Options Scandal Hitting Apple Stock

    August 4, 2006
    WebProNews Staff

Shares of Apple dropped by four percent in after-hours trading, and the iconic computer company may have to restate earnings for several years due to its stock option granting practices.

This is supposed to be a joyous time of year for Apple. Their WorldWide Developer Conference starts on Monday, with CEO Steve Jobs delivering the keynote, a preview of the Leopard version of Mac OS X, and possibly one of his famous “one more thing” announcements that turn Apple’s fanbase into drooling puddles of applause.

It will likely be a cheery time for Apple, but not completely so. On August 3rd, Apple announced it would delay the filing of its SEC Form 10-Q for the quarter ended July 1st while an internal investigation into the issuance of stock options in 1997-2001 takes place.

Nothing short of a 50-terabyte video iPod with a full-color holographic display and telepathic controls could completely erase the bad taste left after Apple’s announcement, though:

Although the investigation is ongoing, the Company has discovered additional evidence of irregularities. In light of this, management has concluded, and the audit committee of the board of directors agrees, that the Company will likely need to restate its historical financial statements to record non-cash charges for compensation expense relating to past stock option grants.

The Company has not determined the amount of such charges, the resulting tax and accounting impact, or which periods may require restatement. Accordingly, the Company today filed a Form 8-K stating that the financial statements and all earnings and press releases and similar communications issued by the Company relating to periods commencing on September 29, 2002 should therefore not be relied upon.

It has been alleged that Apple’s problems stem from backdating stock options. By backdating options to a lower share price, the lucky recipient could pull in millions more in gains.

Apple is not the only company being held over the roaring fires of a SEC inquisition here. Numerous other companies throughout the tech sector, especially those in Northern California, have been under federal scrutiny over stock options.

Brocade Communications Systems saw its name brought before the court system first, as former executives charged with backdating options at that company made court appearances this week.

Observers in and out of the tech industry will be watching to see if Steven P. Jobs of Apple will have to make that appearance himself in the future.


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David Utter is a staff writer for WebProNews covering technology and business.