Apple appears to have dodged bullet in options scandal
The worst fears facing Apple Inc. and its investors -- that members of the company's current leadership could face criminal charges over misdated stock option grants -- appear as if they will not materialize, investment bank Goldman Sachs said Tuesday.
According to an article in the Wall Street Journal, one of two former Apple executives suspected of wrongdoing in the company's options mess has settled with the SEC, while another still faces civil charges surrounding issues with backdated Apple options.
"The article indicates that the SEC case against Apple's former CFO [Fred Anderson] is now closed," analyst David Bailey wrote in a commentary to investors. "Now it's a matter of coming to some kind of resolution on the case against Apple's former legal counsel [Nancy Heinen], which sounds like it may be imminent."
Bailey noted that the "overhanging risk" on Apple shares has primarily centered around the possibility of criminal charges against current senior members of management, in particular its famed chief executive and innovative inspiration Steve Jobs.
"The civil charges against Apple's former CFO and chief counsel would suggest that the largest risk - criminal charges against any of Apple's current management team ? may not materialize, mostly removing a nagging overhang for the stock," he wrote.
The Goldman Sachs analyst said the apparent resolution allows for his fundamental thesis on the Cupertino-based firm to remain intact -- namely, that a powerful product cycle and upside in the back half of the year should help power company shares.
While the move towards a positive resolution in the backdating scandal should provide a near-term boost to Apple shares, Bailey warned that the stock could give back any such gains following the company's earnings announcement on Wednesday.
That's because Apple is likely to provide unusually conservative guidance for its fiscal third quarter in light of the delay affecting its next-generation Leopard operating system, the analyst said. The move could "potentially exaggerated seasonality for iPod" in front of the iPhone launch in June, he added.
With Leopard now set to launch in October, rather than June, Apple will forgo an estimate $50 to $75 million in revenues from the software during its third quarter. With Apple reaping an estimated 85 percent gross margin on its operating system software, it will have to account for the loss of about $0.05 in earnings per share as a result of the delay, according to recent calculations by Citigroup analyst Richard Gardner.
According to an article in the Wall Street Journal, one of two former Apple executives suspected of wrongdoing in the company's options mess has settled with the SEC, while another still faces civil charges surrounding issues with backdated Apple options.
"The article indicates that the SEC case against Apple's former CFO [Fred Anderson] is now closed," analyst David Bailey wrote in a commentary to investors. "Now it's a matter of coming to some kind of resolution on the case against Apple's former legal counsel [Nancy Heinen], which sounds like it may be imminent."
Bailey noted that the "overhanging risk" on Apple shares has primarily centered around the possibility of criminal charges against current senior members of management, in particular its famed chief executive and innovative inspiration Steve Jobs.
"The civil charges against Apple's former CFO and chief counsel would suggest that the largest risk - criminal charges against any of Apple's current management team ? may not materialize, mostly removing a nagging overhang for the stock," he wrote.
The Goldman Sachs analyst said the apparent resolution allows for his fundamental thesis on the Cupertino-based firm to remain intact -- namely, that a powerful product cycle and upside in the back half of the year should help power company shares.
While the move towards a positive resolution in the backdating scandal should provide a near-term boost to Apple shares, Bailey warned that the stock could give back any such gains following the company's earnings announcement on Wednesday.
That's because Apple is likely to provide unusually conservative guidance for its fiscal third quarter in light of the delay affecting its next-generation Leopard operating system, the analyst said. The move could "potentially exaggerated seasonality for iPod" in front of the iPhone launch in June, he added.
With Leopard now set to launch in October, rather than June, Apple will forgo an estimate $50 to $75 million in revenues from the software during its third quarter. With Apple reaping an estimated 85 percent gross margin on its operating system software, it will have to account for the loss of about $0.05 in earnings per share as a result of the delay, according to recent calculations by Citigroup analyst Richard Gardner.
Comments
With Fred being allowed off the hook with the forfeiture of $3.5 million in profits from the deal, and a not terribly considerable $150,000 in fines, this doesn't seem to much of a problem.
When you consider that he is being allowed to continue to sit on the boards he is on, such as heading up the audit committee in eBay, and also retaining his position in Elevation Partners, and other firms, it seems more a slap on the wrist than anything else. It would indicate that his errors are considered to be fairly minor.
Heinen's charges are more serious, because she is said to have benefited from this. But, we'll see.
She has no evidence against Jobs, it is said.
EDIT:
Just remembered to add that Heinen's lawsuit will be a civil one, not criminal. There is a big difference there, and also bodes well.
It would indicate that his errors are considered to be fairly minor.
Heinen's charges are more serious, because she is said to have benefited from this. But, we'll see.
If Freddy boy is returning 3.5 million, doesn't that indicate he benefited from the transaction?
And I would assume Nancy's charges would be considered more serious because she actually ordered forged documents to be created, as opposed to just setting up some date as to when something was to be valid from.
If Freddy boy is returning 3.5 million, doesn't that indicate he benefited from the transaction?
Not from the one in question. Also, it has apparently has been shown that what he did benefit from, he had no part in setting. Therefore, he is just paying back what he received in his own options mess, that he benefited from, but did not have a say in.
It's like paying back taxes. If it can't be shown that you deliberately defrauded the government, but made a mistake, you will owe the taxes, plus interest, or a fine.
And I would assume Nancy's charges would be considered more serious because she actually ordered forged documents to be created, as opposed to just setting up some date as to when something was to be valid from.
She apparently DID take part in options that she benefitted from. The falsifying the date seems to be the big thing here.
I'm wondering how the accounting was otherwise handled. The one area the company seems safe in is that the board did know of the backdating (which, remember, IS legal). How were raxes accounted for, etc?
These options were granted before S/O came into effect, so notifying the public, through information given out in the quarterly reports, isn't a problem.
There doesn't appear to be anything new, except for the fact that Anderson said that Jobs assured him that the board had approved of the dates, and accounting. I'm not sure if this is anything new to the SEC, or just that it's now been made public.
I'm assuming that he told this to the SEC a while ago.
If so, the matter might be closed, except for a possible fine for Apple.