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Technology Stocks : Apple Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Mick Mørmøny who wrote (54135)	6/30/2006 9:55:26 AM
From: inaflash	Read Replies (1) \| Respond to of 213182

This article isn't about options, but SEC actions and the part about ‘fair funds’ concept seems to be central. The SEC is going to be very careful not to wipe out over 100 companies thru their investigations and actions. Hurting lots of stockholders is the last thing they want to do. In this case the stockholders were victims. whatpc.co.uk A fine line for SEC penalties The SEC bares its teeth as two US companies are taken to task for inflating revenues. But only one was fined Andrew Sawers, Financial Director 27 Jun 2006 ADVERTISEMENT The Securities and Exchange Commission recently took action against two US-listed companies involved in unrelated breaches of SEC rules, choosing to levy a “civil money penalty” against the software group McAfee Inc, but declining to do so in its action against the smaller company, Applix Inc. • McAfee had engaged in ‘channel stuffing’ and had overstated its revenues by more than $620m over a period of years. It is being fined (subject to court approval) $50m. • Applix Inc engaged in fraudulent revenue recognition schemes on two occasions, each time for less than $1m and, while action is being pursued against the directors, there is no fine being sought against the company. A statement issued at the beginning of January spells out the SEC’s current policy on financial penalties against companies (as opposed to individuals). The regulator was given the power to fine companies in the 1990 Securities Enforcement Remedies and Penny Stock Reform Act (known as the Remedies Act, which also enhanced its power to fine individuals). Penalties, says the SEC, may act as a valuable deterrent and encourage companies to develop good compliance programmes. The SEC says that there are two principle issues for it to consider when deciding whether to seek a penalty against a company: • A key question is whether the shareholders have benefited from the violation committed by the company or whether the shareholders are the victims. The strongest case for a penalty is where the shareholders have received an improper benefit; the weakest is where the current shareholders are the principle victims, in which case the SEC is expected to pursue the individuals responsible. • The degree to which the penalty will recompense or further harm the injured shareholders is important. The Sarbanes-Oxley Act created the ‘fair funds’ concept under which penalties may be redistributed to shareholders who had been harmed by the violations, though recognising that shareholders will also be ‘harmed’ as a result of levying the penalty in the first place. The opportunity to use a penalty as a source of compensation to injured shareholders would increase the likelihood of a penalty being levied, unless such a penalty would unfairly injure investors, the corporation or third parties. There are additional factors that might also be allowed for: • The need to deter the particular type of offence; • The extent of the injury to innocent parties and the extent of societal harm if the corporation’s wrongdoing goes unpunished; • Whether complicity in the violation is widespread throughout the corporation: isolated incidents conducted by just a few individuals would mitigate against a penalty; • The level of intent on the part of the perpetrators: a penalty is less likely if the violation is not the result of deliberate, fraudulent conduct; • The degree of difficulty in detecting the particular type of offence: offences that are difficult to detect call for higher levels of deterrence; • Presence, or lack of remedial steps by the corporation: exemplary conduct by management will weigh against the imposition of a penalty; • Extent of cooperation with the SEC and other law enforcement agencies. Case-by-case comparison: Applix Inc – Fine: nil The SEC said in early January that three executives at Massachusetts software company Applix Inc used fraudulent revenue recognition schemes on two occasions, but that it wouldn’t levy a civil penalty against the company. In the first instance, 2001 revenues were artificially boosted by $898,000 which was enough to lift annual revenues to a published year-end goal of $40m. In 2002, Q2 revenues were fraudulently inflated by $341,000 by prematurely recognising a sale to a customer which had a six-month right to return the software. On both occasions, executives earned performance-related bonuses as a result. The company agreed in February 2003 to restate its accounts. In a legal action brought by the SEC against the executives responsible, the regulator is seeking: ? To permanently bar the executives responsible from being officers or directors of any public company; ? Disgorgement of the bonuses they earned; ? The imposition of civil penalties. McAfee Inc – Fine: $50m The SEC says that the anti-virus software group McAfee, formerly known as Network Associates, overstated its revenues by a cumulative $622m between 1998 and 2000; in 1998 alone, revenues were overstated by $562m – 131%. When the scheme began to unravel in December 2000, the market slashed more than $1bn off the company’s market capitalisation. In the meantime, McAfee had made a number of acquisitions using its over-valued shares. The SEC says that McAfee engaged in ‘channel stuffing’ by aggressively overselling its products to distributors, recording such sales as revenue, while offering deep discounts, rebates and secret payments to encourage distributors to stockpile and not return unsold McAfee products. A secret subsidiary was also used to repurchase surplus stock. McAfee has agreed to pay a $50m penalty, without either admitting or denying the allegations. Under the ‘Fair Funds’ provisions of the Sarbanes-Oxley rules, the $50m penalty will be distributed by the SEC to ‘harmed investors’. McAfee has also agreed to appoint an independent consultant to examine and advise on the company’s internal controls and accounting practices. Separate legal action is being taken against the former chief financial officer and others. whatpc.co.uk

To: Mick Mørmøny who wrote (54135)	9/1/2006 1:44:37 AM
From: Mick Mørmøny	Read Replies (1) \| Respond to of 213182

Wal-Mart and Apple Battle for Turf The retail behemoth isn't happy about the iPod maker's plans to offer movie downloads through iTunes. Has Wal-Mart met its match? The guy from Bentonville, Ark., surely isn't on any of Hollywood's leading man lists. A 23-year Wal-Mart Stores (WMT) veteran, David Porter is the person at the retail giant who orders DVDs and slashes prices to move them. But this summer, Porter has been one of Hollywood's hottest acts, taking meetings with top studio brass like a producer with a hot script. His pitch: Wal-Mart isn't happy. That prospect tends to send shivers through Hollywood's Gucci-toed corner offices. As the largest seller of DVDs, Wal-Mart accounts for roughly 40% of the $17 billion in DVDs that will be sold this year, a financial lifeline to big-spending studios. But now Wal-Mart's video business faces a potential threat by Steve Jobs and Apple Computer (AAPL), which in mid-September, sources tell BusinessWeek, plans to announce it will start offering movie downloads from its iTunes store. The notion of kids running around with full-length movies on new, wider-screen iPods that Apple is expected to unveil as well is causing grief in Bentonville, according to Hollywood executives. The $312 billion a year retailer, they say, wants concessions that could include lower DVD wholesale prices. PLAYING THE HEAVY. With Wal-Mart CEO H. Lee Scott assigning his point man Porter to roam the halls of major studios, skittish executives have for months delayed giving Jobs the rights to distribute their movies through his new service. The price Apple hopes to charge, now set at $14.99 for new releases and $9.99 for older movies, has risen from Jobs's initial plan to offer new flicks for $9.99, say industry insiders. So far, Apple only has one studio signed on: Walt Disney (DIS), where Jobs is the largest shareholder following the entertainment giant's purchase of his Pixar Animation Studios. News Corp.'s (NWS) Fox Entertainment Group may join in later, as might independent Lions Gate Entertainment (LGF), say Hollywood sources, but only if other studios come along, too. So far, other large studios have taken a pass, especially after Wal-Mart earlier this year threatened not to sell Disney's High School Musical for a time after Disney released it initially only on iTunes. What does Wal-Mart want this time to play nice? Executives who have met with Porter say it wants marketing help when it launches its own planned download site. And it wants Hollywood to trim the current $17 wholesale price for DVDs. That would let Wal-Mart slash its own prices to the same $15 or so that Apple would charge. (The plan is for Apple to pay a $14 wholesale price for new releases, say sources, although negotiations continue.) A large wholesale cut for Wal-Mart, of course, would amount to hundreds of millions in lost studio revenues each year at a time when DVD sales are slowing. LOSING PATIENCE. Wal-Mart isn't the only issue that's giving some studios pause. Several are concerned about Apple's rules for using iTunes, which let users watch a film on up to five different devices. And others worry about letting Jobs set a download price they can't change, as he has done in music. Still, studios have embraced the digital concept and accept some "burning" of movies to DVDs. In addition to Apple, the studios are negotiating potential download deals with Amazon.com (AMZN), AT&T (T), and cable giant Comcast (CMCSA). No doubt Steve Jobs knows how to turn tiny digital media niches into a mainstream phenomenon. That's what he did in the music biz. But his patience for all this tiptoeing is wearing thin. Jobs recently hopped aboard his corporate jet for a little politicking of his own in Hollywood, and insiders say he called Scott to express the concern of a vendor who sells tons of iPods and Macs through Wal-Mart stores. Jobs would not comment for this story nor would any studios. Wal-Mart acknowledged that it's talking with studios about starting its own download service but disputed that it is "dissuading studios from conducting business with other providers," according to Wal-Mart spokeswoman Jolanda Stewart. With Peter Burrows in San Mateo, Calif. businessweek.com