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Apple Execs Reportedly Faked Options Documents
theodp writes "Federal prosecutors are reportedly looking closely at stock option administration documents that were apparently falsified by Apple execs to maximize the profitability of option grants. While Apple has said CEO Steve Jobs did not profit from the stock-option backdating, Jobs has reportedly hired his own attorney to deal with the SEC and Justice Department."
What?? Are you saying that Steve Jobs makes more than $1 a year?
Scully: Should we arrest David Copperfield?
Mulder: Yes we should, but not for this.
That like everything at Apple it was very easy to do. 3 clicks and options were faked. That's it!
Disappointing that Fred Anderson is at the center of this. Anderson did a bang up job as CFO. He created the company's large cash reserves by liquidating unnecessary capital investments (plant), issuing a convertible debenture and selling some of their valuable ARM holdings. Then he managed the investment of those funds astutely enough to make the conversion of those outstanding notes to common stock a huge win for both the company and creditors. That 1999 conversion alone eliminated about two thirds of Apple's long term debt (conversely that means the issue had assumed most of Apple's debt). Really, this guy did an outstanding job. Apple can thank him for their sound financials.
Now it seems the financial genius is another self-serving, crooked corporate scumbag.
It is cowardly, and a betrayal of whatever it means to be a Jew, to act as a white man
-James Baldwin
The purpose of a lawyer is to look after your interests while you conduct your business - they can warn you of impending trouble - and can nip a long drawn out investigation that will result in no arrests or charges right in the budd.
It's stupid to blame someone for seeking protection from abuse.
-GiH
The SEC has been investigating "about 80" companies for this since July. Apple started their own internal investigation, which they're sharing with the SEC. Oh, and it's former employees who are being looked at. Oh, and maybe backdating isn't illegal, it just should be declared.
Take a look here or here.
No folly is more costly than the folly of intolerant idealism. - Winston Churchill
If Jobs was aware of the problems but didn't take appropriate action it could still damage the company more than the non-story linked might imply. Essentially, Jobs has been hailed as a hero by fanboys and shareholders alike, and anything significantly tarnishing his tenure might remove some of the aura of invulnerability Apple has acquired in recent years. I don't by any means imply that Jobs' um, job is in danger, but it might complicate business partnerships and other strategic moves that Apple needs to remain competitive. iPod dominance aside, Apple's position is at least assailable, if not so tenuous as it was a decade ago. To reach its growth targets it has to navigate agreements with telecom providers like Cingular as well as convince say, Intel and Toshiba to continue to give it most-favored-nation status. Apple isn't Dell or Microsoft to expect to make demands of suppliers and partners with impunity.
Not yet, anyway, and maybe never, if the next round of initiatives (smart phone, media ventures, etc.) collapses.
Distracting Jobs and blemishing his heretofore immaculate turtleneck might have more consequences than just an easy story for everyone from CNET to AP report and re-report.
I am the one true god. However, as an atheist, I don't believe in myself. I guess I have a self-esteem problem.
You have to wonder if some laws weren't created for the express purpose of making unnecessary work that benefits the lawyers more than the public at large. The rules for stock options gets changed, an army of auditors scours the book, the lawyers are called in and the media has a field day. The public may or may not benefit from this. Auditors and lawyers are making a ton of money. Shareholders are getting soaked either way.
Apple uses MS Office to produce option documents.
Someone from the government used a remote exploit to modify the option documents to entrap Apple employees.
... and I'm the SEC. Please get in the car.
The price is that executives can no longer spend company money on whatever they wish. Executives cannot arbitrarily set pay. What we have seen in the past twenty years is scam to increase executive pay while simultaneously decreasing exposure to risk, while in the truly private sector, the opposite is true. The stock option is the classic example. It is marketed as a method to align the executives interest with the stockholder interest. If the stock rises, the executive gets rewarded. In reality, just like bonuses, the behind the scene negotiations guarantees the money no matter the state of the company.
In reality, these new breeds of corporations, with their bloated bureaucracy, with no other purpose than to create meaningless work that justifies it's existence, and raise prices and cut research to free enough money to pay for these non productive agents, are indistinguishable from any other massively bloated public entity. The similarities to congress, who wants to vote in a pay raise every year, but can't complete the minimum job requirements like passing a budget, are amazing.
"She's a scientist and a lesbian. She's not going to let it slide." Orphan Black
Backdating options is a legitimate accounting practice? It's never been allowed at any of the places I worked, where more than once I had options issued shortly after a huge aberrant stock spike and thus my option price was set so high that it never became profitable. I would have *loved* to have had them backdated, but had understood it was illegal to do so.
Use one or more of the following: 1.) "We have launched our own internal investigation..." 2.) "We are cooperating with authorities..." 3.) Imply that the offending personnel have long since left the company... 4.) Imply that CEO was unaware of wrong-doing... 5.) Use the phrase "a few bad apples..." Apple can't use #5 (for obvious reasons), but they have used the other four. Sounds about as believable as Tony Snow discussing Iraq...
You have to wonder if some laws weren't created for the express purpose of making unnecessary work that benefits the lawyers more than the public at large. The rules for stock options gets changed, an army of auditors scours the book, the lawyers are called in and the media has a field day. The public may or may not benefit from this. Auditors and lawyers are making a ton of money. Shareholders are getting soaked either way.
Maybe, but I don't think that's the case here. It shouldn't take a lawyer telling you that modifying documents to reflect something that just isn't true could possibly be wrong. ESPECIALLY for a public company.
'' Backdating options is a legitimate accounting practice? It's never been allowed at any of the places I worked, where more than once I had options issued shortly after a huge aberrant stock spike and thus my option price was set so high that it never became profitable. I would have *loved* to have had them backdated, but had understood it was illegal to do so. ''
A company can give you any number of stock options it wishes, at any strike price it wishes. If the strike price is equal to the share price on the day the options are granted, the company does not have to pay any taxes on the grant. If the strike price is lower, then this is treated as if the company had given you cash, so you have to pay income tax, and the company has to register the difference as a loss. So it was always legal for the company to give you options at the share price at an earlier date, but YOU would have to pay income tax for it.
What is NOT legal is to modify the grant date and so hide the fact that taxes need to be paid.
This is probably a great time to remind everyone that unless you, personally, have paid your attorney's retainer, he is not your attorney. If the lawyers paid by Apple could save Apple a nickle by hanging an innocent Steve Jobs out to dry, they would be obligated to point out that fact to their client, who is not Steve Jobs.
The moral of this is that even if your employer has paid for a lawyer, you still need your own lawyer, even if you really are as important as Steve Jobs thinks he is. Don't depend on your employer's lawyer to defend you. He'll sell you out as soon as it helps his client.
See what I've been reading.
Damn, that was some ridiculous fanboism. Enron was a blue chip stock, caused the biggest bankruptcy the nation had ever seen, and screwed thousands of employees and shareholders. Applauding Bush's Justice Dept for investigating is like applauding me for pooping after consuming coffee and a bran muffin. If it didn't happen, something was seriously wrong.
Moreover, it was the downfall of Enron that highlighted Arthur Andersen and eventually exposed World Com. It's not like the Justice Dept. was on some sort of corporate crime crack down. They were dealing with the blatantly obvious.
Moreover, before you start cheerleading about "all of these corrupt companies were brought to Justice," I would suggest that you look at current practices for awarding and funding contracts for security, military, and reconstruction projects.
"Things are more moderner than before- bigger, and yet smaller- it's computers-- San Dimas High School football RULES!"
Why should you object to us searching your car if you're not carrying any drugs in it?
Why should you care if we listen to your phone conversations if you're not plotting terrorism?
Why do you own a gun if you're not being attacked right now and don't plan on killing anyone?
Why are you using the psudonym "Orion Blaster" if you have the right to free speech?
Secondly, Steve Jobs hired an attorney, singular. Not "an army of lawyers". Thanks for playing the exaggeration game though.
If some documents have been faked, there must be others. Just like if some music on your PC is pirated, you must have stolen all of it...
Yes, the backdating of stocks, the result of which gave MORE money to executives, caused Apple to be MORE profitable. [rolleyes]
Enron's issues were more than "cooking the books". The media portrays the entire Enron mess as a few guys changing a bunch of numbers in a ledger and a bunch of shredding of documents that proved their numbers were wrong. It goes further than that, into the realm of coercing power plant managers and tampering with the energy market itself. Remember those rolling blackout in California a few years ago? Those had nothing to do with an actual shortage of energy production ability verses demand in the summer months.
Why does Steve Jobs need an army of lawyers if he didn't do anything wrong?
Because the right to legal counsel applies to CEOs too?
Jobs needs alot of lawyers, because each lawyer he has means more padding between him when he hits the concrete.
Knowing Google's lust for data collection, the Soviet Union is still alive and well inside the psyche of Sergey Brin....
It goes further than that, into the realm of coercing power plant managers and tampering with the energy market itself.
... we want you guys to get a little creative ... come up with a reason to go down..." "... our electricity happens to be on-shift tonight ..."
No kidding.
"Tonight
Clinton's Justice Department was noticably lackadaisical about prosecuting or enforcing certain accounting standards (depends on what your definition of 'profit' is, I guess.)
Anyway, when Bush comes into office, with a business background, 'fudging the numbers' is not cool. You either made a profit or you didn't, regardless of what shell offshore companies you bought.
Um, no. Bush's Justice Department didn't move one finger to increase prosecaution for bad accounting practices until after there was huge public outcry over Enron, Worldcom, and other companies and then dragged their feet on prosecutions. Bush is strongly associated with Enron because Bush is a former business partner of Bush, among other things. Enron is Bush's #1 lifetime donor and his biggest contributor in the 2000 campaign. Bush has called Ken Lay a personal friend. He was also a personal friend of Dick Cheney. and part of his "Energy Task Force". It has been confirmed that Ken Lay was poised to be named as Secretary of Energy before the Enron scandal broke.
Bush is tagged with fostering this corruption.
Largely because he did. But most people throw the lion's share of the blame at the corrupt Republican congress for passing legislation that fostered a culture of abuse.
Ohh, and it's also worth noting that Apple called themselves out on the backdating of options. They announced it and started their own internal investigation 5 months ago. After it was concluded in October they publicly disclosed "serious concerns" of accounting fraud and options backdating by the CFO and senior vice president. The two have since "resigned."
So, ya, hiphip freak'n hooray for the Department of Justice. The Department of Justice started investigating a crime after the criminal notified them of the crime and started handing over evidence. I hope Alberto Gonzales has gold stars for everyone's awesome investigatory investigiveness.
"Things are more moderner than before- bigger, and yet smaller- it's computers-- San Dimas High School football RULES!"
It's still fraud if the backdating occurred, and it's no less serious just because Apple pre-empted any SEC investigations. Most criminals don't get off scot-free just because they turn themselves in when it becomes obvious that the authorities are about to arrest them.
If the stock options were backdated are not declared, then the Apple officers receiving them were actually receiving additional compensation of the difference between the options' declared price on the backdated date, and the price on the real date of the option grant, and it's a cost to the company that is hidden, therefore overstating earnings, and fraud. If it had been declared at the time, it wouldn't have been fraud. It's not enough to just declare it now.
before, the SEC would get mad. now the SEC has the teeth. since companies must value outstanding options which decrease company assets (and profits), and understating of value of the options is a violation of the SEC acts of 1933 and 1934. This carries real prison time and real fines. If they're convicted it's a felony and they can't serve as an Executive officer or on the board of any SEC-reporting company. AKA they get fired. kinda sweet, i think. and you can thank worldcom for this one. this is a big thing they did.
MEF
Apple didn't steal from Xerox. Apple entered into a payoff and IP sharing deal. The myth of Apple stealing the GUI from Xerox conveniently ignores the actual business dealings that went into transactions that made the visit of Apple engineers to Xerox possible. Pick up a real business history book, and ignore braindead headline news versions of the story.