Apple Stock Options Fallout Continues

[somairotevoli]

from cnn
http://money.cnn.com/2006/12/27/tech...ion=2006122710

Web site says federal investigation could leave company open to criminal prosecution; shares lose 4.5% in early trading.
December 27 2006: 10:05 AM EST


NEW YORK (CNNMoney.com) -- Federal prosecutors are reportedly investigating stock option administration documents at Apple Computer that were apparently falsified by company officials, according to a published report.

The Recorder, an online publication of legal news Web site Law.com, reported the allegation of the false documents, citing unidentified people with knowledge of Apple's situation.
The report also says that Steve Jobs, the CEO and co-founder of Apple, has apparently hired his own legal representation, separate from Apple's lawyers, to deal with investigators from the Securities and Exchange Commission and Justice Department. The company has previously said that Jobs was not implicated by its own internal probe of the options scandal.

Shares of Apple (Charts) sank 4.5 percent in morning trade on Nasdaq.

The article does not reveal which documents were allegedly falsified. But Apple had previously disclosed that "stock option grants made on 15 dates between 1997 and 2002 appear to have grant dates that precede the approval of those grants." By changing the date of an options grant, an executive who receives the grant can obtain even greater savings when buying the stock in the future.

The article said that falsification of documents puts Apple at risk for potential criminal prosecution. Federal investigators are looking into allegations about illegal backdating of options at 100-plus companies, and some of them will likely be pursued solely as civil SEC inquiries, while others may face criminal charges.

"When there are falsified documents, the government views them as an intent to defraud, because people generally don't falsify documents unless they're trying to make things different from reality," Keith Krakaur, a partner at Skadden, Arps, Slate, Meagher & Flom, told the Recorder.

Krakaur told the Web site he was speaking generally and not about Apple, with which he's not involved. But Krakaur was formerly the attorney for Kobi Alexander, the former CEO of Comverse Technology (Charts), who was indicted by Brooklyn federal prosecutors on charges of backdating option grants and has been living as a fugitive in Namibia for the past several months.
Sleazy CEO's options tricks

Brocade Communications Systems (Charts), McAfee (Charts), UnitedHealth Group (Charts) and K.B. Home (Charts) are other companies that have seen their CEO leave under the cloud of options backdating scandals.

Apple has confirmed the probe into its stock option program in June and said it conducted its own internal investigation, which it completed in October and turned over to federal investigators.

It said in a statement in October that an internal investigation of its options program "found no misconduct by any member of Apple's current management team" although it conceded that the probe "raised serious concerns regarding the actions of two former officers in connection with the accounting, recording and reporting of stock option grants."

As to Jobs' involvement, the statement said its CEO "was aware that favorable grant dates had been selected, but he did not receive or otherwise benefit from these grants and was unaware of the accounting implications."

The Recorder's article identified the ex-officers cited but not identified by Apple as a former general counsel, Nancy Heinen, and a former chief financial officer, Fred Anderson.

Anderson retired as CFO in June 2004, but remained on the board until October this year. His resignation from the board was revealed at the same time the conclusion of the internal probe was announced. The company said at that time that he had "informed the company that he believes it is in Apple's best interests that he resign from the board at this time."

[Demon Hunter]

So how bad is this for Apple?

[phillipjfry]

So many companies do this sort of thing all the time....

Is it really a crime anymore?

[somairotevoli]

Originally Posted by Demon Hunter

So how bad is this for Apple?

shares lose 4.5% in early trading

.

[xPismo]

Steve Jobs, the CEO and co-founder of Apple, has apparently hired his own legal representation

You don't spend the cash for a team of reps unless you need the protection.

[nbs2]

As more info comes out and my stock continues to tumble, I have one thought for those responsible or aware of the accounting practices:

[Queso]

This one continues to rumble doesn't it? Thing to remember nbs2, is that Wall Street typically over-reacts to everything. So if the stock is tumbling 4% today, it will gain some if not all of that loss back tomorrow. The only things that will push it down permanently are 1) if Friday's refiling results in Apple having made enormous accounting errors and being fined by the SEC to the tune of a ten-digit amount, or 2) Steve Jobs resigns.

Personally in your position I'd wait it out. AAPL is valued on future-performance more than anything. Unless 2) above happens, I'd say the stock will rebound quickly enough in early 2007.

[theheadguy]

Originally Posted by Demon Hunter

So how bad is this for Apple?

This is very, very, bad. This is a crime, and there are severe penalties Apple may incur. They are learning a very harsh lesson here, their secrecy can not keep the Feds from finding inaccuracies.

Although I doubt this will hurt Mac or iPod sales since the products are amazing no matter how many documents have been falsified, the person above me was correct, you hire your own legal representation because you need it, and there is no time to mess around.

I wish I could say due to my love for the executive team that I proclaim their innocence, but I can not as the Feds seem to know more than I do.

Good luck to whatever side is telling the truth.

[IJ Reilly]

Originally Posted by xPismo

You don't spend the cash for a team of reps unless you need the protection.

Or think you might, which isn't exactly the same thing.

The original law.com article:

http://www.law.com/jsp/article.jsp?id=1167127308611

I don't think anyone really knows what any of this means. The article implies only that the two Apple execs who have already resigned might be facing criminal charges. The markets are speculating that Jobs might be implicated somehow, but so far nothing anyone has actually said points in that direction.

[someguy]

Stuff like this makes me feel so stupid.

Someone please help:

What the hell is going on? What exactly was done? What kind of documents were falsified?

I know it says they aren't sure which documents, but I mean, what TYPE of documents? I don't understand the situation.

[phillipjfry]

Originally Posted by xPismo

You don't spend the cash for a team of reps unless you need the protection.

Yes, you do. To protect your rights and make sure that everything is going smoothly. That fingers won't be pointed at you, in the out-of-control fashion that usually arises when everyone is trying to save their own a**.

[IJ Reilly]

Originally Posted by theheadguy

This is very, very, bad. This is a crime, and there are severe penalties Apple may incur. They are learning a very harsh lesson here, their secrecy can not keep the Feds from finding inaccuracies.

Again, this is almost 100% speculation. If criminal prosecutions do occur (still a big if), then the charges seem likely to be limited to two former Apple execs. Unless something deeply shocking and vastly different than what we've been hearing for the last several months emerges, then the damage to the company is also likely to be very limited. Just because the markets are currently in a tizzy over this doesn't mean we should get swept up in the speculation.

[failsafe1]

I like to remind myself we are all innocent until proven otherwise. If anyone even Steve is guilty of anything willful then he is not above the law. I hope all involved are innocent or perhaps honestly mistaken. I always hope the guilty will admit it instead of trying to cover up.

[IJ Reilly]

Originally Posted by someguy

Stuff like this makes me feel so stupid.

Someone please help:

What the hell is going on? What exactly was done? What kind of documents were falsified?

I know it says they aren't sure which documents, but I mean, what TYPE of documents? I don't understand the situation.

Documents filed with the SEC to record the granting of stock options to executives and/or board members. The entire controversy is over stock options that were allegedly back-dated, which means they were awarded in such a way as to be more profitable to the grantee. This isn't allowed. The potentially new dimension here is the possibility that some of these disclosure documents were filed fraudulently, which if true, increases the penalties on whomever was involved.

[MongoTheGeek]

Stocks fluctuate.

Rumors make stocks fluctuate. When there are rumors of bad the stock drops. When the news actually comes out it goes back up. Look at MacWorld. Right after the keynote, no matter how spectacular the announcement the stock drops.

The articles I've read seem to put most of blame on people no longer there. Jobs most likely will not be indicted. No one ever accused him of being a financial wizard and the issues are intricacies of accounting.

Fred Anderson may be in trouble but he falls into the category of "no longer there"

Whatever the restatement is, it won't change the ground truth. Apple has X shares outstanding, $Y in assets, $Z in sales, and $A in costs. There may be a change in "goodwill" but the EBITDA should stay the same.

[skunk]

Originally Posted by IJ Reilly

The potentially new dimension here is the possibility that some of these disclosure documents were filed fraudulently, which if true, increases the penalties on whomever was involved.

And makes you wonder what they were thinking. Cui bono?

[nbs2]

I know - I've been sitting pretty through their peaks and troughs all year. It's just a bit frustrating that the issues this time aren't performance related, but rather are accounting related. The performance problems are corrected (and then some) fairly quickly by the market. Accounting issues may be repaired by MWSF, but if Vista actually shows up it will be a couple of heavy rounds into Apple's armor. No permanent damage, but I could see it taking until May or so to recover fully.

[iMeowbot]

Originally Posted by theheadguy

They are learning a very harsh lesson here, their secrecy can not keep the Feds from finding inaccuracies.

Nonsense, Apple volunteered the information to the SEC.

[IJ Reilly]

Originally Posted by skunk

And makes you wonder what they were thinking. Cui bono?

Eyes fixed firmly on the money, they were probably thinking of little else.

[MongoTheGeek]

Originally Posted by IJ Reilly

Documents filed with the SEC to record the granting of stock options to executives and/or board members. The entire controversy is over stock options that were allegedly back-dated, which means they were awarded in such a way as to be more profitable to the grantee. This isn't allowed. The potentially new dimension here is the possibility that some of these disclosure documents were filed fraudulently, which if true, increases the penalties on whomever was involved.

I thought the article said that back dating was legal as long as it was accounted for properly.

Apple should come out of this okay because they led the charge. They will restate some earnings probably fight some shareholder lawsuits but end up being okay.

[princealfie]

Oh oh, does this end Steve Jobs as CEO?

[IJ Reilly]

Originally Posted by MongoTheGeek

I thought the article said that back dating was legal as long as it was accounted for properly.

You could be right, but I read it again and didn't see such a statement. I thought back-dating was never allowed because it builds in an automatic capital gain. If the company wants to award cash grants to their executives, that's certainly allowed, but it has to be disclosed as such in their 10-K statements. The problem with back-dating, as I understand it, is it's an effort to hide compensation from the SEC and stockholders.

[skunk]

Though he probably signed off various documents, he is claiming that, being no accountant, he did not know the accounting implications. Seems a bit disingenuous as a defence, but unless there's a paper trail showing otherwise, I'd say he'll probably get away with it.

[IJ Reilly]

Originally Posted by skunk

Though he probably signed off various documents, he is claiming that, being no accountant, he did not know the accounting implications. Seems a bit disingenuous as a defence, but unless there's a paper trail showing otherwise, I'd say he'll probably get away with it.

It does sound suspiciously like the Ken Lay defense. The SEC recently changed their rules to make it far more difficult for a chief executive to plead ignorance on financial matters, but I don't think these rules apply in this instance, either because of the dates when the grants occurred or because of the nature of the violation. Either way, I haven't heard anyone in the know say that Jobs is in any serious danger of being strung up.

[Dont Hurt Me]

Its the same old story with any American company, give all the money to the boardroom class & CEO's, then close your american factories, pay your chineese workforce pennys a hour, work em 15 hours a day. Apple is no different then most american companys these days. This just goes to show that Apple isnt thinking different. Apple is guilty and they know it. They should share the wealth with the whole company not just those boardroom brown nosers.