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Apple Investigated Over Stock Options 88

Posted by CowboyNeal
from the slight-of-hands dept.
blamanj writes "Apple has joined the list of over fifty companies (most in Silicon Valley) that possibly mishandled stock options by backdating them. The technique is not illegal, but it can cause a company to improperly deduct employee compensation expenses and result in an underpayment of taxes. So far, Apple is conducting the investigation itself, but it has notified the SEC."
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Apple Investigated Over Stock Options

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  • So (Score:5, Insightful)

    by Eightyford (893696) on Thursday June 29, 2006 @08:12PM (#15632936) Homepage
    Boring....
  • by crazyjeremy (857410) * on Thursday June 29, 2006 @08:13PM (#15632943) Homepage Journal
    So, Apple investigates itself over something that isn't exactly illegal?
    • So, Apple investigates itself over something that isn't exactly illegal?
      STOP THE PRESSES!
    • by Otter (3800) on Thursday June 29, 2006 @08:26PM (#15633018) Journal
      It's not (at the moment) illegal per se. It does lead to accounting, disclosure and tax improprieties if it's not reported.

      In any case, the self-investigation does seem strange -- how could the company not know if it had been done? If they really don't know, I'd say that's an issue in itself.

      • It's not thaty strange. The accounting dept is probably many people. SOmeone may have made a mistake that went unchecked(maybe). Someone notices an oddity and starts an ivestigation. Since it involves stocks, and they want to minimize there risk, they notify the SEC.

        Hardly the first company to do this. Probably not event the 10th company to do this this year.

        • It's just big business doing big business. All companies look for loopholes to exploit in order to lower their salaries (stock options granted in a given way in exchange for a lower CEO salary) and this is just one example. The feds are looking more closely at it and all the companies know they need to stop now. With compensation issues you're dealing with state and federal withholding taxes, 401k regulations, and who knows what all else. Better to stop now, figure out how bad it is, correct the plethor
      • This may reveal my total ignorance about such matters, but to me the raft of stock options controversies reminds me a bit of the steroids scandal in baseball. While to the common observer, it may appear to be the height of impropriety, it isn't a violation of any laws on the books. Furthermore, the shareholders have this nasty tendency to keep approving such pay packages, and as long as they keep doing that, there isn't much that can be done to remedy the situation. But again, my understanding may be com
        • you are way off, steroids ARE ILLEGAL, just not against the rules in baseball.

          OTOH all this is just apple investigating their own books because they think they made a mistake.

          if nobody made mistakes you wouldn't need audits in the first place, hell you wouldn't even need an accounting department
          • Fair enough. BUT- if AAPL were backdating options, were they breaking any laws? Does it matter whether their shareholers appoved of it? I'm just curious. It would be a whole hell of a lot simpler if executives were compensated with cash money like the rest of us...
      • by GringoGoiano (176551) on Thursday June 29, 2006 @11:45PM (#15633904)

        When the employee exercises a stock option they are paying the company for the share. If the company back-dates an option to lower the strike price for an employee, the employee pays less for it.



        Scenario:


        • No back-dating:
             

          •    
          • company stock price 2006/07: $25
               
          • company stock price 2006/09 (stock grant date): $30, stock strike price set at $30
               
          • employee exercises/sells 1 share on 2010/09, current price $50: employee pays company $30, employee sells $50, $20 profit
               

        • Back-dating:
             

          •    
          • company stock price 2006/07: $25
               
          • company stock price 2006/09 (stock grant date, but back-dated to 2006/07): $30, stock strike price set at $25
               
          • employee exercises/sells 1 share on 2010/09, current price $50: employee pays company $25, employee sells $50, $25 profit
               



        The employee makes a bigger profit, the company loses. This is the worst
        side-effect of back-dating stock options. You're cheating the other shareholders.


      • This is actually serious business. Several companies have had these informal internal investigations turn into full-fledged audits by the SEC. Furthermore, a number of companies (2 that I remember off the top of my head, and more that are lurking) deemed it necessary to fire their entire executive staff over this stuff.

        Backdating options is serious business, as it conflicts with a number of SEC regulations. Think about it - it's all the advantages of stock, without any of its drawbacks.

        Apple might be starti
    • Jobs: "Well, yes. If we did do it, we'll just have to be killed."
    • Backdating options isn't illegal, per se. In fact, it used to be common practice to backdate stock option compensation to the beginning of the FY.

      However, it has recently become illegal to offer stock options as compensation without expensing them (it used to not be - and a given company could reduce their taxes and inflate their bottom line by nonexpensing of stock options).

      Because of this, if Apple's accounting was still backdating options after the new rules were passed, they would technically be exempt
    • According to Apple's press release [apple.com], they've hired independent counsel to investigate.
    • So, Apple investigates itself over something that isn't exactly illegal?

      According to more reliable sources, Apple's using an independent firm to investigate the issue. I'm not clear on this incident, it could be that Apple's total expenses were marked higher or lower, it all depends.

      At any rate, if the expenses were higher, then profits were lower and therefore Apple probably owes less taxes (but stockholders were mislead--thinking Apple was more profitable than it really was).

      If the expenses were lower, Ap
  • by Pink Tinkletini (978889) on Thursday June 29, 2006 @08:17PM (#15632965) Homepage
    Apple: officially "beleaguered" again.
  • by MustardMan (52102) on Thursday June 29, 2006 @08:19PM (#15632976)
    Slashdot headline creation in a nutshell...

    MustardMan decides to take his dog to the vet to check for diseases.

    Slashdot headline: MustardMan's dog being investigated for deadly pathogens!
  • CORRECTION. (Score:5, Informative)

    by jcr (53032) <jcr@mac. c o m> on Thursday June 29, 2006 @08:25PM (#15633015) Journal
    This headline is complete BS. Apple's own internal auditors found something that might be an issue, and Apple reported it to the SEC themselves.

    -jcr
    • Yes, the headline summary is wrong in every significant respect (except that they got Apple's name right.)

      1) Apple is not yet being investigated; they found and reported the problem themselves.

      2) The problem has not been confirmed to be backdating.

      3) Backdating is in fact illegal because it fraudulently mistates a company's earnings and evades taxes. The exception would be if the backdating is disclosed and appropriate taxes paid - but that isn't really backdating at all (just striking an option off-market.

      • Well, I've got to say, with the new Sarbanes-Oxley law after Enron and the other numerous scandals of the late '90s collapse, companies have to use much stricter guidelines about expensing and so on, and if they haven't fully divulged the condition of the company, they are in violation of the law. And also, the CEO -- even the iCEO -- would be responsible for this if he signed off on it.
  • Bizarre article (Score:5, Insightful)

    by Infonaut (96956) <infonaut@gmail.com> on Thursday June 29, 2006 @08:30PM (#15633036) Homepage Journal

    Apple is one of 57 companies being investigated. Who are the other 56 companies? No links, no nothing.

    Stock options in the Valley are definitely a problem, and if Apple screwed up, they deserve whatever they get. However, they did inform the SEC, so it seems a bit early to get out the stakes and holy water.

  • deserves to be on slashdot.

    what next, a deep look inside Apples accounting practices? Followed by an investigative report on which urinal cakes Apple uses?

    None of that is News for Nerds, or stuff that matter..
  • Reporting it to the SEC seems to be more of a CYA move than anything else.
  • Man, I really need to start trusting myself [slashdot.org].

    But if I did, wouldn't I'd prove myself wrong, this making myself untrustworthy ? (it aint easy being insane, but sombody's gotta do it)
  • by acm (107375) on Thursday June 29, 2006 @08:58PM (#15633161) Homepage
    The real news that I haven't seen on Slashdot yet, is that an analyst has predicted that Apple is going to delay shipping the next round of iPods.

    Link [appleinsider.com]

    • by ivan256 (17499) *
      Yeah, but when they asked that analyst for his source, he introduced the interviewer to his bare ass. When they asked him for references, he was only able to point to one other published report where he said the MacBook Pro was going to be delayed until July 2006.

      This, on the other hand, is actually happening.
  • According to The San Francisco Chronicle [sfgate.com]:

    "Regulators are investigating whether companies broke securities and tax laws by backdating stock-option grants to coincide with the lowest possible price. The practice of backdating is drawing scrutiny because it maximizes the amount of money executives can make in exercising options."

    It seems like plenty of As need Cing, but I think it's way to early to say "the technique is not illegal".
  • by Anonymous Coward

    Yes, off-topic, etc., but there's really no other place to say this: We need better editing of story submissions. Apple is not being investigated, Apple is reviewing its own practices, and it's not even clear that what they're looking for is actually illegal. The summary even goes on to say that Apple notified the SEC of its investigation itself. So why the sensationalist headline?

    My proposal: let's tag this story as pleasefixthisheadline. The editors rarely respond to comments, so maybe having tags

  • by PavementPizza (907876) on Thursday June 29, 2006 @09:28PM (#15633295)
    And you know what they say about a cowboy with slight hands, don't you?

    Sigh...a six-word subtitle, and it contains a typo. (It's sleight. sleight of hand, not slight of hand.)
  • Apple == Boring (Score:3, Insightful)

    by OverlordQ (264228) on Thursday June 29, 2006 @09:49PM (#15633400) Journal
    You know, I'd put my entire Karma on the line to say that if this was M$, instead of "Yawn, is this news?" posts, this entire story would be "M$ Anti-trust! Evil! Screwing their workers!" posts.
    • You know, I'd put my entire Karma on the line to say that if this was M$, instead of "Yawn, is this news?" posts, this entire story would be "M$ Anti-trust! Evil! Screwing their workers!" posts.

      No, it would be 'Holy shit! Microsoft is taking responsibility for something!"
  • ...and in other news, over fifty unnamed companies are being investigated in some manner for possibly doing something like what Apple might have done.

    Back to you, Ted...
  • Imagine an excell spreadsheet with a million fields on it. Do you really think tiny mistakes are all that uncommon?

    No they probably aren't, if you think of millions of 'facts' and Excel 'cells.' But the SEC has only recently decided to maybe change the rules of compensation disclosure (which includes the valuation of stock options, the 'window' in which a grant can be dated, etc). And they're only looking at the top 5 execs in a company, so, the million Excel cells aren't exactly on the table.

    The SEC is

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