Backdating Investigation on Apple Shares Ends - by Glenn Fleishman - http://db.tidbits.com/article/9687

Backdating Investigation on Apple Shares Ends

by Glenn Fleishman

The Wall Street Journal reports that the Justice Department has ended its criminal investigation into whether Apple executives broke the law
when they backdated some options without proper accounting and
disclosure. Neither Apple nor the Justice Department has made a
statement confirming that the investigation is over, but lawyers
representing some of those under a cloud told the Journal that they
were informed the probe is finished. A civil action by the SEC and
private lawsuits are still underway, however.

The SEC looked into Apple's revelation that they had issued stock
options to a variety of employees, including Steve Jobs and other
executives, that tied the options to a date prior to that on which the
options were granted, so called backdating. Stock options are the right, but not the obligation, to purchase stock at a specific price no matter the current price.

By backdating options, a company can assure a windfall to the
recipients. Companies may backdate options in many circumstances, but
must account for them as a higher expense than merely granting
current-dated options, as there's a negative effect on the equity of a
firm's shareholders. An academic researcher and The Wall Street Journal
blew the lid off this widespread and long-running practice; executives
at other firms were indicted, sued by shareholders, fired, or all
three. (For more background on backdating, see "Apple Reports on Options Backdating Problems," 2006-10-06.)

The investigation has lasted nearly two years. A parallel SEC
examination led to civil charges filed against two former Apple
executives. Former chief financial officer Fred Anderson, who did not
admit to wrongdoing or any of the charges, settled them almost
immediately, giving up $3.7 million in gains, interest, and penalties
(see "Former Apple Employees Charged in Stock Option Backdating,"
2007-04-30). Anderson, who had left his job as CFO at Apple on good
terms in 2004, resigned from Apple's board the day it released its
first report on backdating in October 2006.

Nancy Heinen, Apple's former general counsel, was also charged and
still faces civil action by the SEC, according to her lawyer as quoted
in the Journal. The charges against Anderson and Heinen centered on
options granted to Steve Jobs, which were canceled before they were
exercised, and replaced with 10 million properly restricted stock
grants that were properly accounted for. (Jobs sold about $300 million
of those shares when the restrictions ended in 2006 to pay the tax due.
He still holds 5.5 million shares worth nearly $1 billion.)

Apple released its own report on the matter back in January 2007
from an internal committee headed by vice president Al Gore, a board
member (see "Apple Releases Stock Option Backdating Report,"
2007-01-08). That report will likely stand as the public accounting
unless Heinen's case goes to trial and additional facts are revealed.

The apparent end of this Justice Department probe also means an end
to the speculation that Jobs would face a trial or be forced to resign
as part of a settlement. While in recent months this issue seemed to be
in abeyance, this probably relaxes the stock market and analysts who
speculated on an abrupt change in who would be running Apple.

The backdating kerfuffle in part led to Daniel Lyons's blog, The Secret Diary of Steve Jobs, written by Lyons's nom-de-blog Fake Steve Jobs. Lyons wrote a book called oPtion$ that fictionalized and satirized the minor scandal (see "My Real Breakfast with Fake Steve Jobs," 2007-10-24).

Lyons announced on his Fake Steve blog today
that he was discontinuing writing in a faux Jobs style. Lyons was
recently hired away from his current employer, Forbes, to take over
Steven Levy's technology beat at Newsweek. (Levy had previously left
Newsweek for Wired.)

The timing was suspicious - how did Lyons know that his story arc was at an end? Perhaps...an investigation will be launched.