Suit charges Apple with new options woes

Report says shareholder suit cites 'spring-loaded' options granted ahead of good news that lifted Apple stock.


NEW YORK (CNNMoney.com) -- A shareholder suit is charging that Apple gave four executives a huge windfall by granting them options to buy almost 1 million shares of company stock the day before the then struggling computer maker announced a $150 million investment by Microsoft in 1997, according to a published report.

The Los Angeles Times reports that the suit alleges that kind of improper timing of options was common at Apple Computer for years.

Apple CEO Steve Jobs
Apple CEO Steve Jobs

Apple (Charts) conceded Friday that there had been numerous instances where options were improperly backdated to give holders of the stock options the chance to buy shares at a low point over a specific period. The company restated earnings lower by $84 million, from 1997 to 2005, because of that practice.

The Times said the federal shareholder suit filed in late December charges that options were also "spring-loaded," a practice by which options are issued just before good news known to the company is revealed to the market. The report cites the 1997 options given to the four executives as an example of that practice.

While Apple today has become a technology success story, led by the sale of the iPod music player and the iTunes music download service, in 1997 it was a struggling computer maker.

On Aug. 6 that year at the Macworld convention, Apple CEO Steve Jobs announced that he had struck a deal with longtime nemesis Microsoft (Charts) to invest $150 million in Apple and to put the Microsoft Internet Explorer browser on the Mac desktop. Fans of Apple at the convention booed Gates when he appeared on a large-screen video feed, but investors cheered, sending shares up $6.56, or 33 percent, to $26.31, leading to a two-day gain of 48 percent.

The report says that the four executives who received the options in August 1997 were former Chief Financial Officer Fred Anderson, Executive Vice President of Marketing Guerrino de Luca, Controller Robert Calderoni and Senior Vice President of hardware engineering Jonathan Rubinstein. The options vested in annual installments over three years. During that period, Apple's shares more than tripled in value.

Apple's statement said that Jobs, who is greatly credited with Apple's turnaround, and other current executives have been cleared of any improper action in its internal investigation of improper backdating of options. But it has said the actions of two former executives remain under investigation.

Apple has not identified the two former executives who are subject of the probe, but reports have identified Anderson as one of those executives, along with former general counsel and board secretary Nancy Heinen.

Anderson retired as Apple CFO in June 2004 but remained on the board until last October. 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."

Anderson remains on the board of eBay (Charts), where he heads the audit committee. He is also a director of online real estate firm Move Inc. (Charts)

Apple is not the only company facing investigations on its options practices. There are now about 125 companies implicated in the scandal, including Brocade Communications (Charts) and Comverse Technology (Charts), which have been indicted for their options practices.

Apple says options probe clears Jobs

Apple let Jobs off easy

Sleazy CEOs' options tricks Top of page

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.