Apple sinks, then recovers after report
Web site says options documents may have been falsified by company officials; Jobs hires own lawyer.
NEW YORK (CNNMoney.com) -- Federal prosecutors are investigating stock option documents at Apple Computer that may have been falsified by company officials, a published report said Wednesday. The news sent the company's stock sliding, but the shares later recovered most of the lost ground.
The Recorder, an online publication of legal news Web site Law.com, citing unidentified people with knowledge of Apple's situation, said the prosecutors are "looking closely" at option documents that were "apparently falsified by company officials to maximize the profitability of option grants to executives."
The report also said Apple CEO Steve Jobs has apparently hired his own legal representation, separate from Apple's lawyers, to deal with ongoing investigations by the Securities and Exchange Commission and the Justice Department. The company has previously said that Jobs was not implicated by its own internal probe of the options scandal.
Apple (Charts) shares sank as much as 6 percent in the morning, though they later recovered and were off only about 0.5 percent in afternoon trading.
"Any time you get the stock options probe mentioned, especially with rumors of falsifying documents, the hot money tends to shoot first and ask questions later," Tim Biggam, options strategist at Man Securities, an options brokerage firm in Chicago, told Reuters.
"We are providing all details regarding the investigation to the SEC and we're not commenting beyond that," Apple spokesman Steve Dowling said.
The article does not reveal which documents were allegedly falsified. But Apple had previously disclosed that "stock option grants made on 15 dates between 1997 and 2002 appear to have grant dates that precede the approval of those grants." By changing the date of an options grant, an executive who receives the grant can obtain even greater savings when buying the stock in the future.
The article said that falsification of documents puts Apple at risk for potential criminal prosecution. Federal investigators are looking into allegations about illegal backdating of options at 100-plus companies, and some of them will likely be pursued solely as civil SEC inquiries, while others may face criminal charges.
"When there are falsified documents, the government views them as an intent to defraud, because people generally don't falsify documents unless they're trying to make things different from reality," Keith Krakaur, a partner at Skadden, Arps, Slate, Meagher & Flom, told the Recorder.
Krakaur told the Web site that he was speaking generally and not about Apple, with which he's not involved. But Krakaur was formerly the attorney for Kobi Alexander, the former CEO of Comverse Technology (Charts), who was indicted by Brooklyn federal prosecutors on charges of backdating option grants and has been living as a fugitive in Namibia for the past several months.
Analysts have downplayed the impact that the probe could have on Apple's business. But they have said that their biggest concern is that the investigation could lead to the departure of Jobs, a company founder who has been lauded for turning Apple around by launching the blockbuster iPod digital media player and revamping its line of Mac computers.
Brocade Communications Systems (Charts), McAfee (Charts), UnitedHealth Group (Charts) and KB Home (Charts) are other companies that have seen their CEOs leave under the cloud of options backdating scandals.
Apple confirmed the probe into its stock option program in June and said it conducted its own internal investigation, which it completed in October and turned over to federal investigators.
It said in a statement in October that an internal investigation of its options program "found no misconduct by any member of Apple's current management team," although it conceded that the probe "raised serious concerns regarding the actions of two former officers in connection with the accounting, recording and reporting of stock option grants."
As to Jobs's involvement, the statement said its CEO "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 Recorder's article identified the ex-officers cited but not identified by Apple as a former general counsel, Nancy Heinen, and a former chief financial officer, Fred Anderson.
Anderson retired as CFO in June 2004 but remained on the board until October this year. 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."
--from staff and wire reports