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Strategies & Market Trends : Option Granting Practices and exploits -- Ignore unavailable to you. Want to Upgrade?

To: Glenn Petersen who wrote (20)	8/4/2006 9:49:56 AM
From: RockyBalboa	Read Replies (2) \| Respond to of 165

Apple Warns of Profit Restatement Friday August 4, 7:27 am ET By Michael Liedtke, AP Business Writer Apple Warns It May Have to Revise Profits Going Back to 2002 Because of Stock Option Trouble SAN FRANCISCO (AP) -- Apple Computer Inc. warned Thursday that it may have to revise its profits dating back to 2002 in a worsening stock option scandal that has cast a harsh light on Silicon Valley's compensation practices. Without providing specifics, the Cupertino, Calif.-based maker of Macintosh computer and iPod music players said it had uncovered enough evidence of mishandled stock options to raise doubts about the accuracy of financial statements dating back to Sept. 29, 2002. During this stretch, Apple has enjoyed one of the most prosperous periods in its 30-year history. Fueled largely by steadily rising sales of its ubiquitous iPod, Apple has reported $3.1 billion in profit during the past four years. Apple first raised a red flag about the way it accounted for stock options in late June when it announced an internal investigation into a series of "irregularities." Some of the nettlesome stock options were given to Steve Jobs, Apple's renowned chief executive, but he voluntarily canceled those in 2003 before cashing them in. After digging deeper, Apple uncovered enough new problems to prompt the company to hire an outside lawyer to take over the investigation and notify the Securities and Exchange Commission about its findings. Apple hopes to complete its accounting review as quickly as possible, said company spokesman Steve Dowling. In the meantime, Apple may miss a deadline for filing its latest quarterly report with the SEC. The developments, announced several hours after the stock market closed, threaten to rattle investors, based on how Wall Street has punished other companies that have recently disclosed potential accounting problems caused by stock option improprieties. Apple shares gained $1.43 Thursday to close at $69.59 on the Nasdaq Stock Market, then fell 6.6 percent to $65 in aftermarket trading on the electronic INET exchange. The company's market value has increased by about $55 billion since September 2002, as its stock price rose by nearly 10-fold. More than 60 other companies across the country are grappling with similar stock option headaches, but Apple is by far the most prominent of the lot to acknowledge trouble so far. While Apple hasn't explained exactly how it mishandled stock options, most of the problems at other companies so far have revolved around "backdating." Under this practice, insiders try to make the rewards more lucrative by retroactively pinning the option's exercise price to a low point in the stock's value. Usually, a stock option's exercise price coincides with the market value at the time of a grant to give the recipient an incentive to drive the price higher. If companies backdate options without accounting for the move, it can cause profits to be overstated and taxes to be underpaid. The financial manipulation also exposes companies to possible fraud charges that could trigger civil fines and even criminal cases. The U.S. Justice Department has already brought criminal charges against Brocade Communications Systems Inc.'s former CEO, Gregory Reyes, and is actively investigating other cases. Reyes, who hasn't yet entered a plea in the case, is free on a $2 million bond. More than 20 of the companies entangled in the stock option imbroglio are in Silicon Valley, where the incentives first became a staple of compensation packages for rank-and-file employees as well as top executives. As high-tech stocks soared during the dot-com boom of the 1990s, workers began to clamor for even better stock option packages in pursuit of a big jackpot. That hunger for ever-more lucrative stock options is believed to have driven many Silicon Valley companies to resort to backdating as they tried to recruit and retain workers. To properly account for backdated stock options, companies generally have to recognize more expenses than they originally recorded on their books. Making that adjustment can erase a substantial amount of profit. In the past month, Mountain View, Calif.-based Mercury Interactive Corp. has wiped out more than $530 million of its past earnings because of stock option backdating. While it recalculated its profits, Mercury also missed SEC filing deadlines, causing its stock to be de-listed from the Nasdaq. Although the debacle initially battered Mercury's stock, the shares bounced back last week when Hewlett Packard Co. announced it was buying the business software maker for $4.5 billion.

To: Glenn Petersen who wrote (20)	12/27/2006 8:45:23 AM
From: RockyBalboa	Read Replies (1) \| Respond to of 165

Apple reportedly falsified options documents Web site says federal investigation could leave company open to criminal prosecution; shares lose 2.7% in Frankfurt trading. December 27 2006: 8:37 AM EST NEW YORK (CNNMoney.com) -- Federal prosecutors are reportedly investigating stock option administration documents at Apple Computer that were apparently falsified by company officials, according to a published report. The Recorder, an online publication of legal news Web site Law.com, reported the allegation of the false documents, citing unidentified people with knowledge of Apple's situation. More video The SEC is finally getting serious with United Health. CNN's Ali Velshi is 'Minding Your Business.' (December 27) Play video The report also says that Steve Jobs, the CEO and co-founder of Apple, has apparently hired his own legal representation, separate from Apple's lawyers, to deal with investigators from the Securities and Exchange Commission and Justice Department. The company has previously said that Jobs was not implicated by its own internal probe of the options scandal. Shares of Apple (Charts) lost 3.4 percent in heavy Frankfurt trading early Wednesday. The article does not reveal which documents were allegedly falsified. But Apple had previously disclosed that "stock option grants made on 15 dates between 1997 and 2002 appear to have grant dates that precede the approval of those grants." By changing the date of an options grant, an executive who receives the grant can obtain even greater savings when buying the stock in the future. The article said that falsification of documents puts Apple at risk for potential criminal prosecution. Federal investigators are looking into allegations about illegal backdating of options at 100-plus companies, and some of them will likely be pursued solely as civil SEC inquiries, while others may face criminal charges. "When there are falsified documents, the government views them as an intent to defraud, because people generally don't falsify documents unless they're trying to make things different from reality," Keith Krakaur, a partner at Skadden, Arps, Slate, Meagher & Flom, told the Recorder. Krakaur told the Web site he was speaking generally and not about Apple, with which he's not involved. But Krakaur was formerly the attorney for Kobi Alexander, the former CEO of Comverse Technology (Charts), who was indicted by Brooklyn federal prosecutors on charges of backdating option grants and has been living as a fugitive in Namibia for the past several months. Sleazy CEO's options tricks Brocade Communications Systems (Charts), McAfee (Charts), UnitedHealth Group (Charts) and K.B. Home (Charts) are other companies that have seen their CEO leave under the cloud of options backdating scandals. Apple has confirmed the probe into its stock option program in June and said it conducted its own internal investigation, which it completed in October and turned over to federal investigators. It said in a statement in October that an internal investigation of its options program "found no misconduct by any member of Apple's current management team" although it conceded that the probe "raised serious concerns regarding the actions of two former officers in connection with the accounting, recording and reporting of stock option grants." As to Jobs' involvement, the statement said its CEO "was aware that favorable grant dates had been selected, but he did not receive or otherwise benefit from these grants and was unaware of the accounting implications." The Recorder's article identified the ex-officers cited but not identified by Apple as a former general counsel, Nancy Heinen, and a former chief financial officer, Fred Anderson. Anderson retired as CFO in June 2004, but remained on the board until October this year. His resignation from the board was revealed at the same time the conclusion of the internal probe was announced. The company said at that time that he had "informed the company that he believes it is in Apple's best interests that he resign from the board at this time." -------------------------------------------------------------------------------- CEO's have even more options tricks money.cnn.com