In December 2006 it was first reported that federal investigators were looking into allegations that Apple Computer executives had knowingly falsified documents regarding favorable stock option grants awarded to employees. Shortly thereafter, Apple filed its Form 10-Q and Form 10-K (quarterly and annual financial statements) with the Securities and Exchange Commission, restating the company’s financial results. As a result of their own internal investigation, conducted by a special committee headed by Al Gore, Apple took a charge of $84 million due to stock option grants made between 1997 and 2002. Additionally, Apple admitted that CEO, Steve Jobs, and other management recommended or were aware of some inaccurate option grant dates, but they did not personally benefit from the grants. Due to this fact, CFO Fred Anderson and Nancy Heinen faced charges by the SEC leading to a $3.5 million fine paid by Anderson.
Flash forward two years and we find that Apple was not the only company under federal investigation for financial irregularities relating to the back-dating of options: that is, making the effective date of a grant of stock options to an employee occur at a particularly advantageous point in the past, effectively increasing the value of the option grant. While there is nothing illegal about back-dating options, the practice must be fully disclosed in financial records and to the SEC. If not fully disclosed, the action can lead to investigation, fines, and possible jail time.
According to Digital Trends News, a class action lawsuit, filed by Martin Vogel and Kenneth Mahoney, seeks to recover losses from a decline in Apple’s stock price in the weeks following the admission it was restating earnings due to back dating. The suit, which names Steve Jobs, Anderson, Heinen, and other members of Apple’s board, claims they knew what was going on, and that the admission of the accounting irregularity led to a decline in Apple’s stock price of 14% in the two weeks following. Because the reduction in share value equaled more than $7 billion, the class action suit seeks to recover the loss, arguing that there was a direct causal relationship between the announcement of earnings statement and the drop in stock price.
Many industry watchers and insiders disagree on whether the plaintiffs will be able to prove causality, as many factors influence a company’s stock price. It is still unclear how many individuals are involved in the case, but in my opinion, in order for me to go head to head with Apple’s current and former head honchos (where they are sure to attribute the stock to decline to other, outside factors) I would have to be backed by an army. We will be sure to keep you posted on all the happenings.
via Digital Trends
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