Cupertino (CA) – FindLaw.com today published an article that shines the spotlight on Apple’s stock option backdating game once again. The website reports that nine Apple executives, including CEO Steve Jobs, are summoned to appear before court in connection with stock options accounting practices. The Boston Retirement Board claims new evidence indicates that the executives wasted more than $105 million of the extra value of backdated stock options granted to Steve Jobs.
The documents are said to prove that Jobs and other executives did not follow the required company policies, since they were aware that the options awarded to Jobs were not dated as of when they were awarded. “The documents Apple has produced provide critical details about Apple’s backdating practices and confirm that all of Apple’s directors were aware of and participated in the backdating scheme,” says plaintiff. Pension fund asks that the recipients of the backdated stock options be forced to disgorge improper profits. The plaintiffs also want the directors who granted such options to be held liable for the financial damages inflicted to Apple and its shareholders.
However, the specific evidence and documents that back up these charges have yet to be revealed and may have to go into an amended or sealed version of the complaint to be filed later. Apparently, the plaintiffs have not included the documents as part of the new complaint since the court has yet to rule how to treat the confidential information.
In past two years different Apple shareholder groups have taken Apple to court, dissatisfied with the results of SEC investigation that exonerated Steve Jobs and most company directors of any wrong-doing. The scandal broke out in October 2006 with Apple admitting that the company board members have approved hundreds of millions in stock options from 1997 to 2001 for CEO Steve Jobs and various others top-level executives. Jobs received stock that some now estimate to be worth more than $1 billion. However, Jobs exchanged most of the backdated options for regular common shares, so he didn’t personally benefit from being privileged to buy stock to resell it under the backdated stock options.
It is important to note that backdating stock options in itself is not illegal and actually a common practice. However, it is illegal not to report the inflated price of those options as an expense. In the end, backdating stock options usually comes down to be an accounting problem, but Apple’s issue might have a different twist to it.
Shareholder groups have been filing lawsuits over the backdating issue over the past two years, only to see them dismissed or stalled for the lack of evidence. For instance, a California judge dismissed the charges brought forth by the New York City Employees’ Retirement System. However, the ruling specifically said the investors are free to refile the suit with an amended complaint. The ruling also argued that the prerequisite for other shareholders charges against corporations in similar cases was that the company’s stock price should fall as a result of backdating.
Apple’s internal inspection and SEC investigators released Steve Jobs of wrong-doing accusations, stating the CEO did not benefit from backdating, although he knew of it. The only exceptions were former chief financial officer Fred Anderson and former general counsel Nancy Heinen who had to resign over this issue and accusations that both benefitted from the backdating when each received a portion of 4.8 million options that Apple granted to six members of its executive team. Anderson settled with the SEC for about $3.6 million, but Heinen faces federal charges. She has denied the charges and is still fighting the case.