Friday, December 29, 2006

What Did Steve Jobs Know?

Steve Jobs, one of the world's leading high-tech executives, has become enmeshed in the options issuance scandal that is plaguing a number of companies.  According to media reports (see Reuters story here), Jobs received options on 7.5 million shares of Apple Computer, Inc. in October 2001, and documents showing the approval of the grant by the board of directors may have been falsified to make it appear that proper procedures were followed.  Jobs returned the options unexercised and received restricted shares at a later date.  On October 4, 2006, Apple disclosed the preliminary conclusions of its internal investigations, summarizing them in a press release (here):

  • The investigation found no misconduct by any member of Apple’s current management team.
  • The most recent evidence of irregularities relates to a January 2002 grant.
  • Stock option grants made on 15 dates between 1997 and 2002 appear to have grant dates that precede the approval of those grants.
  • In a few instances, Apple CEO Steve Jobs 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 investigation raised serious concerns regarding the actions of two former officers in connection with the accounting, recording and reporting of stock option grants. The company will provide all details regarding their actions to the SEC.

“I apologize to Apple’s shareholders and employees for these problems, which happened on my watch. They are completely out of character for Apple,” said Steve Jobs, Apple’s CEO.” We will now work to resolve the remaining issues as quickly as possible and to put the proper remedial measures in place to ensure that this never happens again.”

While Jobs may not have benefited from the options grant, any falsification of records will be a serious concern to the SEC and federal prosecutors investigating the company, who will want to know exactly how "aware" Jobs was of the company's practices.  Apple continues to cooperate with investigators, a stance taken by every company that has discovered options-timing issues, and no claims of government pressure regarding cooperation have arisen to this point.  The Times reports (here) that Jobs has met with Mark Pomerantz, a leading white collar crime specialist at Paul Weiss, about representing him in the government's investigation.  You know it is getting serious when the heavy hitters start showing up. (ph)

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