Apple Execs Reportedly Faked Options Documents

theodp writes "Federal prosecutors are reportedly looking closely at stock option administration documents that were apparently falsified by Apple execs to maximize the profitability of option grants. While Apple has said CEO Steve Jobs did not profit from the stock-option backdating, Jobs has reportedly hired his own attorney to deal with the SEC and Justice Department."

Humbug...

[markild (862998)]

What?? Are you saying that Steve Jobs makes more than $1 [wikipedia.org] a year?

Re:Humbug...

[Rogerborg (306625)]

So he'll have to pay his lawyer with... stock options?

It must be noted, though

[by Anonymous Coward]

That like everything at Apple it was very easy to do. 3 clicks and options were faked. That's it!

Re:

[argent (18001)]

"What kind of computer produces annual reports like this?"

Re:It must be noted, though

[BobNET (119675)]

That like everything at Apple it was very easy to do. 3 clicks and options were faked. That's it!

Yes, but it should be pointed out that if they weren't forced to use a one-button mouse it would have only taken one click...

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[by Anonymous Coward]

Yes, but it should be pointed out that if they weren't forced to use a one-button mouse it would have only taken one click...

They would have done it in one click, but Amazon already had a patent.

Is Apple still a /. sanction company?

[Bamafan77 (565893)]

I just want to know if Apple should now be delisted from the list of "Officially Slashdot Sanctioned Companies". It hasn't been a good year for these companies, what with Google rolling over for China, Reiser murdering his wife, and now Apple playing financial dirty tricks. :)

Say it Ain't So Fred!

[good soldier svejk (571730)]

Disappointing that Fred Anderson is at the center of this. Anderson did a bang up job as CFO. He created the company's large cash reserves by liquidating unnecessary capital investments (plant), issuing a convertible debenture and selling some of their valuable ARM holdings. Then he managed the investment of those funds astutely enough to make the conversion of those outstanding notes to common stock a huge win for both the company and creditors. [macobserver.com] That 1999 conversion alone eliminated about two thirds of Apple's long term debt (conversely that means the issue had assumed most of Apple's debt). Really, this guy did an outstanding job. Apple can thank him for their sound financials.

Now it seems the financial genius is another self-serving, crooked corporate scumbag.

Re:

[Bill Walker (835082)]

...managed the investment of those funds astutely enough to make the conversion of those outstanding notes to common stock a huge win for both the company and creditors.

Convertible bonds aren't a win for existing stockholders, however, who find their stake diluted by the new issuance. To oversimplify, it would be like the US government printing money to pay debts.

Re:Say it Ain't So Fred!

[good soldier svejk (571730)]

Convertible bonds aren't a win for existing stockholders, however, who find their stake diluted by the new issuance. To oversimplify, it would be like the US government printing money to pay debts.

They are a win for existing stockholders if the officers use the cash to help engineer a comeback which quintuples the price of the stock, as was the case at Apple. One of the things Apple did with that money was buy NeXT.

Lawyering up.

[GodInHell (258915)]

While Apple has said CEO Steve Jobs did not profit from the stock-option backdating, Jobs has reportedly hired his own attorney to deal with the SEC and Justice Department."

I hate it when comments like this come across as proof of wrong-doing. In buisiness I learned that you're a fool to act without the advice of a lawyer. As a law student I'm coming to understand that you're a damn fool to deal with the gov't without someone there to advise you.

The purpose of a lawyer is to look after your interests while you conduct your business - they can warn you of impending trouble - and can nip a long drawn out investigation that will result in no arrests or charges right in the budd.

It's stupid to blame someone for seeking protection from abuse.

-GiH

Re:

[Rogerborg (306625)]

> As a law student

OK, I will bring Captain Solo and the Wookie to you.

Re:Lawyering up.

[GodInHell (258915)]

Yeah yeah yeah - lawyer.. evil.. tell it to the birmingham five.. or any black kid attending school in the south.. or anyone who was arrested and found not guilty due to lack of evidence.

Oh.. right.. slashdot.. I mean *hiss* *woosh* "I have altered our arrangement" *hiss* *woosh*

-GiH

Re:

[darkmeridian (119044)]

I agree one hundred percent with you -- who do you think works for the SEC and Justice Department if not lawyers? When a hundred government lawyers come after you, well, that's a great time to hire your own attorney.

Re:Lawyering up.

[toQDuj (806112)]

In addition to hiring a lawyer for legal advice, Steve Jobs now can spend more time on what he should be doing, i.e. leading a company and preparing for the macworld keynote speech.

Let the lawyer figure out the law stuff, and let the CEO figure out the business strategies. Taking all matters into your own hand is a grand waste of time.

B.

Re:

[dan828 (753380)]

It's stupid to blame someone for seeking protection from abuse.

It is worth noting, however, that Jobs did recieve backdated options during this time (55 million of them), but had them cancled in 2003 when the SEC started getting serious about investigating such things. However, he was rewarded with a bunch of new, non-backdated shares worth $85 million at the same time. Face it, Jobs stood to benefit from the backdating, was fully aware that it was going on, and still got the payoff when all was said and done. Just because they pulled a CYA so that they can now cla

Re:

[GodInHell (258915)]

How or why did you interpet that comment as an attempt to prove wrong doing? I read that comment and came to the same conclusion you did, it was more then likely for protection purposes.

I read through the first few replies, includings such gems as:

yay, another company who's CEO's rob shareholders

What?? Are you saying that Steve Jobs makes more than $1 [wikipedia.org] a year?

and

Shakespeare was right... ...need to kill all the lawyers.

-GiH

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[l0ungeb0y (442022)]

Because people do and people will.

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[no reason to be here (218628)]

The problem is with the clause introduced by the subordinating conjunction "while." The implication of the while (in this context) is that there is an unspoken "regardless" or "nonetheless" with the independent clause. What if the sentence read like this: "While company representatives have said that Apple CEO Steve Jobs did not murder those underage thai prostitutes, Jobs has hired the services of an attorney."

so, do you see now how the sentence could be interpreted as implying Jobs' guilt?

Re:

[Atzanteol (99067)]

Lawyers have the interest of he who is paying them in mind. Steve probably wanted lawyers who were specifically working in his best interest rather than the company's best interest? I wouldn't read too much into it myself.

Way to flamebait the headline

[$RANDOMLUSER (804576)]

The SEC has been investigating "about 80" companies for this since July. Apple started their own internal investigation, which they're sharing with the SEC. Oh, and it's former employees who are being looked at. Oh, and maybe backdating isn't illegal, it just should be declared.

Take a look here [com.com] or here [com.com].

It's not flamebait, the declaration was not timely

[bgalbrecht (920100)]

It's still fraud if the backdating occurred, and it's no less serious just because Apple pre-empted any SEC investigations. Most criminals don't get off scot-free just because they turn themselves in when it becomes obvious that the authorities are about to arrest them.

If the stock options were backdated are not declared, then the Apple officers receiving them were actually receiving additional compensation of the difference between the options' declared price on the backdated date, and the price on the re

Not one to dogpile Apple, but...

[hypermanng (155858)]

If Jobs was aware of the problems but didn't take appropriate action it could still damage the company more than the non-story linked might imply. Essentially, Jobs has been hailed as a hero by fanboys and shareholders alike, and anything significantly tarnishing his tenure might remove some of the aura of invulnerability Apple has acquired in recent years. I don't by any means imply that Jobs' um, job is in danger, but it might complicate business partnerships and other strategic moves that Apple needs to remain competitive. iPod dominance aside, Apple's position is at least assailable, if not so tenuous as it was a decade ago. To reach its growth targets it has to navigate agreements with telecom providers like Cingular as well as convince say, Intel and Toshiba to continue to give it most-favored-nation status. Apple isn't Dell or Microsoft to expect to make demands of suppliers and partners with impunity.

Not yet, anyway, and maybe never, if the next round of initiatives (smart phone, media ventures, etc.) collapses.

Distracting Jobs and blemishing his heretofore immaculate turtleneck might have more consequences than just an easy story for everyone from CNET to AP report and re-report.

Hi, I'm a Mac...

[by Anonymous Coward]

... and I'm the SEC. Please get in the car.

playing aggresively

[fermion (181285)]

I know that to win, one has to play aggressively, and there is a great benefit to controlling knowledge about internal company details, which can be quite difficult to do for a publicly traded company. That said, I do hope that all companies that lied about executive compensation get nailed to the wall, even Apple. Becoming a publicly traded company is choosing to be transparent to the public. The money that comes in with a stock offering is not free. That money cannot be arbitrarily spent as it might be in a private company. I have worked in private companies and the freedom is wonderful. I have worked in public company, and the transparency is a pain in the ass. But, again, the public money does not come for free. There is a price to be paid

The price is that executives can no longer spend company money on whatever they wish. Executives cannot arbitrarily set pay. What we have seen in the past twenty years is scam to increase executive pay while simultaneously decreasing exposure to risk, while in the truly private sector, the opposite is true. The stock option is the classic example. It is marketed as a method to align the executives interest with the stockholder interest. If the stock rises, the executive gets rewarded. In reality, just like bonuses, the behind the scene negotiations guarantees the money no matter the state of the company.

In reality, these new breeds of corporations, with their bloated bureaucracy, with no other purpose than to create meaningless work that justifies it's existence, and raise prices and cut research to free enough money to pay for these non productive agents, are indistinguishable from any other massively bloated public entity. The similarities to congress, who wants to vote in a pay raise every year, but can't complete the minimum job requirements like passing a budget, are amazing.

Corporate crisis PR playbook

[haggie (957598)]

Use one or more of the following: 1.) "We have launched our own internal investigation..." 2.) "We are cooperating with authorities..." 3.) Imply that the offending personnel have long since left the company... 4.) Imply that CEO was unaware of wrong-doing... 5.) Use the phrase "a few bad apples..." Apple can't use #5 (for obvious reasons), but they have used the other four. Sounds about as believable as Tony Snow discussing Iraq...

Re:

[Atzanteol (99067)]

Sounds about as believable as Tony Snow discussing Iraq...

More like Clinton denying he had sex with an intern. I love bad partisan analogies!

Re:Corporate crisis PR playbook

[gnasher719 (869701)]

'' Use one or more of the following: 1.) "We have launched our own internal investigation..." 2.) "We are cooperating with authorities..." 3.) Imply that the offending personnel have long since left the company... 4.) Imply that CEO was unaware of wrong-doing... 5.) Use the phrase "a few bad apples..." Apple can't use #5 (for obvious reasons), but they have used the other four. Sounds about as believable as Tony Snow discussing Iraq... ''

1) It was actually Apple who first found problems, told the SEC they had found problems, and started its own internal investigation.
2) If a company says "we are NOT cooperating with authorities", the company has a real problem.
3) Considering that this is about events from 1997 to 2002, it is not unusual that people leave a company in four years.
4) Steve Jobs just made a cool 3500 million dollars by selling his share of Pixar; the whole case here is about options worth less than 17 million.

Mountain from a mole hill?

[Enrique1218 (603187)]

Apple did have some rough spots during the second coming of Jobs. I doubt Jobs would have a financial care if Apple tanked because he was still successful with Pixar. But, those other execs may have lost faith in Job's vision and decided to implement plan B. I suspect they developed an immunity to reality-distortion fields due to long term exposure early on. Thus, in those uncertain days during the recession, they decided to to milk those stock options with creative accounting. Though they probably rank up

The corporate lawyer is NOT your lawyer

[nels_tomlinson (106413)]

. While Apple has said CEO Steve Jobs did not profit from the stock-option backdating, Jobs has reportedly hired his own attorney to deal with the SEC and Justice Department."

This is probably a great time to remind everyone that unless you, personally, have paid your attorney's retainer, he is not your attorney. If the lawyers paid by Apple could save Apple a nickle by hanging an innocent Steve Jobs out to dry, they would be obligated to point out that fact to their client, who is not Steve Jobs.

The moral of this is that even if your employer has paid for a lawyer, you still need your own lawyer, even if you really are as important as Steve Jobs thinks he is. Don't depend on your employer's lawyer to defend you. He'll sell you out as soon as it helps his client.

Re:

[ozzee (612196)]

In California at least, in most circumstances the company is required to pay your legal fees, including hiring those fees your "own" lawyer for cases where you're defending against a compaint that originated from doing your job.

Re:

[nomadic (141991)]

The best thing to do is ask whatever lawyer you're presented with, "are you representing me or are you representing my company?". If he says both, be careful. If he says just you, you should be good. I do think in a lot of situations it's in the company's best interest to protect their employees; they're usually being the one sued, and the last thing they want is a vengeful, sold-out employee who's willing to testify against them now.

The Purpose Of Lawyers.....

[IHC Navistar (967161)]

Jobs needs alot of lawyers, because each lawyer he has means more padding between him when he hits the concrete.

why this matters

[MEForeman (930504)]

before, the SEC would get mad. now the SEC has the teeth. since companies must value outstanding options which decrease company assets (and profits), and understating of value of the options is a violation of the SEC acts of 1933 and 1934. This carries real prison time and real fines. If they're convicted it's a felony and they can't serve as an Executive officer or on the board of any SEC-reporting company. AKA they get fired. kinda sweet, i think. and you can thank worldcom for this one. this is a big thing they did.

Re:

[gnasher719 (869701)]

Apple shares ended up exactly one cent higher today than yesterday, after huge panic selling in the morning.

Guys, do you realise that all of this story is just based on hearsay from some Anonymous Cowards?

(May I add that slashdot is sometimes completely braindead. On my first post it ignored my username/password marking this as a post by "anonymous coward", when it reposted it it asked me to "be more original". )

Re:

[SlamMan (221834)]

It might have something to do with when you have an issue with backdating stocks, it means your company's doing better than you expect. Its a sign to buy, not sell.

Re:

[dgb2n (85206)]

I bought today at 77.80 and made 5% on the day (and sold $3 higher). Easy money.

The market overreacted. It may reflect poorly on management but it is highly unlikely to affect their ability to sell Macs or Ipods.

Re:Shakespeare was right...

[creimer (824291)]

You have to wonder if some laws weren't created for the express purpose of making unnecessary work that benefits the lawyers more than the public at large. The rules for stock options gets changed, an army of auditors scours the book, the lawyers are called in and the media has a field day. The public may or may not benefit from this. Auditors and lawyers are making a ton of money. Shareholders are getting soaked either way.

Re:

[nomadic (141991)]

You have to wonder if some laws weren't created for the express purpose of making unnecessary work that benefits the lawyers more than the public at large. The rules for stock options gets changed, an army of auditors scours the book, the lawyers are called in and the media has a field day. The public may or may not benefit from this. Auditors and lawyers are making a ton of money. Shareholders are getting soaked either way.

Maybe, but I don't think that's the case here. It shouldn't take a lawyer telli

Re:

[figleaf (672550)]

Apple uses MS Office to produce option documents.
Someone from the government used a remote exploit to modify the option documents to entrap Apple employees.

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[mrbooze (49713)]

Backdating options is a legitimate accounting practice? It's never been allowed at any of the places I worked, where more than once I had options issued shortly after a huge aberrant stock spike and thus my option price was set so high that it never became profitable. I would have *loved* to have had them backdated, but had understood it was illegal to do so.

Re:yay, another company who's CEO's rob shareholde

[gnasher719 (869701)]

'' Backdating options is a legitimate accounting practice? It's never been allowed at any of the places I worked, where more than once I had options issued shortly after a huge aberrant stock spike and thus my option price was set so high that it never became profitable. I would have *loved* to have had them backdated, but had understood it was illegal to do so. ''

A company can give you any number of stock options it wishes, at any strike price it wishes. If the strike price is equal to the share price on the day the options are granted, the company does not have to pay any taxes on the grant. If the strike price is lower, then this is treated as if the company had given you cash, so you have to pay income tax, and the company has to register the difference as a loss. So it was always legal for the company to give you options at the share price at an earlier date, but YOU would have to pay income tax for it.

What is NOT legal is to modify the grant date and so hide the fact that taxes need to be paid.

Re:

[mrbooze (49713)]

Aha, thanks for the explanation. That's a much better explanation than I ever got from the plan administrators for some reason.

Re:yay, another company who's CEO's rob shareholde

[Aqua OS X (458522)]

Damn, that was some ridiculous fanboism. Enron was a blue chip stock, caused the biggest bankruptcy the nation had ever seen, and screwed thousands of employees and shareholders. Applauding Bush's Justice Dept for investigating is like applauding me for pooping after consuming coffee and a bran muffin. If it didn't happen, something was seriously wrong.

Moreover, it was the downfall of Enron that highlighted Arthur Andersen and eventually exposed World Com. It's not like the Justice Dept. was on some sort of corporate crime crack down. They were dealing with the blatantly obvious.

Moreover, before you start cheerleading about "all of these corrupt companies were brought to Justice," I would suggest that you look at current practices for awarding and funding contracts for security, military, and reconstruction projects.

Re:

[Aqua OS X (458522)]

Ohh, and it's also worth noting that Apple called themselves out on the backdating of options. They announced it and started their own internal investigation 5 months ago. After it was concluded in October they publicly disclosed "serious concerns" of accounting fraud and options backdating by the CFO and senior vice president. The two have since "resigned."

So, ya, hiphip freak'n hooray for the Department of Justice. The Department of Justice started investigating a crime after the criminal notified them of

Re:

[Rosonowski (250492)]

Get YOUR facts straight, they legitimately purchased those technologies from Xerox.

Re:

[CDarklock (869868)]

But... but... we don't come here for the intelligence. We come here for the retarded arguments.

Or is that just me?

It's a FUD-rucker

[SeaFox (739806)]

Why does Steve Jobs need an army of lawyers if he didn't do anything wrong?

Why should you object to us searching your car if you're not carrying any drugs in it?
Why should you care if we listen to your phone conversations if you're not plotting terrorism?
Why do you own a gun if you're not being attacked right now and don't plan on killing anyone?

Why are you using the psudonym "Orion Blaster" if you have the right to free speech?

Secondly, Steve Jobs hired an attorney, singular. Not "an army of lawyers". Thanks for playing the exaggeration game though.

What other documents were faked? Was the turn-a-round of Apple into a profitable company faked as well? Did Apple cook the books Enron style?

If some documents have been faked, there must be others. Just like if some music on your PC is pirated, you must have stolen all of it...

Yes, the backdating of stocks, the result of which gave MORE money to executives, caused Apple to be MORE profitable. [rolleyes]

Enron's issues were more than "cooking the books". The media portrays the entire Enron mess as a few guys changing a bunch of numbers in a ledger and a bunch of shredding of documents that proved their numbers were wrong. It goes further than that, into the realm of coercing power plant managers and tampering with the energy market itself. Remember those rolling blackout in California a few years ago? Those had nothing to do with an actual shortage of energy production ability verses demand in the summer months.

This is what Enron was up to...

[argent (18001)]

It goes further than that, into the realm of coercing power plant managers and tampering with the energy market itself.

No kidding.

"Tonight ... we want you guys to get a little creative [lehenbauer.com] ... come up with a reason to go down..." "... our electricity happens to be on-shift tonight ..."

Re:

[rob1980 (941751)]

Why does Steve Jobs need an army of lawyers if he didn't do anything wrong?

Because the right to legal counsel applies to CEOs too?