Report: Apple ‘falsified’ records on 7.5m stock options granted to CEO Steve Jobs in 2001

“Steve Jobs, chief executive of Apple Computer, was handed 7.5m stock options in 2001 without the required authorisation from the company’s board of directors, according to people familiar with the matter,” Richard Waters reports for The Financial Times.

Waters reports, “Records that purported to show a full board meeting had taken place to approve Mr Jobs’ remuneration, as required by Apple’s procedures, were later falsified. These are now among the pieces of evidence being weighed by the Securities and Exchange Commission as it decides whether to pursue a case against the company or any individuals over the affair, according to these people.”

“According to an Apple filing in 2002, the options under review were handed to Mr Jobs in October 2001, at an exercise price of $18.30 a share. However, the purported board authorisation was dated near the end of the year, suggesting that the benefits were both not properly authorised and were backdated. Mr Jobs later surrendered his options before they were exercised, implying that he did not gain any direct benefit from them. He was later given a grant of restricted stock by the company instead,” Waters reports.

Full article here.

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58 Comments

  1. They [the powers that be at Apple] go through the trouble of falsifying that a full board meeting had approved these options, yet Steve never exercised them. Did he know, and then feel it was too risky to go through with it? Not sure. In any event, he never did exercise them, so that’s a major plus to him. Still, there could be some type of reprocussions if he was directly involved with the whole scheme. No, he didn’t profit from it, but that fact that he was even granted them in the first place is now suspect.

  2. Whatever the reasons were at the time, it’s a good thing Steve Jobs surrendered the options in exchange for the restricted shares, without ever exercising them. At the time, I think the options were “underwater” but if he had kept them, they would be worth much more now than the restricted shares. But it would have looked bad if he had personally gained from the transaction under investigation.

  3. As long as Jobs stays with Apple I’m happy. Could not care less about the price of shares as I don’t own any and Apple will continue to make excellent products regardless of the share price.

  4. Eric,

    Tell that to all the Enron stockholders and employees. Kenneth Lay, Jeffrey Skillings didn’t really do anything either.

    Skillings is serving 24 years 4 months for the record.

    BTW AAPL is down $2.47 in after hours trading. Between this and the stock restatement on Friday AAPL is going to take a huge hit.

    Hold on, it’s about to get ugly……….real ugly.

  5. Steve,

    I’m not comparing Enron to Apple. The point I was trying to make was that if the allegations against Steve Jobs are true then he’s no better than Kenneth Lay or Jeffrey Skillings. Sorry that you didn’t get my previous post.

  6. No, the analogies are not the same. Kenneth Lay et.al. falsified the majority of their records to indicate to employees and shareholders alike that Enron was in good health when in fact the company was dying. They were doing all that they could to drive the stock upward before dumping before the final collapse of the company. This was a massive and purposefully orchestrated fraud that allowed them to profit on a companies demise. By the time the smoke had cleared, many of the employees had lost almost their entire retirment funds.

    In Apple’s case, there were improper back-dated options and falsified BOD meeting documentation. While these are very serious allegations, the fact remains the company is healthy. It was healthy when these options were first issued. The restated finances will hurt Apple’s stock propositions for a while, but many investors will most likely see this as an extended buying opportunity. This will cost some people a bit of money, but nothing indicates that what has happened at Apple could come close to the disaster that was Enron.

    As for Steve Jobs, the acceptance of the improper grants (not their excersise), the knowledge of other such grants, and the knowledge of accompanying falsified documents is enough for the SEC to prosecute him. However, the fact that he did not excersise the grants is a mitigating factor. I would expect a maximum penalty of a 5-10 million dollars in fines and a possible jail sentence of 30-90 days with possible community service. However, if he is found guilty of anything, he will more likely face a couple million in fines and will not have to serve any jail time. In any event, I’m positive that he would most likely remain CEO.

  7. “No, he didn’t profit from it, but that fact that he was even granted them in the first place is now suspect.”

    The crime was complete when he knowingly took options based on falsified documents. Secondly he did profit from them, he got preferred stock instead. But even if he didn’t swap them for preferred stock the analogy is this:

    Some dirt bag steals your car, they can’t find a chop shop to take it to, so they drive it back and park it in your driveway. They still committed a crime when they took the car. whether they sold the car they stole is irrelevant.

    In this case Steve did take the options to the chop shop and walked away with preferred stock.

    “But it would have looked bad if he had personally gained from the transaction under investigation.”

    Not in the eyes of lawyers, whether he gained or not is completely irrelevant. The crime was complete when was involved in the falsification of the records.

    “However, the fact that he did not excersise the grants is a mitigating factor.”

    NO NO NO. He swapped them for preferred stock because they were underwater. Nothing suggests that he wouldn’t have exercised them if they were worth anything. In fact he found a way to launder them, and profit from the 2nd transaction.

    “I’m positive that he would most likely remain CEO.”

    Felons convicted of securities fraud can’t be the CEO of a public company. No ifs, buts, wishes, hopes whatever.

    The best he can hope for is to cut a Martha Stewart like deal with the SEC. She is banned for 5 years from being an CEO or an executive officer or a public company.

    And that’s only if the SEC is feeling generous. This is a much bigger thing than what Martha did.

    It shows that Steve is prepared to play it fast and loose with the rules and use Apple as his own personal piggy bank.

    So Steve’s very likely going to be resigning as CEO of Apple and resigning from the Disney board soon.

  8. I see the article is from the Financial Times. If a publication as respected as The Economist is fair game because it’s British, surely we should see some rants soon about how the FT is a biased anti Apple rag.

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