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."

Say it Ain't So Fred!

[good soldier svejk]

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.

Way to flamebait the headline

[$RANDOMLUSER]

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].

Re:Shakespeare was right...

[nomadic]

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 telling you that modifying documents to reflect something that just isn't true could possibly be wrong. ESPECIALLY for a public company.

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

[gnasher719]

'' 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:Corporate crisis PR playbook

[gnasher719]

'' 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.

Re:The corporate lawyer is NOT your lawyer

[nomadic]

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.

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

[rtechie]

Clinton's Justice Department was noticably lackadaisical about prosecuting or enforcing certain accounting standards (depends on what your definition of 'profit' is, I guess.)
Anyway, when Bush comes into office, with a business background, 'fudging the numbers' is not cool. You either made a profit or you didn't, regardless of what shell offshore companies you bought.

Um, no. Bush's Justice Department didn't move one finger to increase prosecaution for bad accounting practices until after there was huge public outcry over Enron, Worldcom, and other companies and then dragged their feet on prosecutions. Bush is strongly associated with Enron because Bush is a former business partner of Bush, among other things. Enron is Bush's #1 lifetime donor and his biggest contributor in the 2000 campaign. Bush has called Ken Lay a personal friend. He was also a personal friend of Dick Cheney. and part of his "Energy Task Force". It has been confirmed that Ken Lay was poised to be named as Secretary of Energy before the Enron scandal broke.

Bush is tagged with fostering this corruption.

Largely because he did. But most people throw the lion's share of the blame at the corrupt Republican congress for passing legislation that fostered a culture of abuse.

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

[Aqua OS X]

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 the crime and started handing over evidence. I hope Alberto Gonzales has gold stars for everyone's awesome investigatory investigiveness.

It's not flamebait, the declaration was not timely

[bgalbrecht]

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 real date of the option grant, and it's a cost to the company that is hidden, therefore overstating earnings, and fraud. If it had been declared at the time, it wouldn't have been fraud. It's not enough to just declare it now.

why this matters

[MEForeman]

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:Say it Ain't So Fred!

[good soldier svejk]

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.

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

[jdp816]

Apple didn't steal from Xerox. Apple entered into a payoff and IP sharing deal. The myth of Apple stealing the GUI from Xerox conveniently ignores the actual business dealings that went into transactions that made the visit of Apple engineers to Xerox possible. Pick up a real business history book, and ignore braindead headline news versions of the story.