Apple Inc: the Future Of Consumer Electronics? - Apple's Option Scandal
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Backdating means that options are granted at a price lower than the market price by making it appear that the transaction took place in the past at a time when the shares were of a lower value (hence increasing the monetary gain for the recipient of the stock options grant). Interesting enough, backdating is illegal only if not disclosed to shareholders, and penalties include charges such as violation of SEC rules and possibly fraud.
Apple is under investigation for backdated stock options grants and release of options in response to insider information (called "spring loading"). In an internal investigation that took place June 2006, environmentalist and former vice president Al Gore (one of Apple's directors) cleared Steve Jobs of any wrong doing. Federal investigators may not be so lenient with the Apple CEO.
The options backdating scandal is not limited to Apple alone. Companies such as VeriSign, Home Depot, Microsoft, Intuit, Juniper Networks, McAffee, CNet and Computer Associates are also under scrutiny. Apple is the only one to submit to a voluntary audit by federal investigators.
Currently though, Apple is the one in the thick of media attention. With soaring stock prices and a CEO who is probably second only to Bill Gates (who is no longer Apple's CEO in any case) in terms of identifying the brand with the company, investors who currently consider Apple a good "buy and hold" may dump it in droves if they perceive that Apple may lose Steve Jobs. It could happen, since Jobs himself told CNBC financial TV channel that he is "to some extent" responsible for the backdating.
To What Extent Is Jobs Culpable?
According to Gore's investigation, Jobs never benefited from the options grants himself. Although he was aware of them and may have approved some himself, the one he could have benefited from was subsequently canceled in 2003. The problem with this (at the risk of sounding like a muckraker) is that Al Gore has proved to be stubbornly loyal to professional acquaintances (such as vouching for Bill Clinton's innocence during the Lewinsky brouhaha) and many watchers are speculating that this may be a similar incident. And the SEC may want to make an example of the company so as to put other tech companies on alert that this kind of behavior is unacceptable.
Also Jobs being aware of what was going on is an indictment in itself, even if he was not directly profiting from it. In any other field (say track and field), apart from Big Business, what would be left at this stage would be calculating the size of the punishment. Note that Jobs personally picked the dates for some of the backdated options. According to Alan Johnson of Johnson Associates, a compensation consulting firm in New York: "He knew what he was doing. It wasn't 'the dog ate it.' He backdated the options on purpose and the committee said it will give him a free pass."
And the Apple (I didn't say Gore) investigation still "cleared" him of all wrong doing. Jerome York, the other member of the independent investigating committee that cleared Jobs, was part of a the compensation committee during the time the options were granted. It seems Apple would rather be heavily fined and criticized than let go of their rock star CEO, and why not?
Next: Why Steve Should Keep His Job >>
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