Apple Investigated Over Stock Options

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."

The real Apple news...

[acm]

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]

Re:Once again...

[Fordiman]

I'm a linux fanboy, and even I know this is something that just has to happen for a lot of companies.

Apple, Goole and others lobbied hard against the new FASB rules that makes this step necessary; without them, these companies could continue to artifically inflate their bottom lines.

How it works:
The old FASB rules didn't force a company to expense stock options. As such, they didn't come out of their bottom lines.

Meanwhile, whenever an option was exercised, the company would get a tax break for the 'expense'.

In other words, a company could spend money without noting it, and get a tax break if it was converted to cash. Nice little loophole there. It's essentially tax fraud without the illegalness. It was a great boon for the internet startups of the mid to late 90's, since they could have a very large pile of capital they could pay their emplyees with without it looking like they were diminishing their capital.

Under the new rules, stock options must be written down as an expense. The tax break still exists, but now it doesn't inflate the stock price, leaving it more balanced.
Option is expensed. Stock price goes down.
Option is exercised. The added demand and tax break brings the stock price back up.

Re:The real Apple news...

[ivan256]

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.

Re:I'm investigating myself.

[NeutronCowboy]

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 starting this as an internal investigation, but I'd watch this carefully to see how this pans out. Depending on how egregious Apple was with its back dating, consequences might be as benign as restating some earnings to a delisting and a wholesale firing of executives, along with a massive drop in stock price. Time to sell Apple.