Conglom's special committee gets to core of options
Apple CEO Steve Jobs knew about “several instances” of favorable stock option grants at the company but he did not receive any and wasn’t aware of their accounting implications, according to a special committee of Apple’s board.
The report, following a three-month investigation, didn’t mention Pixar, which also issued suspiciously timed grants to top execs, including John Lasseter and Ed Catmull, before Jobs sold the studio to Walt Disney early this year. Jobs is on the Disney board.
Options backdating has become one of Wall Street’s sweeping scandals, with more than 100 companies implicated.
Some, like Apple, are conducting internal probes, while others, such as Cablevision, are under investigation by the Securities and Exchange Commission and Justice Dept.
“I apologize to Apple’s shareholders and employees for these problems, which happened on my watch. They are completely out of character for Apple,” Jobs said in a statement, breaking what some on the Street considered an overly long silence on the matter that came to light over the summer.
“We will now work to resolve the remaining issues as quickly as possible and to put the proper remedial measures in place to ensure that this never happens again,” Jobs added.
In August, the Cupertino computer maker announced it would delay filing quarterly results and likely restate past earnings after discovering “irregularities” as part of an internal probe of stock-option grants. In June, Apple had said that “one of the grants in question” was made to Jobs.
The committee said Wednesday it found no misconduct by any member of Apple’s current management team.
It said 15 stock option grants between 1997 and 2002 appear to have been backdated, with the most recent a grant in January 2002.
The committee, made up of outside directors, independent counsel and accountants, also said its investigation raised “serious concerns” over the actions of two former officers.
It didn’t name the execs. But Apple also announced that its former chief financial officer Fred Anderson had resigned from the board.
Stock options give the holder the right to buy shares at a set price, normally the market price on the day the options are granted. If the stock price eventually moves higher, the option holder reaps the difference between the higher stock price and the lower price on the day the option was granted.
Options backdating is a practice in which a company manipulates dates on stock options so execs can receive artificially high profits from a stock sale — and then doesn’t reveal the practice to Wall Street.
It could mean a much larger windfall if, say, a grant is backdated to a day when the stock was at its low point for the year.
It is not always illegal but can be. Execs who were found to authorize or receive backdated options could be forced to resign, forfeit gains, pay penalties and even face jail time.