Digital Trends
According to media reports, the Securities and Exchange Commission is looking at an 18-year-old male as the originator of an false story earlier this month that Apple CEO Steve Jobs had been rushed to a hospital after suffering a heart attack. According to Bloomberg, the SEC is still investigating motive for the actions, but does not currently believe the teenager was trying to manipulate Apple’s stock price or profit from the false report.
Remember a couple years ago when it seemed like every major technology company—and almost every major U.S. corporation—was fervently auditing its books looking for any financial irregularities that, under new federal legislation, could see their executives facing criminal charges and even jail time for mis-stated financial records? The investigations led to companies like Dell and Take-Two taking major financial hits as the result of having back-dated stock 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 options grant. There’s nothing illegal about back-dating options so long as the practice is fully disclosed—if it’s not disclosed, it can mean bad things for company leaders—as former Take-Two CEO Ryan Brant found out when he plead guilty to falsification of business records to avoid prison time.
Apple has quietly confirmed that both its UK and U.S. online stores are out of stock of the iPhone, although individual Apple retail stores and retail locations run by its carrier partners AT&T and O2 may still have units in stock. Although Apple employees and official spokespersons refused to give any reason for the shortage or to even speculate on when handsets might be back in stock, the shortage is widely being views as a sign Apple is clearing out existing inventory in advance of launching a 3G version of the iPhone in the coming weeks.
Canada’s Research in Motion (RIM), makers of the popular BlackBerry mobile email and smartphone devices, is the latest company to be bruised by investigations into the granting of stock options and the impact of those options on corporate financial statements. In an announcement today, RIM says it will restate its financials going as far back as its 2004 fiscal year to correct reporting errors in the way stock option grants were handled; further, co-CEO Jim Balsillie is stepping down from his role as chairman of the company’s board of directors.
Former Take Two Interactive CEO and chairman Ryan Brant has plead guilty to charges that he backdated stock option grants to increase their value to himself, other Take-Two executives, and company employees. Brant plead guilty to first degree falsification of business records and will pay a fine of $7.26 million and serve five years’ probation. However, the guilty plea enables Brant to avoid prison time.
The conviction marks the first time a U.S. CEO has been convicted of charges resulting from the backdating of stock option grants. The SEC is currently probing dozens of companies regarding their allocation of stock options to employees as compensation; perhaps most visible of the bunch is Apple, Inc., who recently announced $84 million in restated revenue owing to backdating irregularities.
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 isn’t the only company being forced to look back through its books at the way stock option grants were handed out to employees and executives over the last few years—more than 80 companies are being probed by the SEC or conducting their own investigations, including Computer Associates, Altera, CNET Networks, Intuit, RSA Security, VeriSign, and others—but Apple seems to be the one company everyone’s watching. And now Apple has publicly stated its internal investigation has uncovered additional issues and the company will likely have to restate its corporate earnings for periods dating from September 29, 2002, and onwards—the time during which Apple’s fortunes shot skyward, powered in part by the iPod craze.
“Investors who hold Apple shares as of Feb. 18 will receive one additional share of stock for every share of Apple they own. The stock will begin trading on a split-adjusted basis starting Feb. 28.
Apple’s stock, which earlier this month rose to a new 52-week high of $81.99, has been on a tear in the past year, rising fourfold. To attract new investors, companies often split their stock if it reaches a certain level, even though the move does not change the actual ratio of what they are paying for the stock. “
“The stock is up a bit on the fact that nobody liked Carly’s leadership all that much,” said Robert Cihra, an analyst with Fulcrum Global Partners. “The Street had lost all faith in her and the market’s hope is that anyone will be better.”
Fiorina, the only female CEO at a company in the Dow Jones industrial average, had been with HP since 1999. But the company’s controversial deal to buy Compaq in the spring of 2002 — after a bruising proxy fight led by one of the Hewlett family heirs — has not produced the shareholder returns or profits she had promised.
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