office in San Francisco, declined to give details on the investigation. But a source familiar with the matter told the Mercury News on Friday that included in the probe is an option grant given to Apple Chief Executive Steve Jobs in 2001 that ranked among the largest in corporate history.

...

Apple has argued that Jobs did not benefit from any backdated options because the company canceled both the 2000 and 2001 grants. However, Apple replaced the grants with 7.5 million shares of restricted stock, of which Jobs still holds about 5.4 million shares currently worth about $511 million.

Apple described the trade at the time as an ``exchange.''

`` `In exchange for:' Those three words are pregnant with meaning,'' said compensation expert Graef Crystal. ``For them to make the statement that he surrendered the options and never received a benefit is so duplicitous, so mendacious, that everything they have to say is colored, in my mind.''

Patrick S. McGurn, director of Institutional Shareholder Services in Rockville, Md., on Friday called for Jobs to disgorge $20 million -- the amount of the accounting charge Apple took for the 2001 grant.

``It really is cruel and unusual punishment for the English language to try to come up with language that would indicate that he did not benefit from the award he received,'' said McGurn. ``Clearly, those awards were ultimately exchanged on a roughly value-for-value basis.''

...and this is in Apple's hometown newspaper...which usually prints stories gushing about how wonderful every Apple announcement is...

Copland
Jan 23, 2007, 09:22 AM
Can someone please explain to me in layman's terms (I'm only 15) what basically is happening with the Apple stocks and Steve? I've been ignorant thus far, but I'd kind of like to know what this is all about.

nbs2
Jan 23, 2007, 09:33 AM
Can someone please explain to me in layman's terms (I'm only 15) what basically is happening with the Apple stocks and Steve? I've been ignorant thus far, but I'd kind of like to know what this is all about.

Apple paid Steve with stock (rather than paying cash), since options have traditionally been viewed as a motivational tool - salary becomes dependant on performance rather than fixed.

Some stock was issued with a recorded date earlier than it was issued. Because value was rising, Steve was guaranteed to make more money. This is bad. Very bad. Criminally bad.

Anyway, investigations are coming from every which angle. This has both Apple and potentially Steve in a corner.

Company lawyers owe their duty to the company, not any individual. When lawyers are provided to higher management, you still run the risk of a conflict of interest (the company pays, but the individual receives the benefit - even at the expense of the company). It is always (well, I shouldn't say always, but I can't think of an exception) advisable to have your own counsel. I don't know why everybody seems to make a big deal about this, or why it was even mentioned in the article.

That should be a basic primer and reading other articles and news should get you the rest of the way, but if you have more questions, feel free to ask.

longofest
Jan 23, 2007, 09:36 AM
Can someone please explain to me in layman's terms (I'm only 15) what basically is happening with the Apple stocks and Steve? I've been ignorant thus far, but I'd kind of like to know what this is all about.

I hear ya :)

Steve's bosses is the Apple Board of Directors. They are who decides what kind of money or other compensation to give him. In the case of Steve, he only gets $1 per year in salary, but gets a lot of Apple Stock as other compensation for his work as Apple CEO. The stock/stock options that he receives are worth well in the millions.

What happened in 2001 was that Steve and Apple's Board sat down and for a couple of month's started to hammer out a deal that would give Steve the largest stock option grant in company history. A couple of problems happened during this time.

a) someone claimed that a board meeting happened that didn't
b) the options were dated by the time when negotiations began, rather than when they finished.

When negotiations began, Apple's stock was lower than when they finished. So, if they granted the stock based on the price of when negotiations began, Steve would have made instant money. However, you can't do that. You have to date the stocks based on when they are granted, not on some arbitrary date.

In the end, Steve decided not to exercise his stock options, and rather traded them in for something else. Thats why Apple's internal investigation said "he never profited from the grant he received". However, the fact that he received a grant at all, and the fact that a board meeting was falsified in the process, is what has the SEC so concerned.

Clive At Five
Jan 23, 2007, 09:40 AM
Is anyone *really* surprised by this? I mean, how could S.Jobs NOT know about the improper grants... isn't he on the board of directors... and shouldn't he be one of those giving the O.K. for the grant? The SEC just got a huge report from a company that falsified stock records, which attempted to convey that they were making a full confession for their wrongdoing... and offer up $84 million. A measley $84 million.

If I was the SEC, I'd be curious too.

-Clive

orbital
Jan 23, 2007, 09:45 AM
Okay s he goes to jail then comes back and pulls a Martha Stewart. Either way whether he is guilty or not i think they are going to use him as an example.

AidenShaw
Jan 23, 2007, 09:55 AM
Some stock was issued with a recorded date earlier than it was issued. Because value was rising, Steve was guaranteed to make more money. This is bad. Very bad. Criminally bad.
Apple is free to give the Steve options at whatever price they want. Even today, with the price around $85, they could give him options at $1 - with an instant "paper profit" for Steve of $84.

What Apple can't do, however, is to claim (for securities and tax purposes) that the cost to Apple of these options is $1 - the true cost is the $84 difference.

In the backdating scandal, this "erroneous cost" is exactly the problem - by setting back the date of the grant, Apple claimed a cost that was less than the true cost.

To make matters worse, there was deliberate falsification of records - claiming that a meeting had occurred at the time of the grant, when in fact no such meeting happened.

The falsified meeting makes it very hard for Apple to claim that this was a simple mistake - it shows a conspiracy to commit fraud that the courts find quite compelling.

AidenShaw
Jan 23, 2007, 10:02 AM
Picked up on Cnet:

http://news.com.com/Reports+Jobs+in+the+hot+seat+over+option+backdating/2100-1047_3-6152437.html


There are links to quite a few more stories at MacSurfer's Headline News (http://www.macsurfer.com/).

dernhelm
Jan 23, 2007, 10:16 AM
Is anyone *really* surprised by this? I mean, how could S.Jobs NOT know about the improper grants... isn't he on the board of directors... and shouldn't he be one of those giving the O.K. for the grant? The SEC just got a huge report from a company that falsified stock records, which attempted to convey that they were making a full confession for their wrongdoing... and offer up $84 million. A measley $84 million.

If I was the SEC, I'd be curious too.

-Clive

Of course. Say it all out loud, and you realize how silly it sounds that Jobs could be cleared of all wrongdoing by an internal investigation at :apple: . The SEC is right to suspect Jobs of knowing what was going on, although it is certainly possible that he didn't know anything as :apple: claims. But the SEC would be extremely neglectful if they simply took the company's word for it - they need to perform their own investigation and decide for themselves.

Think if this were Ballmer and Microsoft. How many here would believe the Ballmer knew nothing, based on only what Microsoft said.

twoodcc
Jan 23, 2007, 10:21 AM
well this can't be good.....hope they get this cleared up.......fast!

IJ Reilly
Jan 23, 2007, 10:53 AM
The SEC questioning Jobs was entirely expected, so in itself, this news is not meaningful. It's the results of the investigation we need to be concerned with, and we probably won't see that for several months.

jbernie
Jan 23, 2007, 11:18 AM
Right now it doesn't look good, though more than likely Steve would only get a fine, it might not be small change though. Yes he didn't benefit from the options....but he gave those up and got something just as good, which pretty much makes the didn't benefit arguement void.

For AAPL stock, unless some major bomb shells come out the health of the company will be a stronger influence on the stock than these issues. If for some reason Jobs were to be fired/jailed or something (really don't see it happening) then all bets are off, a decent portion of AAPL stock price is the Jobs factor.

However, the big question on that factor is whether the affect is short or long term. Have some really good quarters post Jobs and things will be back to normal, if things start going bad whether it be AAPLs fault or not the market would not be too favourable.

In the end, Jobs will probably get some kind of fine if there is guilt. His wallet will hurt more than anything else.

steveh
Jan 23, 2007, 11:37 AM
Apple paid Steve with stock (rather than paying cash), since options have traditionally been viewed as a motivational tool - salary becomes dependant on performance rather than fixed.

Some stock was issued with a recorded date earlier than it was issued. Because value was rising, Steve was guaranteed to make more money. This is bad. Very bad. Criminally bad.

Stop right there. Your statement is wrong. Backdating stock was not illegal back when this occurred, since the law being invoked on this issue had not even gone into effect until a year later. (Look up "ex post facto" laws in regard to the U.S. Constitution.)

It is not even illegal now, per se.

The issue at hand is whether or not the option was intentionally improperly reported. That would be illegal, and who gets punished for doing it hasn't been settled, because the investigation hasn't yet determined who was responsible.

IJ Reilly
Jan 23, 2007, 11:49 AM
Stop right there. Your statement is wrong. Backdating stock was not illegal back when this occurred, since the law being invoked on this issue had not even gone into effect until a year later. (Look up "ex post facto" laws in regard to the U.S. Constitution.)

It is not even illegal now, per se.

The issue at hand is whether or not the option was intentionally improperly reported. That would be illegal, and who gets punished for doing it hasn't been settled, because the investigation hasn't yet determined who was responsible.

The main issue here appears to be the falsification of a record of an apparently fictitious board meeting, which Apple is trying to blame on underlings who were dismissed, and Steve's pleading ignorance of the accounting implications of back-dating. Both are credibility-straining, to say the least.

compuwar
Jan 23, 2007, 11:51 AM
Can someone please explain to me in layman's terms (I'm only 15) what basically is happening with the Apple stocks and Steve? I've been ignorant thus far, but I'd kind of like to know what this is all about.

Just to expand a bit the explanations given, a companies generally give executives stock incentives in one of two ways: Stock Incentive Rights, or Stock Incentive Options. You get a piece of paper that says you get N shares on a date in the future for SIRs. If the company's stock goes up, then the value of the shares you get is bigger, so the incentive is (a) to stick around for the date in the future (generally a year in my direct experience) and (b) to increase the value of the stock. SIOs add a price, that is you get the option to buy the stock at a set (and usually low) price on a certain date. With options you have the risk that the stock will be worth less than the grant price (called going underwater,) in which case you wouldn't exercise the option to buy the shares.

In my experience, SIRs are awarded in relatively small chunks (hundreds of shares,) value, and SIOs are awarded in relatively large chunks (tens of thousands of shares.)

When I had SIRs, they rocked. When I had SIOs, they went underwater and I didn't get any value from them. Obviously the second company didn't do as well as was expected in the market. However, they were pre-IPO options and if the company had IPOd, I've have gotten a lot more value.

Maestro64
Jan 23, 2007, 12:10 PM
The real issue is that they set the day the options were granted to a day that the price hit a low, there is no law that say that the grant price has to be the day negoitation is complete. Sometime the "strick price" can be set by saying it will be the lowest between a period of time or the lowest of a start or end period or the price will be set when the board approves the grant, which could be different than a grant day.

These are all used as method to grant stocks and are allowed if they are documented and followed. The problem that Apple is having, they did not follow their own policy with thier senior mananagement. They we being treated differently which is wrong.

Plus they faked paper work to say the options were approved on a date when the price hit a low and the board meet to approve it and never happened. Last but not least, which is what got them in serious problems is they did not record the lower price as the 'strike price' from an accounting stand point they used a higher price of when the grant was issue which is different than approved. This is why Apple had to show another $87 million in compusation to employes due to stock grants.

Also, SEC talking to Jobs may have nothing to do with his own involvement, they could be talking to him about others involvement and what he knew and when. Remember the CFO did report to Jobs so Jobs could be responsible for CFO actions whether Job's knew of what he was doing.

The SEC may or maynot do anything, they may simple make people pay a fine and let it go at that if they feel that everyone was being honest and up front and was not trying to hide things and that they were not trying to defraud someone. People only go to court and jail if the government feels there was an attempt to defraud and fact that Apple has been very open say this might not be a case since any lawyer will tell you to keep your mouth shut and make them prove everything.

TheBobcat
Jan 23, 2007, 02:03 PM
Eh, I doubt Jobs will step down because of this or will face jail time. At most, probably a fine or something. Just a gut feeling based on what I've read. Seems like the SEC is following its procedures rather than attempting to crucify Jobs.

gnasher729
Jan 23, 2007, 06:20 PM
Right now it doesn't look good, though more than likely Steve would only get a fine, it might not be small change though. Yes he didn't benefit from the options....but he gave those up and got something just as good, which pretty much makes the didn't benefit arguement void.

Now lets try to get rid of some of the negative spin here. First, if you read any article about Apple and see "Troy Wolverton" under the list of authors, you just should know that everything will be twisted in the worst possible way. The goal is attracting hits on the webpage, nothing else.

And more than likely there will be no fine, nothing. If everything had been done correctly, the following would have happened: 1. Jobs receives options. 2. Jobs pays tax because the strike price is lower than the price at the date of issue, Apple writes down a paper loss for the same reason. 3. Jobs returns options; Jobs receives the taxes paid back, Apple removes the paper loss from its accounts. 4. Jobs receives share grant. 5. Jobs sells some of the shares, pays a huge amount of tax on the profits.

This is what happened: 1. Jobs receives options. 2. Jobs paid no tax, Apple wrote down no paper loss. 3. Jobs returns options; Jobs receives no taxes back, Apple had no paper loss to remove from its accounts. 4. Jobs receives share grant. 5. Jobs sells some of the shares, pays a huge amount of tax on the profits.

This is what is meant by "Jobs did not profit": Any tax that should have been paid on options would have been refunded when the options were returned. And something similar would have happened anyway if Jobs had exercised the options: In that case, tax would have been due on his profit (share price minus strike price). If taxes had been paid earlier on the difference between strike price and share price at the time of the grant, then the profit at the time of sales would have been lower accordingly and less tax would have been paid then. You can't escape the tax that has to be paid by hidden backdating, at best you can postpone it.

IJ Reilly
Jan 23, 2007, 06:33 PM
Jobs does not pay taxes until Jobs sells at a profit.

The reporting problem here isn't taxes paid or not paid by Jobs. The problem with backdating is Apple not reporting stock option grants at strike prices below the current market value as an expense on their books.

mygoldens
Jan 23, 2007, 06:55 PM
Martha Stewart needs company........whoops she is out, Steve you need to keep her cell warm:)

jbernie
Jan 23, 2007, 06:57 PM
Now lets try to get rid of some of the negative spin here. First, if you read any article about Apple and see "Troy Wolverton" under the list of authors, you just should know that everything will be twisted in the worst possible way. The goal is attracting hits on the webpage, nothing else.

Jobs gave up one type of reward which was making him (& Apple) look bad and got another instead which was much cleaner and carried no baggage.

Regardless of how the author wants to "spin" it, if you walk up to someone on street and told them an executive gave up $X on one hand and got $Y on the other... a vast majority are going to have their suspicions raised by such acts, regardless of which company and which executive it is.

Unfortunately there really isn't much positive spin in the situation regardless of whether Jobs really new what was going on. If he knew exactly what was happening (unlikely but possible) he is in serious trouble with the SEC, if he didn't have any idea what was going on (more likely) then you wonder what else he doesn't know about the company he runs. Which side of the sword do you want to fall on? :)

It could be something simple like he signed off on a document without realizing what he was authorizing as he didn't have any reason to question the contents, please sign all 400 pages of various company documents in duplicate and triplicate for pages 50-100 blah blah than you very much sir. :)

More than likely they will find that he approved/signed/whatever without intent to commit a crime (very believable) which would lead to a fine at most.

chaser1522
Jan 23, 2007, 11:10 PM
honestly, like apple is going to can Steve. He's an icon and the company would fall apart without him.

IJ Reilly
Jan 23, 2007, 11:15 PM
honestly, like apple is going to can Steve. He's an icon and the company would fall apart without him.

And this is supposed to be reassuring?

mcarnes
Jan 24, 2007, 03:00 AM
Guess RDF not working on SEC.

devman
Jan 24, 2007, 08:53 AM
Of course. Say it all out loud, and you realize how silly it sounds that Jobs could be cleared of all wrongdoing by an internal investigation at :apple: . The SEC is right to suspect Jobs of knowing what was going on, although it is certainly possible that he didn't know anything as :apple: claims. But the SEC would be extremely neglectful if they simply took the company's word for it - they need to perform their own investigation and decide for themselves.

Think if this were Ballmer and Microsoft. How many here would believe the Ballmer knew nothing, based on only what Microsoft said.

Microsoft backdated options for 7 years and took a $200+ million charge for it (around 2000 I think this was) and no-one even cared.

AidenShaw
Jan 24, 2007, 10:54 AM
Microsoft backdated options for 7 years and took a $200+ million charge for it (around 2000 I think this was) and no-one even cared.

Microsoft Defends Its Options Dating (http://accounting.smartpros.com/x53585.xml)

Microsoft believed "then and now" that it complied with generally accepted accounting principles governing how to book the cost of employee stock options in the 1990s.

In a statement, Larry Cohen, Microsoft's general manager for corporate communications, said: "As administered by Microsoft, the 30-day-lowest-strike-price practice was not selectively applied and did not involve 'backdating' as we understand that term is being used in current reports of investigations of other companies."

There's a lot of grey area in the Microsoft case, as well as many others. The laws have changed recently, so be careful not to apply ex post facto criticism of past actions.

princealfie
Jan 24, 2007, 11:10 AM
Maybe no Steve Jobs for President 2008 then :eek:

Maestro64
Jan 24, 2007, 12:39 PM
Microsoft Defends Its Options Dating (http://accounting.smartpros.com/x53585.xml)

Microsoft believed "then and now" that it complied with generally accepted accounting principles governing how to book the cost of employee stock options in the 1990s.

In a statement, Larry Cohen, Microsoft's general manager for corporate communications, said: "As administered by Microsoft, the 30-day-lowest-strike-price practice was not selectively applied and did not involve 'backdating' as we understand that term is being used in current reports of investigations of other companies."

There's a lot of grey area in the Microsoft case, as well as many others. The laws have changed recently, so be careful not to apply ex post facto criticism of past actions.

Well the law changed in 2002 so the Apple stuff falls in the same time period as Microsoft. Options awards have always been an issue about how to account for them. It has become a bigger issue as more an more companies awarded options to the everyday person at the company. In the past only a few Silicon valley companies handed out options and it was not much of an issue but more companies do and use it to award performance therefore it is consider compusation and have to follow accounting rules.

AidenShaw
Jan 24, 2007, 03:18 PM
Well the law changed in 2002 so the Apple stuff falls in the same time period as Microsoft.
Microsoft doesn't have the issue of falsified SEC documents and selective awards, however.

...therefore it is consider compusation and have to follow accounting rules.
I thought that's what the sales dude at CompUSA got...

RBR2
Jan 24, 2007, 04:58 PM
As Richard Nixon might say, "it's the coverup that got me."

MacinDoc
Jan 24, 2007, 06:02 PM
http://www.macrumors.com/images/macrumorsthreadlogo.gif (http://www.macrumors.com)

According to a report from Bloomberg, Steve Jobs was questioned by the SEC (http://www.bloomberg.com/apps/news?pid=20601103&sid=angrvQzz8UTA&refer=us) last week regarding the ongoing stock options backdating investigation.



An independent investigation by Apple cleared current management from wrongdoing (http://www.macrumors.com/pages/2006/10/20061004180455.shtml), but had found serious concerns regarding the actions of two former officers (later identified as former CFO Fred Anderson and former general counsel Nancy Heinen).

Nevertheless, Jobs has reportedly hired independent counsel (http://www.macrumors.com/pages/2006/12/20061227164408.shtml) beyond Apple's lawyers to deal with his involvement in the matter. Apple's board has previously expressed confidence (http://www.macrumors.com/pages/2006/12/20061229124724.shtml) in Jobs.
Of course Jobs is still under investigation, and he will be until the SEC is finished its investigation. The SEC will not be satisfied with Apple's internal investigation, especially since there is already evidence that Apple falsified documents with the initial filing. And if he is being questioned by the SEC, distancing himself from the Apple legal team (which took a big hit in Apple's internal investigation) seems like a good idea.

That being said, I am confident, because Apple would have to be suicidal to falsify anything in its internal investigations while the SEC was also investigating it. There's nothing like the SEC looking over your shoulder to keep your accountants' creativity to a minimum.

AidenShaw
Jan 24, 2007, 06:43 PM
As Richard Nixon might say, "it's the coverup that got me."

http://forums.macrumors.com/showpost.php?p=3189761&postcount=4

Jobs' new Stevenote speech - "I am not a crook!".

;)

AidenShaw
Jan 26, 2007, 09:04 AM
http://news.com.com/Why+Apple+cant+send+Jobs+packing/2010-1047_3-6153703.html

"...
There's no way that anyone outside of the upper corporate echelons of the company knows whether we're talking about a passing tempest or the opening chapter of Apple's version of Watergate.

But ever since this story first came to light last year, Apple and its Wall Street apologists have circled the wagons. They badly want this story to disappear, with understandable reason: other CEOs have been forced to walk the plank simply for the appearance of impropriety. At last count, more than 160 companies (including News.com publisher CNET Networks) were being investigated because of their option-granting policies. If Jobs got forced out, Apple would lose its leader, savior and prophet in one swoop.

Who's next in line? Chief Operating Officer Tim Cook? Marketing boss Phil Schiller? Um, I don't think so. A Jobs resignation would lead to an immediate 25 percent drop in the stock--and that would just be the start of a long time of troubles.
..."