Apple inquiry clears CEO Jobs of wrongdoing on stock options
Apple inquiry clears CEO Jobs of wrongdoing on stock options Wall Street relieved, shares rise -- but until federal authorities weigh in, uncertainty remains
Apple Computer Inc. cleared CEO Steve Jobs of wrongdoing in the company's stock options scandal, assuring -- for the time being at least -- the continued stewardship of a Silicon Valley legend.
Wall Street heaved a huge sigh of relief. Jobs is widely considered crucial to Apple's success, a brilliant innovator who returned from exile a decade ago to restore Apple's polish, introducing such hit products as the iPod digital music player.
The company's shares rose nearly 5 percent after release of the anxiously awaited annual report, which gave the most detailed account yet of what an internal investigation found about irregularities in awards of stock options to executives.
Apple's investigation, led by a special committee of board members that included former Vice President Al Gore, discovered thousands of cases in which the company handed out stock options improperly, often by assigning a date to the awards different from the day on which they were actually granted. The practice, known as backdating, potentially boosts the profits of recipients but is illegal if not disclosed and properly accounted for.
At the same time, the investigation found "no misconduct by current management," according to the report. In a separate statement, Gore and another member of the investigative committee said they had "complete confidence in Steve Jobs and the senior management team" and that the company "has corrected the problems."
Cupertino's Apple also restated financial results for 1997 through 2002 to recognize a total of $84 million in additional options-related compensation expenses.
Despite the exoneration, uncertainty remains for Jobs, the chief executive officer, and the company. Apple noted that it had informed the U.S. Securities and Exchange Commission and the U.S. Attorney's Office of the results of its probe. Federal authorities are presumed to be weighing whether to take action against the company or any individuals. The SEC and the U.S. Attorney's Office declined to comment on the matter.
Legal and corporate governance experts say federal authorities won't necessarily be swayed by the company's findings or by Jobs' prominence.
"There is going to be a continuing level of uncertainty surrounding the company until or unless Jobs is exonerated by the SEC and others looking at this issue," said Patrick McGurn, executive vice president of Institutional Shareholder Services, which advises investors on corporate governance issues. "This was a major hurdle that the company has cleared for now, but it still has some obstacles in the road in front of it before it can put these issues behind it once and for all."
McGurn said the number of instances in which the company improperly granted options raises serious concerns.
"It does not jibe with the bill of good health the board gave itself and the company several months ago when the issues first came to light," he said.
Matthew Jacobs, a former assistant U.S. attorney in San Francisco now in private practice, said he expects federal prosecutors to look closely at Apple's findings.
"All internal investigations are subject to scrutiny to see if they were thorough, complete and done correctly or if there is an attempt to whitewash the findings," he said. "It is still an open question how the government is going to decide which of the multitude of (backdating) cases to focus on. This is certainly not the end of the story for Apple."
Most Wall Street analysts took the view that Apple and Jobs are now putting their options problems behind them.
"As time goes by, this will slowly fade away," said Gene Munster, a financial analyst with Piper Jaffray, an investment bank. "It's important to put the stock option issue to rest so ultimately people can consider the fundamentals (of the company) again."
Options give holders the right to buy company stock at a preset price, usually the price on the day the options are granted. If the stock price rises, holders can cash in their options to buy stock at the preset price and then sell those shares on the open market at a profit.
Backdating options involves picking dates for awards when shares were trading at a lower price to boost the potential windfall to recipients. That isn't necessarily illegal, but companies must disclose and account for the practice. Many failed to do so.
Backdating was common in Silicon Valley, and dozens of companies have had to restate earnings or remove executives because of options-related misconduct. Apple is among the most prominent of about 200 companies that have come under scrutiny this year in the stock-options scandal.
For its part, Apple has worked to shield Jobs, who co-founded the company three decades ago.
Jobs has since become synonymous with its success and is credited with overseeing Apple's transformation into a consumer electronics and entertainment powerhouse. Analysts have said that if Jobs were forced to leave the company, his departure could cause a plunge in Apple's stock price and jeopardize its dominance in key markets.
In its regulatory filings Friday, Apple disclosed that a 2001 award of 7.5 million options to Jobs was recorded as having been approved at a special board meeting that never actually took place. The company also acknowledged that documents connected with the grant were falsified to make it look like the required board approval had occurred.
Apple said Jobs was aware of some instances of backdating and even recommended favorable dates to grant options. But, the company said, Jobs did not financially benefit from these grants and did not understand the accounting implications.
If regulators or prosecutors were to take action against Jobs, they would have to show that he knew that backdating options would distort the company's financial results or falsify its records, said Columbia Law School Professor John Coffee. Whoever did falsify records about the 2001 board meeting could face criminal prosecution, Coffee said.
Apple's investigation concluded that responsibility for some irregularities rested with two unnamed former officers. Their actions raise "serious concerns," the company said in its filing.
Fred Anderson, Apple's former chief financial officer, resigned from the board in October at the same time Apple announced preliminary findings of its stock-options probe.
Nancy Heinen, Apple's former general counsel, left the company in May before the options probe came to light.
Cristina Arguedas, the attorney who represents Heinen, said her client has a "rock solid" reputation for honesty and integrity.
Anderson's lawyer, Jerome Roth, released a statement Friday saying his client had no day-to-day involvement in the granting, reporting or accounting of stock options and was not involved in any "knowing manipulation" of the process. Roth also noted that Anderson was not a member of the board of directors at the time of the 2001 option grant to Jobs and knew nothing of any impropriety.
On the 2001 options award to Jobs, Apple said it found no evidence that any current member of management was aware of the false board records. The company placed the compensation cost of the grant at $20 million.
Jobs received another grant in January 2000 for 10 million options. That grant and the 2001 award were canceled in 2003 when Jobs received 5 million shares of restricted stock.
In October, Jobs apologized for options backdating that happened "on my watch" but has made no further public statements.
E-mail Jessica Guynn at jguynn@sfchronicle.com.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/12/30/MNGTANAGM21.DTL&feed=rss.news
Apple Computer Inc. cleared CEO Steve Jobs of wrongdoing in the company's stock options scandal, assuring -- for the time being at least -- the continued stewardship of a Silicon Valley legend.
Wall Street heaved a huge sigh of relief. Jobs is widely considered crucial to Apple's success, a brilliant innovator who returned from exile a decade ago to restore Apple's polish, introducing such hit products as the iPod digital music player.
The company's shares rose nearly 5 percent after release of the anxiously awaited annual report, which gave the most detailed account yet of what an internal investigation found about irregularities in awards of stock options to executives.
Apple's investigation, led by a special committee of board members that included former Vice President Al Gore, discovered thousands of cases in which the company handed out stock options improperly, often by assigning a date to the awards different from the day on which they were actually granted. The practice, known as backdating, potentially boosts the profits of recipients but is illegal if not disclosed and properly accounted for.
At the same time, the investigation found "no misconduct by current management," according to the report. In a separate statement, Gore and another member of the investigative committee said they had "complete confidence in Steve Jobs and the senior management team" and that the company "has corrected the problems."
Cupertino's Apple also restated financial results for 1997 through 2002 to recognize a total of $84 million in additional options-related compensation expenses.
Despite the exoneration, uncertainty remains for Jobs, the chief executive officer, and the company. Apple noted that it had informed the U.S. Securities and Exchange Commission and the U.S. Attorney's Office of the results of its probe. Federal authorities are presumed to be weighing whether to take action against the company or any individuals. The SEC and the U.S. Attorney's Office declined to comment on the matter.
Legal and corporate governance experts say federal authorities won't necessarily be swayed by the company's findings or by Jobs' prominence.
"There is going to be a continuing level of uncertainty surrounding the company until or unless Jobs is exonerated by the SEC and others looking at this issue," said Patrick McGurn, executive vice president of Institutional Shareholder Services, which advises investors on corporate governance issues. "This was a major hurdle that the company has cleared for now, but it still has some obstacles in the road in front of it before it can put these issues behind it once and for all."
McGurn said the number of instances in which the company improperly granted options raises serious concerns.
"It does not jibe with the bill of good health the board gave itself and the company several months ago when the issues first came to light," he said.
Matthew Jacobs, a former assistant U.S. attorney in San Francisco now in private practice, said he expects federal prosecutors to look closely at Apple's findings.
"All internal investigations are subject to scrutiny to see if they were thorough, complete and done correctly or if there is an attempt to whitewash the findings," he said. "It is still an open question how the government is going to decide which of the multitude of (backdating) cases to focus on. This is certainly not the end of the story for Apple."
Most Wall Street analysts took the view that Apple and Jobs are now putting their options problems behind them.
"As time goes by, this will slowly fade away," said Gene Munster, a financial analyst with Piper Jaffray, an investment bank. "It's important to put the stock option issue to rest so ultimately people can consider the fundamentals (of the company) again."
Options give holders the right to buy company stock at a preset price, usually the price on the day the options are granted. If the stock price rises, holders can cash in their options to buy stock at the preset price and then sell those shares on the open market at a profit.
Backdating options involves picking dates for awards when shares were trading at a lower price to boost the potential windfall to recipients. That isn't necessarily illegal, but companies must disclose and account for the practice. Many failed to do so.
Backdating was common in Silicon Valley, and dozens of companies have had to restate earnings or remove executives because of options-related misconduct. Apple is among the most prominent of about 200 companies that have come under scrutiny this year in the stock-options scandal.
For its part, Apple has worked to shield Jobs, who co-founded the company three decades ago.
Jobs has since become synonymous with its success and is credited with overseeing Apple's transformation into a consumer electronics and entertainment powerhouse. Analysts have said that if Jobs were forced to leave the company, his departure could cause a plunge in Apple's stock price and jeopardize its dominance in key markets.
In its regulatory filings Friday, Apple disclosed that a 2001 award of 7.5 million options to Jobs was recorded as having been approved at a special board meeting that never actually took place. The company also acknowledged that documents connected with the grant were falsified to make it look like the required board approval had occurred.
Apple said Jobs was aware of some instances of backdating and even recommended favorable dates to grant options. But, the company said, Jobs did not financially benefit from these grants and did not understand the accounting implications.
If regulators or prosecutors were to take action against Jobs, they would have to show that he knew that backdating options would distort the company's financial results or falsify its records, said Columbia Law School Professor John Coffee. Whoever did falsify records about the 2001 board meeting could face criminal prosecution, Coffee said.
Apple's investigation concluded that responsibility for some irregularities rested with two unnamed former officers. Their actions raise "serious concerns," the company said in its filing.
Fred Anderson, Apple's former chief financial officer, resigned from the board in October at the same time Apple announced preliminary findings of its stock-options probe.
Nancy Heinen, Apple's former general counsel, left the company in May before the options probe came to light.
Cristina Arguedas, the attorney who represents Heinen, said her client has a "rock solid" reputation for honesty and integrity.
Anderson's lawyer, Jerome Roth, released a statement Friday saying his client had no day-to-day involvement in the granting, reporting or accounting of stock options and was not involved in any "knowing manipulation" of the process. Roth also noted that Anderson was not a member of the board of directors at the time of the 2001 option grant to Jobs and knew nothing of any impropriety.
On the 2001 options award to Jobs, Apple said it found no evidence that any current member of management was aware of the false board records. The company placed the compensation cost of the grant at $20 million.
Jobs received another grant in January 2000 for 10 million options. That grant and the 2001 award were canceled in 2003 when Jobs received 5 million shares of restricted stock.
In October, Jobs apologized for options backdating that happened "on my watch" but has made no further public statements.
E-mail Jessica Guynn at jguynn@sfchronicle.com.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/12/30/MNGTANAGM21.DTL&feed=rss.news
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