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Feds, SEC take on exec options cases

updated 10:25 pm EDT, Mon July 17, 2006

Feds, SEC move on options

Federal securities regulators are getting ready to file charges in a case involving the backdating of stock options, the chairman of the Securities and Exchange Commission told MarketWatch on Monday. The news follows the announcement that the U.S. Attorney for Northern California has formed a local task force to investigate allegations that companies and individuals in the Bay Area, including Apple, retroactively changed the grant dates of stock options with the intent to defraud or mislead shareholders. Late last month, Apple's announcement that an internal investigation had discovered irregularities related to the issuance of certain stock option grants made between 1997 and 2001 led to the filing of two separate investor suits that charged company executives with defrauding the company and its investors.

Prosecutors and the SEC are probing several companies whose executives received options in company stock at low prices just before big jumps in share prices. There are both civil and criminal components to backdating options, including forging documents and lying to boards and investors. The SEC handles civil charges, while the the Justice Department as well as the San Francisco-based U.S. Attorney's Office, one of two in the country with a standalone securities fraud section, have launched their own criminal investigations.

A new study claims more than 2,000 companies appear to have used backdated stock options to boost their top executives' pay packages, according to MarketWatch.

The lawsuit claims that 18 executives and directors manipulated the option grant dates of specific stock options to maximize personal profits from the company's stock compensation plan, violating generally accepted accounting principles as well as its own stock plan approved by shareholders.

Apple's highest ranking executives and Board members were named in both lawsuits, including Apple CEO Steve Jobs, former Apple CEO Michael Spindler, former CFO and current board member Fred Anderson, iPod chief Jon Rubenstien, former CTO Avi Tevanian, current vice president of retail operations Ron Johnson, and current executive vice president and COO Tim Cook.

by MacNN Staff




  1. sixcolors

    Joined: Dec 1969


    If true...

    If the allagations are indeed true, as a share holder, I plan to file suit.

  1. stainless

    Joined: Dec 1969


    If true OR NOT....

    If true, the allegations (spelled with an E!) doesn't mean the value of the stock is any less then what it is currently trading at. Apple in not a stock you purchase for profit value but a stock you purchase based on market share! If you are basing this for retirement you would purchase a Blue Chip stock, it purchasing for profit you consider penny stocks. Purchasing Apple stock is simply a I have a little money to play with and hedge it against MS because they can only go up from here in term of market share.

    I plan to file suit... you make me laugh sixcolors, what the heck do you even know about back dating stock options, even investing for that matter? File a lawsuit... sue happy sue happy... you prixk, it is people like you that make America a f-uped place.

    Regards, Stainless

    PS. I hope that I caused you stress and sleepless nights... are you going to sue me also, oh I am so scared; sixcolor is coming to get me!

  1. Albert

    Joined: Dec 1969



    Not suprised

    companies have been ripping investors since the begining of time

    next the feds should go after trading companies that use naked shorting which is in effect causing more losses for investors then any other scam to date....

  1. gudin

    Joined: Dec 1969


    whoa nelly

    Relax. You have no idea about "sixcolors" based on his post. (unless youknow him off-board). It's a bit silly to fly off the handle based on no information, isn't it?

    Maybe sixcolors has 10,000 shares of their stock and it's half his net worth? Maybe he DOES know something about backdating the options, and knows that it reduced Apple's value in some fashion, or valuation, or whatever. (I have no idea and don't much care as long as it doesn't turn out to be much bigger than it currently appears). Clearly other people have thought it's worth a shareholder derivative suit. Maybe it is.

    Maybe this cost him $200,000 in value.

    You have no idea.

    Relax. Take a deep breath. This country has many other reasons to be screwed up than what you may be extrapolating from sixcolors' post.


  1. chadpengar

    Joined: Dec 1969


    relax -- not apple

    The story does not say that the charges will be brought against Apple. It says that charges will be brought against one (of the many suspected). Apple's fairly down the list it appears, based on analyst comments when the story first broke that their grants did not immediately look suspicious, Ie, there were plenty of grants outside of suspicious areas too. So relax. Results of inquiries at Apple will eventually come to light and when we have more than idle speculation ew can discuss it and become righteously indignant.

  1. dmlpbg4

    Joined: Dec 1969



    you have no absolute right as a shareholder to file a suit (often called a shareholder derivative action) against the corporation.

    Lets just hope that no SEC action is filed against Apple in the future.

  1. testudo

    Joined: Dec 1969


    Re: if true or not

    If true, the allegations (spelled with an E!) doesn't mean the value of the stock is any less then what it is currently trading at.

    It has no bearing on current stock holders, but those who were 'defrauded', if you will, during this period. By back-dating options, the company, in effect, costs itself more money, since they provide the options, they're responsible for the difference in price. For example, if back-dating options changes the value from $20 to $10 a share, Apple sucks up the extra $10 a share. But this then reduces the value of the company by that amount, which, in turn, hurts apple's stock price and stock holders. (keep in mind that a public company that sells stocks means all stockholders are owners of the company. A company's assets belong to the owners. Thus, they're taking money from the owners for themselves, which is a lot like stealing, if you think about it).

    Apple in not a stock you purchase for profit value but a stock you purchase based on market share! If you are basing this for retirement you would purchase a Blue Chip stock, it purchasing for profit you consider penny stocks.

    What in the world are you talking about? If you are looking for profit, you're an idiot to look at penny stocks (as who the h*** knows what's going on behind the scenes on those things). You also don't buy blue chips for retirement, because, while the price is steady, the returns for retirement are so limited (esp. for the long-haul) that you might as well throw the money into a CD [note that if you're in retirement, that's another story].

    Basically, Apple is just the kind of stock to buy with a small chunk of your IRA money. Its value is not based solely on the value of the company (like blue chip stocks, which rely more on dividends to offer return on investment) but more on a company's outlook (which rely more on increases in stock price to offer return on investment - which is why a lot of companies sinking in red ink actually have stock value).

    Basically, you imply that anyone who invests in apple is just people who're just throwing their money away, maybe hoping to make a few bucks, but its not a 'real' investment. Man, that's gotta make people feel good.

  1. cameronx

    Joined: Dec 1969


    re: re: if true or not

    Your comments are well-spoken, Testudo, and true, in effect. But the total compensation wasn't hidden in any way from investors--the strike price, backdated or not, would have been factored into reported compensation for the executives and directors in question.

    In any case, options backdating brings into question financial statement accuracy--both from a moral standpoint, as well as from a tax standpoint. (Backdating options is not "illegal" per se, but must be disclosed because it affects what can be deducted.)

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