Not only may Steve have to go, but the board of directors may have to be changed. It has been reported that Al Gore is now heading the internal investigation because two other directors have conflicts of interest. Mr. Gore has problems of his own as a director and plainly should not be running any investigation into the matter. The whole bunch of them may be worrying if they can avoid criminal prosecution for securities violations.

The matter of backdated stock options appears to be getting bigger and more serious throughout the corporate world as events unfold. There could be a lot of openings soon.

What evidence do you have of conflict of interest by specific board members? What evidence do you have that Al Gore has problems as a director at Apple? Directors, by default, have a conflict of interest and would not “lead” such an investigation anyway. Where did you get such information?

Apple has stated, most media and market pundits have agreed, that there is no major problem at Apple regarding the stock options issue. Why? No laws have been broken. Those are ethical violations, and accounting issues (and minor, at that), not criminal issues. Even Apple stated that there is no ongoing investigation by the SEC or anyone else. That may not protect some directors and executives from civil lawsuits by shareholders (or, the lawyers who instigate such lawsuits). Backdating is a common, almost time-honored way to reward executives. But we live in different times and behavior that was acceptable 10 years ago is no longer acceptable.

There are any number of news articles which state that the whole post-dated stock options mess *is* a criminal matter. Executives have been ‘dropping like flies’ over this. One of the more recent examples is http://www.siliconvalley.com/mld/siliconvalley/15779505.htm

Here are just a few of the many news items about this. It is not over.

http://www.macnewsworld.com/story/BF9b104ktAI8TH/Whats-Next-in-Apple-Options-Drama.xhtml
http://www.mercurynews.com/mld/mercurynews/news/local/15735822.htm
http://www.macworld.co.uk/news/index.cfm?NewsID=16122&Page=1&pagePos=1
http://www.cfo.com/article.cfm/8027041/c_8022281?f=home_todayinfinance
http://www.macobserver.com/article/2006/10/11.6.shtml
http://www.bloggingstocks.com/2006/10/16/is-apples-options-scandal-over/

And remarkably, not one word about criminal activity or criminal investigations. Isn’t that strange since you said:

The whole bunch of them may be worrying if they can avoid criminal prosecution for securities violations.

Some of the info in the article at the UK version of Macworld is patently false, inaccurate.

The Reuters report says nothing new, and only the same regurgitation as the WSJ. Some directors, not Gore, may have been involved in the ”investigation.” Again, it was not and is not a ”criminal” investigation as you imply.

The CFO article regurgitated the same info as the other sources regarding which directors may have been involved in the compensation committees which approved the backdated options. Again, remarkably, no mention of a criminal investigation.

And so on and so on. If this is your “proof” you’ll have to do better. Repeat: the so-called scandal which has led to resignations and taint of some executives regarding backdated stock options has not resulted in an indictment, has it? Is there mention of a criminal investigation? No. Improprieties? Yes, hence the execs leaving their cushy, high paid jobs.

I loved this quote from one of your “evidence” links:

The options issue at Apple Computer Inc. (NASDAQ: AAPL) is not over, no matter how much the company wants the market to think it is. High profile cases make careers, and at the SEC and the U.S. Attorney’s Office, an opportunity like this comes along only every few years.

Again, what was done that was illegal, and would prompt a criminal or SEC investigation? You said it “is” a criminal matter but haven’t produced a single link that says anything criminal took place. Maybe you’re just not reading the detail:

“`I don’t think there is anybody who is too big, too important or too rich to go to jail. That applies to Steve Jobs as well,’’ said Paul Hodgson Sr., a senior researcher for the Corporate Library. ``If he has done something wrong, he has got to go, regardless of the situation.’’

There’s an implication there, but hardly facts regarding any of the so-called scandals mentioned.

MacObserver reader Bosco gave the most coherent explanation of the mess:

Back-dated options are really easy to understand. When a company doesn’t expense options, it basically prints stock at the exercise price on the date that it issues the stock to the employee exercising the option. This costs the company nothing on its books, but dilutes the shareholders. It is especially egregious when the company looks back over a few months for a lowest justifiable exercise price, then lets the employee unload it at higher current market prices. What should really happen is that the company has to actually purchase its stock back (or reserved a pool prior to going public) in order to grant stock options to employees. This does not dilute shareholders. If a company then wants to offer the stock it owns at a discount to employees, it then has to eat the differential of acquisition cost and offer price on the balance sheet.

At the time of the abuses, Apple did not expense stock option grants, as was becoming the trend. They were, in effect, printing money for their executive’s bonuses, without expense to the company, perhaps diluting value of the stock a bit, but proof of that and how much will be settled in civil court, not criminal court.

I agree that “it’s not over” but most of it is. How long it will last will depend upon class action lawsuits, lawyers, settlements, etc. Watch for Apple’s restated earnings and revenue soon. When it comes, it will be a minor blip for both, and probably show that any dilution of stock value was nominal, if even noticeable.

jonny_m - 17 October 2006 10:06 PM

I agree that “it’s not over” but most of it is. How long it will last will depend upon class action lawsuits, lawyers, settlements, etc. Watch for Apple’s restated earnings and revenue soon. When it comes, it will be a minor blip for both, and probably show that any dilution of stock value was nominal, if even noticeable.

I tend to agree with this summation. So far, I haven’t read of any criminal investigations, though it remains to be seen that some may take place, particularly with the more egregious violations of stock manipulation.

Stock options backdating has been common for many years, particularly among high tech companies and others in the recent dot com bubble of the late 1990s and early 2000s.

The Mercury News probably had the best reporting of specifics, and they were short on those.

McAfee said it found abuses that would force it to wipe out $100 million to $150 million in earnings dating back 10 years. Less than a month ago, the company warned it probably would restate only earnings from fiscal 2003 and on.

Some executives took advantage of the compensation situation to such a degree that stock prices were affected in a dramatic way. McAfee is one:

“For example, McAfee’s securities filings indicate that Samenuk, Weiss, Roberts, a former president and a former chief operating officer received options that were priced near the lowest stock price in both fiscal 2004 and 2005—after the Sarbanes-Oxley rules took effect in 2002. In 2004, the grants came just days after earnings that disappointed analysts, while the grant the following year was issued shortly before upbeat news that pushed the stock higher.”

As to the issue of propriety vs. legality, it may be that Apple dodged a big bullet. Barely. From The Mercury News:

“``Maybe you can beat the rap, but that’s not the basis on which you want to run a public company,’’ said Damon Silvers, associate general counsel for the AFL-CIO, which manages union pensions with $5 trillion in assets. ``There is conduct that is so serious in terms of the legal implications that whether you call it a `distraction’ or `failing the ethical test’—or whatever label you put on it—it’s not compatible with executives and directors continuing at some of these public companies.’’

Will we see some execs on trial? Possibly, of course, but there’s not much noise regarding criminal investigations. While Apple is high profile, and may have some stain (Legal counsel Nancy Heinen and former CFO Fred Anderson appear to be the big scapegoats), it doesn’t look to be a major, long term problem, and savvy investors don’t want it to be a problem any longer as AAPL could drop in value right at time when the stock and the company are poised for greater gains.

Looks like the analyst field says Jobs will stay as Apple CEO and the total fallout will be minor. Oh, except for former CFO Fred Anderson being the goat sacrificed to keep Apple clean.

“Munster of Piper-Jaffraysaid that he believes Jobs is in the clear regarding the backdating of options at Apple because the company’s internal investigation revealed no misconduct on the part of any current members of Apple’s management team. Munster said the investigation found that Jobs knew some options were backdated “but was not aware of the accounting treatment and did not benefit from them.” Munster added, “The bottom line, it is becoming clear that Steve Jobs will remain Apple’s CEO.” Apple shares rose 65 cents to $74.95 Wednesday ahead of the company’s fiscal fourth-quarter results, due after the market close.”

Last quarter’s financial results are due later today.

Financial results are in. Record year for Apple, record sales of Macs, strong Mac and iPod sales for the quarter and year.

The Company posted revenue of $4.84 billion and net quarterly profit of $546 million, or $.62 per diluted share. These results compare to revenue of $3.68 billion and net profit of $430 million, or $.50 per diluted share, in the year-ago quarter. Gross margin was 29.2 percent, up from 28.1 percent in the year-ago quarter. International sales accounted for 40 percent of the quarter’s revenue.

Apple shipped 1,610,000 Macintosh® computers and 8,729,000 iPods during the quarter, representing 30 percent growth in Macs and 35 percent growth in iPods over the year-ago quarter.

And Steve Jobs would step down why?

I have only been in the Mac Family for a year. I came in with a boom buying the Mac Pro desk top and a pimp 23 h.d. monitor to go with and a mac/book. I don’t really know any of Steve Jobs right hand guys over their at Apple so I can’t really comment on who I think should take the Job should Steve take off. I do worry the company would go down the tubes though if he does go. I kind of see Apple like this, the company is a communist run computer world and it’s their way or no way at all. I honestly believe that is why Mac’s work as good as they do.

I do fear the day Steve goes only because I have around 13 grand invested in two computers. I would like to at least see my computers get so far out of date that they are useless, then Steve can let Apple go down the tubes if it’s going to happen.

I do think we are all a little paranoid. Don’t you think Steve would already have a will made out if something where to happen to him and/or plans with someone already to replace him in a emergency. Even though I just came into the Mac family a year ago, I have followed the Steve Jobs and Bill gates tug of war for years. I really don’t think Steve is just going to step down and walk away with all the stock money (that he owns) and let Apple fall apart with out a proper replacement. I can’t see him letting micro-soft take over and the scary part about that is if Steve did just walk away and left all of us for duck meat, I think we would end up in the hands of Micro-soft sooner or later. Micro-soft has wanted to grab up all the shares to Apple just to do the company in. I don’t know it all as a matter of fact I don’t know much but I do read allot and their was my though of the day.

scary topic!

Ronin - 17 October 2006 07:42 PM

Not only may Steve have to go, but the board of directors may have to be changed. It has been reported that Al Gore is now heading the internal investigation because two other directors have conflicts of interest. Mr. Gore has problems of his own as a director and plainly should not be running any investigation into the matter. The whole bunch of them may be worrying if they can avoid criminal prosecution for securities violations.

The matter of backdated stock options appears to be getting bigger and more serious throughout the corporate world as events unfold. There could be a lot of openings soon.

Apparently this didn’t get as big as expected. Not much more than some finger pointing here and there. Apple’s stock is tanking with the market these days, which means there’s opportunity to cash in again. Soon.

The company really needs to be concerned about what happens to Apple after Steve. Plane crash, car accident, whatever. Where’s the heir apparent? Apple’s stock could drop by half after a Jobs personal catastrophe. What’s that worth to a company?

Carol Mary Miller - 21 January 2008 12:15 PM

The company really needs to be concerned about what happens to Apple after Steve. Plane crash, car accident, whatever. Where’s the heir apparent? Apple’s stock could drop by half after a Jobs personal catastrophe. What’s that worth to a company?

I have no doubt that Apple has a few contingency plans for this but making them public would also be cause for alarm which could have an effect on the stock price and public perception of Steve’s health. It’s better to just keep going, trot out Timothy Cook or Phil Schiller or whomever from time to time, so everyone knows there’s other faces to Apple besides Steve.

Otherwise, if all the guy did was two or three keynotes a year, Apple users would still be very happy. Has anyone noticed how much money Apple has in the bank these days?