Apple Computer Stock Option Irregularities

[iGary]

Apple(R) today announced that an internal investigation has discovered irregularities related to the issuance of certain stock option grants made between 1997 and 2001. One of the grants in question was to CEO Steve Jobs, but it was subsequently cancelled and resulted in no financial gain to the CEO. A special committee of Apple's outside directors has hired independent counsel to perform an investigation and the company has informed the SEC. Apple executives will refrain from commenting further on this matter until the independent investigation is concluded.

"Apple is a quality company, and we are proactively and transparently disclosing what we have discovered to the SEC," said Apple CEO Steve Jobs. "We are focused on resolving these issues as quickly as possible."

Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Today, Apple continues to lead the industry in innovation with its award-winning desktop and notebook computers, OS X operating system, and iLife and professional applications. Apple is also spearheading the digital music revolution with its iPod portable music players and iTunes online music store.

NOTE: Apple, the Apple logo, Mac, Mac OS and Macintosh are trademarks of Apple. Other company and product names may be trademarks of their respective owners.

[rdowns]

Do you have a link or are we just supposed to believe all these rumors?

[WildCowboy]

http://www.apple.com/pr/library/2006/jun/29stock.html

Edit: CNN Money article here, but it doesn't really include any more info.

[MacRumors]

http://www.macrumors.com/images/macrumorsthreadlogo.gif

Apple today revealed that there were "irregularities" in some grants for stock options made in the years 1997 through 2001. The irregularities were reported to the U.S. Securities and Exchange Commission.

One such grant was made, apparently in January 2000, to CEO Steve Jobs. Because the options were canceled in March 2003 without being cashed in, Jobs saw no financial benefit. But financial analysts say that Apple's finances will be closely watched to see if there were any improprieties in Apple's disclosures or any evidence of backdating. Sales of discounted options in years past have been considered legal but sometimes problematic.

Apple hired an independent law firm to investigate the problems and the SEC will likely launch an inquiry as well.

Dozens of corporations, including Microsoft, Intuit, and Computer Associates, have announced that they are reviewing their option practices, which have come under increased scrutiny since enactment of the Sarbanes-Oxley corporate accountability law in 2002.

From The Financial Times:

Apple did not detail the "irregularities" and said executives would refrain from commenting until the investigation was concluded. "Apple is a quality company and we are proactively and transparently disclosing what we have discovered to the SEC," said Mr Jobs. "We are focused on resolving these issues as quickly as possible."

[mlrproducts]

It seems Apple's stock keeps taking blow after blow.

However, I'm glad to see Apple launching an investigation. OT- While they are my favorite company, I do believe more investigation needs to happen regarding their factory conditions.

Back on topic - the SO act has very much caused problems for many companies that weren't foreseen when it was enacted.

[Doctor Q]

Reportedly, about half of the corporations that announced to the SEC that they are investigating past stock option transactions are based in Silicon Valley, a sign of the free-wheeling days of the computer industry's previous decade.

[theheadguy]

All of those "Sarbanes-Oxley" trainings they made me go to and STILL this happens? >:-(

[mccoma]

I know the intentions were good, but "Sarbanes-Oxley" is going to be a pain for a lot of high tech companies. Heck, I'm glad I work for a private firm since I see some of my programming buddies at public businesses doing more paperwork then design / coding.

I wonder home many tech companies other than Apple hired outsiders to do the audit on their stock options. Seems like this won't be the last announcement from the valley.

[~Shard~]

Yikes, bad news - at least for AAPL. I'll keep an eye on what it does tomorrow...

Goes to show you that not even Apple is immune from such issues...

[macaddict06]

Wow, this makes me kick myself (again) for not selling after MWSF. Even if this turns out to be a-ok and is not prosecuted, it will be a blow to AAPL. I predict that all of today's gains will be wiped out tomorrow, just because the news is going to send out shareholder confidence shocks...crap. They had better than something way better than Tabbed finder to buoy this thing out (said mostly tongue in cheek).

2¢

Cheers,
Macaddict06

[swingerofbirch]

As a shareholder I am sad.

I put all my apples in one basket--Apple's, and they keep losing my apples, which means I won't be able to buy an Apple

[Phobophobia]

Originally Posted by swingerofbirch

As a shareholder I am sad.

I put all my apples in one basket--Apple's, and they keep losing my apples, which means I won't be able to buy an Apple

Don't count your apples until they've appled.

[Lollypop]

So its bad for the stock, but at least they fessed up, how would it have looked if it was discovered by someone else... everyone would have screamed coverup!!

[tigertrainer]

[quote=macaddict06]Wow, this makes me kick myself (again) for not selling after MWSF. Even if this turns out to be a-ok and is not prosecuted, it will be a blow to AAPL. I predict that all of today's gains will be wiped out tomorrow, just because the news is going to send out shareholder confidence shocks...crap. They had better than something way better than Tabbr to buoy this thing out (said mostly tongue in cheek).

Well, yes. We've already lost more than half our gains in after-hours trading. Ughh.

[bigandy]

Maybe it'll tank to $0.01 for a few hours so I can buy myself a few grands worth of shares, only for them to tank right back up to $70 or more, and really make Apple work for me

[MUCKYFINGERS]

Everyday when I read about Apple's business practices, I lose a little bit of the envy/pride that I have for Apple computer...

Apple's products = a cut above the competition

Apple's business side of things = I don't know

[California]

Great time to buy AAPL! Jobs wouldn't have sold his stock in the first quarter if there were serious concerns...

[DTphonehome]

Originally Posted by bigandy

Maybe it'll tank to $0.01 for a few hours so I can buy myself a few grands worth of shares, only for them to tank right back up to $70 or more, and really make Apple work for me

Yes. That's likely to happen.

[K. T. Walrus]

I remember that option grant to Steve Jobs. At the time, I was a big shareholder. The stock had just dipped 25% and a few weeks later, we found out that Steve had gotten a huge number of options priced at the very bottom of that big dip. The stock had recovered pretty quickly after the dip. Apple was still flying high.

Later that year, the stock cratered one day when they announced they were going to have a bad quarter (one of many for awhile). The stock by that time had sold off to around $60 (around the price that Steve had gotten his options) and that one day, it sold off further to under $20. I lost several million dollars that day (at least on paper).

Anyway, it is a bit disingenuous of Apple to say that Steve didn't benefit from the options grant. Apple later converted those options into 5M shares worth around $100M at the time. Now those 5M shares that became 10M shares after the split are worth much much more. Steve recently sold off a huge portion of those shares to pay the taxes on his huge paper gain.

The other Apple executives have always had excellent timing at getting options and even better timing at exercising those options and selling the shares for a huge gain. I could go on and on, but the SEC should have an easy time spotting the illegal activity here. It was all done in the open. Just no one was complaining at the time and other companies do it as well.

I'm just surprised it has taken so long for Apple to publicly announce they had "irregularities" in their stock options grants to their executives. This issue has been weighing on other stocks for several months now. The stock price has appreciated so much since the collapse of AAPL stock back 5 years ago that most shareholders hardly care. But, I bet they played games with their compensation packages to dillute shareholder value and line their pockets and now they have to fess up.

[macintel4me]

I work for a large company that had some 'irregularities' and it's been a nightmare. For Harry Potters fans, this is like the 'Dark Mark' over a company. I love Apple's products and their creative, revolutionary culture, but this pain may be felt for a long time.

[bwintx]

Originally Posted by swingerofbirch

As a shareholder I am sad.

I put all my apples in one basket--Apple's, and they keep losing my apples, which means I won't be able to buy an Apple

Diversify, diversify, diversify. No matter how much you love (or hate) any one company, never depend so much on it in your investments -- as all those screwed former Enron employees would tell you.

[playaj82]

Originally Posted by macintel4me

I work for a large company that had some 'irregularities' and it's been a nightmare. For Harry Potters fans, this is like the 'Dark Mark' over a company. I love Apple's products and their creative, revolutionary culture, but this pain may be felt for a long time.

Although this does seem to put some Apple execs in the shadows, the "irregularities" do not necessarily mean they did something illegal.

There is a big difference, especially considering the SEC Regs and Sarbanes-Oxeley, between something that is a questionable business practice and something that is illegal.

The mere fact that Apple execs made this move out in the open almost mitigates any "questionable" decisions that were made. The biggest problem with Sarbanes-Oxeley was not new rules about trading, but the miles and miles of red tape wrapped around corporation financials.

Long live the free market in regulating business rather than the government.

[DPazdanISU]

So, I just bought apple stock at 58 sometime last week b/c it is a great price.... I really believe this isn't anything to sell over, the people who wait it out will be fine once the buying season is in full swing. This problem doesn't really do anything to the value of the company, apple is extremely profitable with almost 9 billion in cash. So I think it's a PR thing and what happens when you are at the top? Everyone is watching your every move so this is not uncommon.

[macintel4me]

Originally Posted by playaj82

... The mere fact that Apple execs made this move out in the open almost mitigates any "questionable" decisions that were made. ...

Not really, but I hope you are right. S/OX = RED TAPE GALORE x 10

[playaj82]

Originally Posted by macintel4me

Not really, but I hope you are right. S/OX = RED TAPE GALORE x 10

I just mean it mitigates the 10,000 concerns that SOX would present as far as illegality goes.

It could still have been a very questionable business decision.

In the end, I would rather Steve Jobs be paid in stock options regardless, even without "getting the memo right away"...more incentive to make Apple great (although he probably tried to do that anyways)