Apple manages options probe damage

BOSTON (Reuters) - Apple Computer Inc.’s (Nasdaq:AAPL - news) board cleared Chief Executive Steve Jobs this week of any misconduct over stock options accounting problems and Wall Street cheered him for taking broad responsibility.

Shareholders want Jobs to survive with his job intact because he’s seen as the driving force behind Apple’s success in recent years with iPod music players and Mac personal computers. But the judgment of the U.S. Securities and Exchange Commission is still to come.

“Until the government has done one thing or another, it’s hard to say it’s over,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

On Wednesday Apple said a review by a special board committee found that Jobs was aware in some cases that options had been backdated, but that he didn’t benefit from these grants and was unaware of the accounting implications.

About 120 companies are either under federal investigation or have launched their own inquiries into whether they manipulated the grant date of options to benefit executives who received them.

The widening inquiry has so far resulted in criminal charges against former executives of Brocade Communications Systems Inc. (Nasdaq:BRCD - news) and Comverse Technology Inc. (Nasdaq:CMVT - news). The executives have denied any criminal wrongdoing.

Many of the cases involve backdating, in which companies boosted the value of stock options given to employees by setting their grant dates to coincide with a previous low point in the value of the underlying stock.

“Theoretically, I don’t think it is a good idea,” Elson said of backdating. But, he added, the legality of such grants depends on how it is disclosed and accounted for.

While Apple has yet to disclose the details of the accounting irregularities, the company’s statement on Wednesday appears to exonerate him of any legal infractions.

“It certainly sounds as if whatever problems Apple had, (they) did not have his direct involvement and he didn’t have any direct benefit,” former SEC Chairman Harvey Pitt told Reuters. “…that should alleviated market jitters about (whether) Jobs will be able to hold onto his job.”

Shareholders worry Apple could falter without Job’s guidance. “We think Apple will get past this unscathed - as long as it doesn’t impact Jobs,” said Cross Research analyst Shannon Cross.

Apple’s internal review pointed blame, but not at Jobs. The investigation raised what the company described as “serious concerns” about the actions of two employees. It said they no longer work for the company and that it would provide details on those matters to the SEC.

The company also said that former Chief Financial Officer Fred Anderson, who served in that role from 1996 to 2004, had resigned from the company’s board.

Legal experts say Jobs deserves credit for looking into the matter before authorities.

“The company has taken every single appropriate step that can be expected to be taken to identify and remedy the past problems,” said Mike Koenig, a white collar criminal defense attorney with Dewey Ballantine.

Jobs’ assertion that he didn’t understand the accounting implications of the back dating may also help him, said James Cox, a Duke University Law School professor who studies corporate securities law.

“He didn’t know there was rejiggering of the financial results,” he said. “There’s a difference between knowing that the options were backdated and knowing that the numbers that were being produced were misleading,” he added.

One attorney said Apple’s missteps seemed far less serious than acts alleged to have taken place at Brocade and Comverse, suggesting any disciplinary action would be more lenient.

Government affidavits charge that those executives intentionally sought to break accounting rules.

“There have been some egregious cases,” said George Stamboulidis, an attorney with Baker Hostetler. “But this doesn’t sound to have been one of them,” he said of Apple.

// October 7th, 2006