“More U.S. companies have become entangled in the controversy over suspicious timing of stock option grants to top executives. Several disclosed this week that they are under scrutiny by federal authorities,” Marcy Gordon reports for The Associated Press.
“In expanding investigations, more than 50 public companies are under scrutiny by the Securities and Exchange Commission or the Justice Department, or both, for possible manipulation of options grants to boost their value to the recipients,” Gordon reports.
“On Thursday, Apple Computer Inc., maker of personal computers and the iPod music player, became one of the best-known companies to acknowledge that some stock options awarded to employees might have been mishandled – a problem that could raise questions about the accuracy of past financial statements. Cupertino, Calif.-based Apple said its own internal review had uncovered ‘irregularities’ in employee stock options issued between 1997 and 2001,” Gordon reports.
“The investigations are meant to determine whether insiders at the companies – many of them in the technology sector – rigged the system to increase the likelihood that executives would reap huge windfalls,” Gordon reports. “Under the practice, the options are backdated to an ebb in a company’s stock price instead of pegging the exercise price to the prevailing market value at the time of the award. Stock options become more valuable as the market price rises above the exercise price, so backdating fattens the recipient’s profit.”
Gordon reports, “Backdating of options can be legal when properly approved by a company’s board and disclosed to shareholders in regulatory filings, securities experts say. But while the practice may not be illegal in itself, it appears some companies did not follow accounting rules requiring them to deduct that added compensation from their bottom line.”
Full article here.
“Apple has historically had good disclosure practices, and the company will get credit for making the stock-option problems public as soon as they were known, said Jonathan Hoopes, an analyst at ThinkEquity Partners in New York,” Bloomberg News reports. “‘Apple provides good visibility into its numbers,’ Hoopes said. ‘They have done an internal thing and that has turned up something material. They had no choice but to make that public. There’s little question that it’s going to affect the stock. But it’s at a very compelling value given that they have very strong growth prospects.’”
“Given how widespread stock options have been in Silicon Valley pay packages, the number of investigations may be an indication that directors are being prudent, rather than a sign of widespread misdeeds, said Daan Coster, an analyst with Rochdale Research in New York,” Bloomberg News reports. “The disclosures bring the number of companies that have announced possible stock option irregularities to at least 60.”
Full article here.
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Apple to investigate stock option grant ‘irregularities’ made between 1997 and 2001 – June 29, 2006