Apple, Steve Jobs, Executives, Board, Sued For Securities Fraud

By
Thomas
Claburn

InformationWeek

July 1, 2008 06:30 PM

Plaintiffs Martin Vogel and Kenneth Mahoney,
through their attorneys, charge that Apple, the above-named executives,
and board members William V. Campbell, Millard S. Drexler, Arthur D.
Levinson, and Jerome B. York participated in a scheme to file false
financial statements, thereby concealing millions of dollars in
executive compensation though the backdating of stock option grants.

In June 2006, Apple acknowledged
that an internal investigation had revealed irregularities in its stock
option grants between 1997 and 2001. It also said that one of the
grants in question was to Jobs but that "it was subsequently canceled
and resulted in no financial gain to the CEO."

According to the complaint, Apple's share price dropped 14% in the two
weeks after Apple's admission, erasing more than $7 billion in share
value. It's this loss that the plaintiffs hope to recover.

In December 2006, Apple said
that as a result of its internal investigation, it would restate its
financial results to include "an additional non-cash stock-based
compensation expense of $84 million after tax [$105 million pretax],
including $4 million and $7 million in fiscal years 2006 and 2005,
respectively." The company said it had found no irregular grants after
Dec. 31, 2002.

The 105-page complaint asserts that Jobs and the other Apple
executives named in the suit knew what was going on. "The defendants
knew that options were not granted on the dates that were disclosed to
shareholders and falsified the company's records to create the
appearance of illegality, and thus bear direct responsibility for their
actions," the complaint states. "Here, Jobs and the Individual
Defendants clearly appreciated the fraudulent nature of their conduct."

Jobs, according to the complaint, made an "instant paper
profit" of $20,325,000 when, on Dec. 18, 2001, he received 7.5 million
Apple shares in a stock option grant dated back to Oct. 19, 2001. And
Apple's books did not show a $20,325,000 expense.

The complaint also cites a 10 million-share option grant in January
2000 that, through backdating, resulted in "instant paper profit" of
$83,762,000 for Jobs, an amount that at the time was not disclosed to
shareholders.

Apple did not respond to a request for comment.