Apple Stock Options Fallout Continues

Wednesday December 27, 2006 1:44 pm PST by longofest

With Apple's annual SEC statement due Friday and the pending restatement of historical financial statements, Law.com reports that Apple may be under increased scrutiny by the SEC due to apparently deliberately falsified documents by company officials to maximize the profitability of option grants to executives.

In June, Apple began an internal probe of stock option grant "irregularities", the results of which saw the departure of former CFO Fred Anderson from Apple's board amid findings of "serious concern" regarding two former officers. Law.com labels Anderson and former general counsel Nancy Heinen as those former officers.

Over 100 companies including Microsoft, CNet Networks, and Computer Associates are in similar situations, and the falsification of documents appears to be a key element under scrutiny in SEC investigations which may lead to 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," said Keith Krakaur, a partner at Skadden, Arps, Slate, Meagher & Flom in New York working on backdating cases. [...]

Krakaur and other defense lawyers -- including several in San Francisco who asked to remain anonymous for fear of affecting local probes -- said government lawyers are focusing on falsified records as a means of proving that executives knew their actions were wrong. "They view that as intent," he said. (Ed Note: Krakaur is not personally involved in the Apple case)

Current officers including CEO Steve Jobs were largely cleared from involvement by the independent investigation. Still, it appears as though Jobs has sought independent counsel beyond Apple's lawyers in dealing with the matter.

Top Rated Comments

(View all)

somairotevoli

67 months ago

from cnn
http://money.cnn.com/2006/12/27/technology/apple_options/index.htm?postversion=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."