A story from The Reporter published on the Law.com Web site has sent the share price of Apple Computer downward, claiming that federal prosecutors are “looking closely” at “apparently falsified” documents in an ongoing probe of the company’s stock option grants. The story also reports Apple CEO Steve Jobs has hired his own legal representation in the matter, separate from Apple’s corporate attorneys at O’Melven & Myers.
Other media outlets have, as yet, not been able to verify whether prosecutors in the case believe Apple documents have been falsifed.
Apple had previously announced it expected to restate financial results for some reporting periods after identifying irregularities in accounting for stock options granted to employees. Apple is not the only company currently facing scrutiny for its awarding of stock options—more than 150 firms are either under federal investigation or have launched their own inquiries into options grants.
Granting employees options to purchase company stock is not illegal; in fact, it’s a widely-used form of compensation intended to keep key employees invested in the company. However, evidence indicates Apple (and other companies’) backdated selected option grants to maximize the value of the stock options. This practice is not illegal so long as it is fully disclosed; however, it appears Apple (and other companies) did not disclose the full liability of options granted to its employees, which has tax ramifications and, of course, mis-represents the company’s cash position on paper, potentially misleading investors and the general market.
If the government determines Apple officials knowingly falsified documents related to the stock option grant, that act would expose the company and implicated officials to criminal charges, as the falsification would be construed as a deliberate intent to defraud.
In a move Apple said was not connected to the stock options probe, former Apple CFO Fred Anderson resigned from the company in October, 2006. Apple previously said two unnamed former officers were involved in backdating stock options, and the company would be re-stating earnings.
Analysts and pundits seem to agree that the worst-case outcome from the situation would be the forced departure of Apple’s pop-star CEO Jobs, although it appears none of the questioned option grants benefitted him personally. However, if criminal charges were to be brought against the company and its officers, Apple’s shiny image would certainly be tarnished.