Can Jobs remain unscathed by Apple options probe?

Can Jobs remain unscathed by Apple options probe?

Summary: The stock options backdating issue may be catching up to Apple CEO Steve Jobs. While most are focused on Apple's retail sales, latest gadgets and Macworld, the company's stock option backdating probe--you know the one that has caused Apple to delay its annual report--remains a big issue.

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TOPICS: Apple
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The stock options backdating issue may be catching up to Apple CEO Steve Jobs.

While most are focused on Apple's retail sales, latest gadgets and Macworld, the company's stock option backdating probe--you know the one that has caused Apple to delay its annual report--remains a big issue.   

According to The Recorder, a publication of Law.com, federal prosecutors are looking closely at stock option administration documents that were apparently falsified

Justin Scheck reports:

According to people with knowledge of Apple's situation, federal prosecutors are looking closely at stock option administration documents that were apparently falsified by company officials to maximize the profitability of option grants to executives.

The faked documents were revealed in a three-month internal probe -- conducted by Quinn Emanuel Urquhart Oliver & Hedges -- that concluded in October, said individuals familiar with the case who requested anonymity because it remains the subject of criminal and civil government investigations.

The falsification of documents is perhaps the key issue for government officials trying to determine which of their 100-plus backdating investigations will be pursued as criminal matters and which will be limited to civil SEC inquiries.

Throughout this saga, Apple CEO Steve Jobs skated past any concerns even though a company statement acknowledges that he had some knowledge of favorable option grant dates. The response from Apple investors and customers thus far has been "so what he's Steve Jobs." The Recorder, however, reports that Jobs has hired his own legal representation.

What happens from here is anyone's guess, but it does appear that the conventional wisdom bandwagon for Apple has tipped over. Aside from initial worries about Jobs' standing, it's widely assumed he's going to stay at the helm of Apple. And why not? Jobs is a tier one CEO. There are two tiers of CEOs--the top tier occupied by HP's Mark Hurd and Apple Steve Jobs--and everyone else. That top tier enjoys the benefit of the doubt despite any scandal. The lower tier means the CEO gets tossed. Which tier you wind up on has a lot to do with how well you hit your earnings targets.

Now maybe it's not a big deal that Jobs hired his own legal representation. But The Recorder report is a bit of a shocker considering Apple's restated annual report is due any day now and Wall Street sounded the all clear a few days ago.

On Dec. 15, J.P. Morgan analyst Bill Shope wrote:

"In its filing with the SEC this morning, Apple stated that it intends to file its 10-K for the fiscal year ended September 30, 2006, by December 29, 2006, along with its 10-Q for the quarter ended July 1, 2006. This suggests the options investigation is finally reaching its conclusion and that investors will once again be able to focus on the fundamentals of the Apple story. Shope also indicated that worries about Jobs' job had subsided."

On Oct. 18, Piper Jaffray analyst Gene Munster wrote:

"We believe the options backdating issue is in Apple's rearview mirror and Steve Jobs will remain Apple's CEO. Although these issues tarnish Apple's squeaky clean image, they do not impact the company's underlying fundamentals."

And on Oct. 5, Merrill Lynch analyst Richard Farmer said:

"Although Steve Jobs may be tainted by the admission that he knew of favorable grant dates, ultimately we suspect his tenure as CEO is likely to continue, assuming regulators concur with the assertion that he was unaware of accounting implications, and other matters. We do not believe the question of personal benefit from options irregularities to be as important as whether Jobs knowingly engaged in personal misconduct (e.g. encouraged accounting to deviate from stated procedures), neither of which appears to have happened, according to Apple’s investigation."

Bottom line: The Register's report dings months worth of conventional wisdom about Apple. With the latest news on the options issue it's possible some of those conclusions will be rethought slightly. At the margin, there is more uncertainty about Jobs' standing than there was yesterday.

It's unclear what Apple would look like without Steve Jobs. Numerous research reports from October speculated that Apple would continue to do well. That's probably on target to a degree--it's not like the company is going to revert to the Gil Amelio days--but it may be time to begin pondering Jobs successor just in case. He's a tough act to follow.

Topic: Apple

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48 comments
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  • Until there is an indictment ...

    ... this amounts to nothing more then idle speculation. I believe the phrase is "innocent until proven guilty". The hiring of an attorney should not be construed as an admission of guilt. It is a prudent step whenever there is an investigation of this type.
    ShadeTree
    • It also serves...

      As a vehicle of F.U.D. The company is running strong, thus someone has to find a
      flaw in it. WHen Microsoft did the same thing years back, the end result was a slap on
      the hand. Expect the same thing happen here, as the persons that most likely did
      the falsifications are most likely not at Apple anymore.
      Rick_K
      • it served it's purpose

        they got the cash they needed at a time they needed it, and now with Apple doing well, they pay the fine "and be done with it"
        John Zern
        • The back dating of stock options ...

          ... does not benefit the company or the stockholders. It only benefits the executives that receive them. I doubt very much those individuals needed the cash. It is a case of pure unadultrated greed.
          ShadeTree
          • Yup...of that I have no doubt.

            Pagan jim
            Laff
    • Why should this be any different?

      Well, if we can speculate on the legal ramifications of trademarks filed for products that don't exist from Apple, then why not do the same here. Just more of the tech press' obsession with Apple.
      tic swayback
      • The difference is obvious.

        When you speculate about a trademark you do not besmirch an indivuals reputation. When you speculate about an individual being involved in crimes you damage their reputation. Big difference!
        ShadeTree
        • There's still harm done

          The rampant speculation that ramps up for every big Apple announcement frequently hurts the company. They'll announce some interesting products and people will come away disappointed because the raving lunatics in the press who are obsessed with Apple will already have written column after column about iPhones, iHandhelds, etc., etc. While a different type of damage is done than the possible libel going on here, it's still harmful, particularly to shareholders.
          tic swayback
  • Inflamitory Apple Wanna Be's (Led by Billy and MS).

    Please, try reporting the truth about Microsoft and Bill Gates instead of pulling at straws to tarnish all other companies in the tech sector. You wanna make Microsoft look good? Show them how to conduct business ethically and show them how to design real code instead of DRM laden, control taking government and big business appeasing garbage that steals money from end users.
    nomorems
    • It's refreshing

      that you are around to let everyone know the real truth. Jobs knew nothing and this never happened. MS is EVIL and that's all there is to it. For God's sake won't someone listen to this guy?? He knows what he's talking about and MS needs taken out.
      Apple doesn't use DRM or work toward appeasing big business.....they are built on idealism and socialism and only even grant stock options because the executives have agreed to give the moeny all to charity. Apple's licensing that ultimately forces you to pay 130 bucks extra a year on top of the highest margin OS and hardware on Earth is only done so they can bring you the absolute best and those profits are all put back into R&D and none, I mean none of it is used beyond their meager payroll of the lowest paid employees on earth. They mostly work as volunteers and do this for the goodness of America and mankind. Steve Jobs is above all of this. That is a given. God created Him for the purpose of creating the only non capitalistic computing platform to be listed on a stock exchange. He is as pure as the driven snow and it's only those evil bastards at Microsoft who should ever, i mean EVER have any bad news printed.
      xuniL_z
      • Even "IF" Jobs did something wrong here.....

        I doubt that Apple stock holders would want to see anything happen
        to Jos and would allow him if needed to run the company from jail if
        it came to that!!!!

        I being a very small stock holder would not want to see a hair harmed
        on Job's head at this point....things have been going far too well to
        mess with the cart now and it seems that even better things are
        coming down the pike so HANDS OFF!!!

        At this point if someone had a picture of Steve Jobs standing over a
        pile of dead hookers with a bloody butchers knife I would find said
        picturre owner and introduce him to a bag of lime I have in my
        shed..wink, wink...nudge, nudge say no more.

        So I tend to doubt that this relatively smallish issue is going to effect
        Jobs even "IF" his finger prints are all over the "supposed" fake
        docuements.

        Pagan jim
        Laff
        • Did you hear yourself?

          You just admitted that you, as a hardcore Apple enthusiast, are only interested in how well the company is doing and the $$$$ return! You could not have framed it better. This is one for the bookmarks. "Apple zealot revealed!" "Apple unseats MS as the greediest, most evil company on the face of the earth"

          Plus, what do you mean IF?

          <i>In its October SEC filing, Apple said that, "in a few instances," Jobs "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."</i><br><br>

          If you are going to tell me that Jobs was "unaware of any accounting implications, then I have a bridge in New York I want to sell you.
          xuniL_z
          • And who said I was not a Zealot?

            Know you should know a few terms and one of them is
            humor....mixed with reality are a potent mixture.

            The reality is I'm more a capatalist than anything and I'm a fan of
            Apple due in large part to my capatalist streak. I like making money
            on my investments and would not see that Apple Cart (HUMOR)
            messed with over such a smallish "white' lie if you will. The crime is
            not murder nor is it Enron esque in it's implications to employee's or
            stock holders which in the case of Enron many times ended up being
            one and the same.

            As for Accounting isn't this whole stock option things a bit of a mess
            for like a couple hundred companies right now? Wasn't there some
            rules changes that came into the game rather latish? Me I can also
            claim that "IF" I owned and operated a company I would not have an
            abundance of knowledge about accounting proceedures cause well
            that is why my company would hire accountants now would that not
            make sense to you? I would also not e the company lawyer or janitor.
            Even though my company may have plumping does not make me a
            plumber either.

            Now take a deep breath and look up humor.

            Pagan jim
            Laff
          • As much as it may surprise you.

            My statements were not intended as serious, lock horns, type of thing either. So chill man. It's ok. I actually knew you were trying to be funny with the bloody knife..etc.

            But I disagree you with you on many points. A CEO has to be aware of the fiscal assets and liabilities of his/her company. Otherwise your company could be tanking and you'd just be sitting there what? Filing your nails? Come on, the view of leadership as one who surrounds herself with good people is ok to a point. After that point, it's an excuse for all that goes wrong or right. If Jobs is not keeping tabs on the engineers, how does he kmnow they are headed in the right direction. Do you suppose he waits unitl millions have been spent and prototypes developed before he checks on projects? You don't think he has direct access to the main fiscal related data and is the type of leader to have a good feel for it. Especially stock grants. That is clearly in the CEO's jurisdiction.
            No matter anyway, since the matter at hand here has nothing to do with that anyway. He admits to knowing about the date changes in the stock grants. He's not stupid as you'd be the first to point out. I've worked in technology all my life but I also realize you cannot falsify accounting documents. It's a matter of trust at a given point. If his trust with the public is dilluted, then he cannot be an effective leader. Let's hope it doesn't get that far, but if very well could.
            xuniL_z
          • The Killer Issue

            If, and I did say "if" the allegations of forged documents holds up then this goes beyond the realm of "creative accounting" and gets into the area of serious Federal felons. Fraud, forgery, conspiracy to commit fraud, and conspiracy to conceal evidence, just to name the most obvious. These are the types of charges that sent the Enron executives up the river. Jobs has already said that he was ?aware? of some back dating, so this could come back to bite him.
            perryroyce@...
          • Well.....

            Yes Stve Jos as leader should know about the basic finacials ie are we
            making money and if so how much and what should we spend it on
            and things like that. To this I think he's been and was/is informed.
            Now I'm not sure about the details here but I was under the
            impression that the whole stock option thing had certain grey area's
            and that rule changes had fairly recently been made that had a few
            companies stumbling over themselves. The question here is how
            much did Job's know and or sanction....I don't know.

            And I tend to doubt very much that any of use ever will. You can
            guess and speculate ut without the tape showing Steve Jobs saying to
            Fred Anderson "I want you to forge some paper work giving my boys
            a bigger pay out" it's only going to be speculation and in truth it
            could have happened on several differrent levels not directly related
            to Jos as was claimed in the filings.

            Pagan jim
            Laff
          • Of course

            It's all speculation at this point. But Jobs did make incriminating statements that cannot be retracted, depending on how this plays out. They don't have to put the gun in his hand, if the facts dispute the picture he's already painted. Many have been convicted w/o the smoking gun in the past eh?
            xuniL_z
        • Remember when...

          " doubt that Apple stock holders would want to see anything happen to Jos and would allow him if needed to run the company from jail if
          it came to that!!!!"

          Didn't the government make Martha Stewart give up her CEO position because of her stock scandal? If it were true, I hope Jobs get the fate...
          lenohere
          • Did not Martha make a quick come back and is again

            on top of the world compared to the likes of you and me?

            Pagan jim
            Laff
          • Yes but you are making a poor

            comparison against the likes of you and me. Success is not how much money you have. Who will remember the Enron execs fondly?
            She's getting blown out of the water by a new up and comer. It tainted her and will ultimately be her demise. She's already needing to field the starting team every week w/o a turnover to stay in the game.
            xuniL_z