U.S. News

Apple's Stock Down on Reported Probe into CEO Jobs' Option Grants


Shares of Apple fell on Friday after investors learned that federal authorities are investigating a backdated stock option grant to Apple CEO Steve Jobs that had a false October 2001 date.

"Until the company and Jobs gets a clean bill of health from the (Securities and Exchange Commission), or charges are brought, it is likely this scandal will continue to nip at their heels," CNBC's Jim Goldman told "Power Lunch."

Apple's stock had surged to an all-time high earlier this week with the unveiling of the hotly-anticipated iPhone multimedia device.

Authorities are investigating a grant to Jobs of 7.5 million options finalized in December 2001, The Wall Street Journal reported. Since Apple shares were higher then, the backdating to October resulted in an increase in the value of the grant and resulted in a retroactive $20 million charge to Apple's earnings once the backdating was discovered by an internal investigation, the paper said.

Last month, Apple said it found no misconduct by current management in its investigations of stock-option grants, but the probe found Jobs knew about some favorable grant dates.

The company also said that records were created to support a claim that the grant in options was approved at a special October board meeting, but that meeting did not take place.

The Journal, citing people familiar with the matter, said the false documentation was created by Apple attorney Wendy Howell, who was dismissed from the company last month.

Howell contends that Apple's general counsel at the time, Nancy Heinen, instructed her to create the documents, the Journal said. While at Apple, "Ms. Howell acted as instructed by Apple management and with the company's best interest being paramount," the Journal quoted Howell's attorney, Thomas Carlucci, as saying. 

Meanwhile, Heinen's attorney said Heinen "didn't knowingly engage in any wrongdoing and denies she instructed Ms. Howell to falsify documentation."

Carlucci and an Apple spokesman were not immediately available for comment. Howell could not be reached. Heinen's attorney, Cristina Arguedas, also could not be reached for comment.

Authorities also want to speak to Fred Anderson, Apple's former chief financial officer, the Journal said. It is unclear if any of the parties will agree to talk to authorities.

Aware, But no Wrongdoing

On Dec. 29, Apple said its "investigation found that CEO Steve Jobs was aware or recommended the selection of some favorable grant dates," although it stressed he "did not receive or financially benefit from these grants or appreciate the accounting implications."

Investors clearly focused on Apple's declaration that there was no wrongdoing by current management. Shares rose when the company announced the findings of the investigation and are up about 14% this year.

The maker of the iPod music player and Macintosh computers is one of the most prominent among some 200 companies that have come under scrutiny for backdating stock options. It's a widespread practice, especially in Silicon Valley, that involves pegging stock options to favorable grant dates in the past to boost the recipients' award.

Dozens of companies have been forced to restate their earnings, erasing some of their earlier recorded profits, after their stock option shenanigans came to light.

Apple initiated its own stock options probe in June and delayed its quarterly report for the period ending July 1 and its annual report for the fiscal year ended Sept. 30 as a result.