More charges likely in stock options backdating cases

Mark Schwanhausser reports for The Mercury News, “Since the stock-option scandal hit national headlines a year ago this month, there has been no end to the queries: How widespread was the backdating? How did this happen? Who was responsible? What motivated executives to do it? Has it stopped?

Schwanhausser reports, “But in the wake of guilty pleas from two East Coast executives and last week’s criminal and civil charges against a third in Silicon Valley, two questions are taking on special importance as more companies complete internal reviews: Who’s the next target for federal prosecutors, and how soon?”

“This saga probably is far from over for a number of prominent, current and exiled Silicon Valley executives at Apple, KLA-Tencor, Maxim Integrated Products, McAfee, Mercury Interactive, Sanmina-SCI and other companies that have uncovered evidence that options were rigged to give recipients an immediate paper profit,” Schwanhausser reports.

Schwanhausser reports, “Backdating involves changing the timing of stock-option grants to give the recipients a head start to paper profits. Although it’s not illegal to grant options at a discount, it must be properly disclosed to regulators, investors and tax authorities. Unreported option discounts can crimp corporate profits, trigger taxes for the company and recipient and violate a company’s stock plan.”

Schwanhausser reports, “Legal experts say prosecutors will weigh a number of factors when determining which executives to charge, including:”

• Did the boss enrich himself?
• Who called the shots — and what was the intent? Such questions lie at the heart of the Justice Department’s criminal investigation of backdating at Apple and the role of Chief Executive Steve Jobs. Apple has said Jobs was aware of backdating and recommended fortuitous grant dates for others. Still, the company’s own probe exonerated Jobs, saying he was unaware of the accounting implications.
• Was there a cover-up?
• When did the abuses occur — and how long did they continue?

Schwanhausser reports, “Ultimately, however, deciding whom to prosecute will hinge on one inescapable, practical factor: evidence. Prosecutors will be leery of basing a case on circumstantial evidence. Instead, they’ll move forward with cases built on e-mail, falsified documents and testimony from firsthand witnesses who can sway a judge or jury.”

Full article here.

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26 Comments

  1. The notion of government bureaucrats dragging this thing out and leaving a cloud over AAPL pisses me off. Yeah, yeah, the doing it all to protect us stock holders……my ass! The do it for lust of power, plain and simple. To the “prosecutors”: Move on, already. Nothing to see here. Leave us the f**k alone.

  2. What pisses me off is how the rank and file at Apple lost stock opportunites during this period.

    Apple employees can opt for 1% – 10% of their paychecks towards stock options. But because of the large grant to his Steveness (and to Ron Johnson, of Target and Retail head), employees stock grants were cut by 50% – so the rich highly-paid folks who had enough to live on and were collecting 10%,wound up with 5%. But we month-to-month retail and support employees who were scraping by with 1% stock options received only 0.5%.

    Fair would have been to cap the stock shares at whatever percentage point, granting those at the bottom their full share, and those at the top their best cut.

    Ron Johnson has profited at the expense of myriad lesser employees. He is not the genius his wealth would have you believe. But so goes Apple, so goes the world….

  3. “The markets won’t like that. I’ll be looking for Apple stock to drop Monday.”

    The stock option scandal has already been figured into the current stock price.
    Many other factors to consider when making judgements about what the stock will do on any given day.

    Even if it does drop, probably is not as a result of this story.

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