Apple Options Investigation May Implicate Steve Jobs

A report in this morning's Financial Times, following up on a story in a California legal journal posted to Law.com on Tuesday, states that 7.5 million stock options at an exercise price of $18.30 per share were granted to Apple CEO Steve Jobs without authorization from the company's Board of Directors. The report states that documents were later falsified to make it appear as though the Board did approve of the grant - a practice whose penalty could involve huge fines and jail time.

Tomorrow is the deadline for Apple to produce a delayed 10-K filing for the US Securities and Exchange Commission, whose balance sheets could be adjusted to account for previously unstated expenses involving the granting of options during 2001. Up to this point, Apple's representatives have maintained that Jobs never exercised those options that were granted him, instead trading them in for legitimate securities.

But if Jobs was aware, even though he never cashed in, that these options were granted without board approval, his failure to report that fact to the SEC may make him criminally liable. Reporter Justin Scheck of the California law journal The Recorder revealed on Tuesday that Jobs had hired legal counsel outside of Apple.

According to The Recorder, the falsified documents were turned up in the course of a three-month internal Apple probe, which may have implicated two former high-ranking officials: former CFO Fred Anderson, who retired in 2004 and resigned from the company's board just last October; and former vice president and general counsel Nancy Heinen, who came on board with Jobs after Apple's acquisition of NeXT. Heinen's departure last May could be the most controversial, with the company having stated almost no information explaining her reasons for leaving, and with her timing alone generating suspicion.

If the SEC treats Apple with the same level of attention as with the other 100+ corporations implicated in its stock options backdating investigating, the implications for its current and former executives could be devastating. Last August, former Brocade Communications CEO Gregory Reyes and human resources VP Stephanie Jensen were indicted by the US Justice Dept. for their alleged personal involvement in a scheme to compensate employees using unreported options - a scheme which allegedly involved fraud and document falsification. If convicted, they each could face prison terms of up to 20 years, and fines of up to $5 million USD.

As for the company itself, however, Brocade was not charged for corporate wrongdoing. As the San Jose Mercury News reported last week, since Brocade has restated its earnings, its health and stock value have been on a rebound.

Some analysts today continue to see the Apple affair as overblown, with a UBS analyst saying just yesterday he expects the company to begin putting the whole affair behind it, with the filing of its delayed 10-K report tomorrow.

Meanwhile, investment advisor and Seeking Alpha blogger Phil Davis dismissed the FT story this morning as basically a reconstitution of news that was already out there, pointing to the fact that the story was written in San Francisco as indication of a possible anti-Apple agenda. "We made a lot of money on this nonsense yesterday, and we will exercise caution," Davis wrote, "but let's be on the lookout for another great opportunity today as all this negative Apple news seems very oddly timed ahead of MacWorld."

But late last October, when it first appeared Steve Jobs' unmistakable image could not escape the spotlight of scrutiny, Strategic News Service newsletter editor Mark Anderson predicted that Apple may have to find someone convenient to blame if it intends to save its CEO. "I expect that the company is doing its best to find fall guys and scenarios that will allow Steve to stay," Anderson wrote. "Apple, I am afraid, has a real problem, the only problem that it can't work around. It is trying, but time does not, in fact, heal all wounds. I've come to the tentative conclusion that Steve was involved."

"We have a company that cannot prosper without Steve," Anderson stated. "No Steve is No Option for Apple."