Jobs, Spindler amongst those named in Apple investor suit
EXCLUSIVE: Apple CEO Steve Jobs, former Apple CEO Michael Spindler as well as other high-profile company execs are named in the most recent investor lawsuit over stock option grant irregularities and may be forced to return the monies they made from grants received as part Apple's executive stock compensation plan, if the lawsuit is successful.
The 23-page complaint, filed last month in the United States District Court for the Northern District of California on behalf of all Apple investors, alleges that company executives and directors colluded to backdate stock options in order to maximize the return on their options, breaching their fiduciary duties to the company and causing the company millions in losses.
Details of the lawsuit, which were exclusively obtained by AppleInsider this week, reveal that the allegations extend to the highest management levels, including former Chief Financial Officer and current board member Fred Anderson, iPod chief Jon Rubinstein, former Chief Technology Office Avi Tevanian, current Vice President of Retail Operations Ron Johnson, and current Executive Vice President and Chief Operating Officer Tim Cook. It also names as defendants all members of Apple's current Board of Directors, with the exception of Former Vice President of the United States Albert Gore, Jr.
In total, the lawsuit alleges that 18 executives and directors manipulated the option grant dates of certain stock options to maximize their own profits from the company's stock compensation plan, violating Generally Accepted Accounting Principles as well as its own shareholder-approved stock plan. Upper management also, it claims, intentionally provided false documentation to the Securities and Exchange Commission. Similar allegations against executives in other companies have been raised by investor lawsuits and SEC investigations, according to the lawsuit.
Court documents obtained by AppleInsider reveal that the suit cites a recent analysis and investigation by The Wall Street Journal that describes similar stock option backdating practices by companies such as KLA Tencor, Comverse Technology, Vitesse Semiconductor, and Affiliated Computer Services.
The Apple investor lawsuit provides details on over a dozen stock option grant exercises by unspecified individuals in Apple's upper management from 1993 through 2001, claiming that the stock grant option dates were retroactively changed to provide the highest compensation for the company's executives.
Questionable Apple Stock Option Grants by Name
In an article dated March 18, 2006, the Journal claimed that similar and apparently "fortuitous" patterns of stock option grant strike prices at Vitesse were unlikely due to chance, but a result of backdating -- a conclusion which the Journal supported by its own analysis, saying that the chances of such a pattern emerging was around one in 300 billion, or about twice as unlikely as winning a multi-state Powerball lottery.
The Apple investor suit claims that similar "extraordinarily remote" patterns are seen when looking at Apple's own financial records. "In a striking pattern that could not have been the result of chance, each and every one of the foregoing stock option grants was dated just after a sharp drop and just before a substantial rise in Apple's stock price," the suit reads.
It compares the stock prices of executive stock option grants between the years of 1993 and 2001, looking at the stock prices 10 days before and 10 days after each option grant date. The results are more than fortuitous, the suit claims. The data shows a remarkable pattern of all gains -- between 1.5 percent and nearly 50 percent on the series of grants. None of the exercised option grants showed a loss within the first 10 days after each grant date, indicating that stock was always exercised before a peak in stock price.
Questionable Apple Stock Option Grant Performance
"The odds that the pattern of the fortuitously-timed stock option grants exhibited by Apple is the result of chance are similar to, if not greater than, the one in several billion or more odds described by the The Wall Street Journal," the plaintiffs allege in their complaint. "The actual reason for the extraordinary pattern exhibited by Apple was that the Office Defendants' stock options were improperly backdated."
The lawsuit seeks to recover the "millions of dollars of damages" sustained by the company as a result of the backdating, the proceeds gained by the individual defendants who received the grants, the plaintiffs' legal fees and any further relief the Court deems proper.
Board is not impartial
The suit also alleges that Apple's current seven-member Board is unable to act as independent oversight committee for investigation and prosecution of alleged breaches of fiduciary duty. It contends that six of the seven board members -- all except former United States Vice President Al Gore -- are not "disinterested" parties, as many of them have participated in the backdating either as part of the company's Compensation Committee (Campbell, Drexler, Levinson, and York) or Audit Committee (Campbell, Levinson, and York) or are directly affected by the stock option grants (Jobs and Anderson), or have approved false documentation to the SEC (Anderson, Campbell, Drexler, Jobs, Levinson, and York).
On June 29th, less than 24 hours before the suit was filed, Apple issued a press release stating that an internal investigation had discovered irregularities related to the issuance of certain stock option grants made between 1997 and 2001.
"Apple is a quality company, and we are proactively and transparently disclosing what we have discovered to the SEC," said Apple CEO Steve Jobs. "We are focused on resolving these issues as quickly as possible."
Specifically, the aforementioned suit also names Senior Vice President Guerrino De Luca, and former company officers, including Ian Diery, James J. Buckley, Daniel L. Eilers, G. Frederick Forsyth, Robert Calderoni and Mitchell Mandich.
A separate but similar suit filed on July 5th in the Superior Court of California for the County of Santa Clara names 17 defendants, including Steve Jobs, Larry Ellison, Peter Oppenheimer, and Al Gore.
The 23-page complaint, filed last month in the United States District Court for the Northern District of California on behalf of all Apple investors, alleges that company executives and directors colluded to backdate stock options in order to maximize the return on their options, breaching their fiduciary duties to the company and causing the company millions in losses.
Details of the lawsuit, which were exclusively obtained by AppleInsider this week, reveal that the allegations extend to the highest management levels, including former Chief Financial Officer and current board member Fred Anderson, iPod chief Jon Rubinstein, former Chief Technology Office Avi Tevanian, current Vice President of Retail Operations Ron Johnson, and current Executive Vice President and Chief Operating Officer Tim Cook. It also names as defendants all members of Apple's current Board of Directors, with the exception of Former Vice President of the United States Albert Gore, Jr.
In total, the lawsuit alleges that 18 executives and directors manipulated the option grant dates of certain stock options to maximize their own profits from the company's stock compensation plan, violating Generally Accepted Accounting Principles as well as its own shareholder-approved stock plan. Upper management also, it claims, intentionally provided false documentation to the Securities and Exchange Commission. Similar allegations against executives in other companies have been raised by investor lawsuits and SEC investigations, according to the lawsuit.
Court documents obtained by AppleInsider reveal that the suit cites a recent analysis and investigation by The Wall Street Journal that describes similar stock option backdating practices by companies such as KLA Tencor, Comverse Technology, Vitesse Semiconductor, and Affiliated Computer Services.
The Apple investor lawsuit provides details on over a dozen stock option grant exercises by unspecified individuals in Apple's upper management from 1993 through 2001, claiming that the stock grant option dates were retroactively changed to provide the highest compensation for the company's executives.
Questionable Apple Stock Option Grants by Name
In an article dated March 18, 2006, the Journal claimed that similar and apparently "fortuitous" patterns of stock option grant strike prices at Vitesse were unlikely due to chance, but a result of backdating -- a conclusion which the Journal supported by its own analysis, saying that the chances of such a pattern emerging was around one in 300 billion, or about twice as unlikely as winning a multi-state Powerball lottery.
The Apple investor suit claims that similar "extraordinarily remote" patterns are seen when looking at Apple's own financial records. "In a striking pattern that could not have been the result of chance, each and every one of the foregoing stock option grants was dated just after a sharp drop and just before a substantial rise in Apple's stock price," the suit reads.
It compares the stock prices of executive stock option grants between the years of 1993 and 2001, looking at the stock prices 10 days before and 10 days after each option grant date. The results are more than fortuitous, the suit claims. The data shows a remarkable pattern of all gains -- between 1.5 percent and nearly 50 percent on the series of grants. None of the exercised option grants showed a loss within the first 10 days after each grant date, indicating that stock was always exercised before a peak in stock price.
Questionable Apple Stock Option Grant Performance
"The odds that the pattern of the fortuitously-timed stock option grants exhibited by Apple is the result of chance are similar to, if not greater than, the one in several billion or more odds described by the The Wall Street Journal," the plaintiffs allege in their complaint. "The actual reason for the extraordinary pattern exhibited by Apple was that the Office Defendants' stock options were improperly backdated."
The lawsuit seeks to recover the "millions of dollars of damages" sustained by the company as a result of the backdating, the proceeds gained by the individual defendants who received the grants, the plaintiffs' legal fees and any further relief the Court deems proper.
Board is not impartial
The suit also alleges that Apple's current seven-member Board is unable to act as independent oversight committee for investigation and prosecution of alleged breaches of fiduciary duty. It contends that six of the seven board members -- all except former United States Vice President Al Gore -- are not "disinterested" parties, as many of them have participated in the backdating either as part of the company's Compensation Committee (Campbell, Drexler, Levinson, and York) or Audit Committee (Campbell, Levinson, and York) or are directly affected by the stock option grants (Jobs and Anderson), or have approved false documentation to the SEC (Anderson, Campbell, Drexler, Jobs, Levinson, and York).
On June 29th, less than 24 hours before the suit was filed, Apple issued a press release stating that an internal investigation had discovered irregularities related to the issuance of certain stock option grants made between 1997 and 2001.
"Apple is a quality company, and we are proactively and transparently disclosing what we have discovered to the SEC," said Apple CEO Steve Jobs. "We are focused on resolving these issues as quickly as possible."
Specifically, the aforementioned suit also names Senior Vice President Guerrino De Luca, and former company officers, including Ian Diery, James J. Buckley, Daniel L. Eilers, G. Frederick Forsyth, Robert Calderoni and Mitchell Mandich.
A separate but similar suit filed on July 5th in the Superior Court of California for the County of Santa Clara names 17 defendants, including Steve Jobs, Larry Ellison, Peter Oppenheimer, and Al Gore.
Comments
if the dates are reset (to 10 days later) to unwind any fraud,
that would be a dozen million shares or so (sjobs 20M was rescinded),
with say, $5 per share edge, or $60M. this doesn't seem
material to earnings. however, is there some sort of
treble damages to SEC if this is proven?
does any recovery (whether or not there is legal indemnification
for board members) distribute evenly to shareholders?
my guess is that, as usual, lawyers profit the most.
nonetheless, since AAPL legal signs off on all this, where is
ms. nancy heinen now that we need her? oops.
saying that the chances of such a pattern emerging was around one in 300 billion, or about twice as unlikely as winning a multi-state Powerball lottery.
Does that assume random choices in options pricing? It seems reasonable that after a sharp drop in stock price, a board that is confident in the future of the company could choose to award options. I'd analyze how many options were given after sharp drops, and then the stock dropped even further. And how many were not awarded after sharp drops.
I'm not saying it was all kosher, but I think the 1 in 300 billion chance might be a bit of hyperbole.
There's also the entirely separate question of whether even trying to get a low price for options is a shareholder friendly thing to do. Is that in the best interests of the owners of the company?
It certainly bears looking at further, but I don't think it's as simple as the article makes it seem (with the evidence it presents).
Originally posted by ascii
Let's keep the context here: this was money that they made in the first place. So if they have been diddling the dates, it was only to get money they are morally entitled to anyway.
They aren't personally entitled to money they made. They owe it to the entity they made that money for, and thus the stockholders.
Originally posted by ascii
Let's keep the context here: this was money that they made in the first place. So if they have been diddling the dates, it was only to get money they are morally entitled to anyway.
Huh? They may be entitlted to the price of the stock on the date of the option issue, but I don't see anything that says they were entitled to change the issue date of the option date at will, after they've been issued.
Originally posted by ascii
Let's keep the context here: this was money that they made in the first place. So if they have been diddling the dates, it was only to get money they are morally entitled to anyway.
Originally posted by ThinkingDifferent
Spindler should be sued...
Herein lies the root problem with America today. The more I hear talk of any sort of lawsuit, the more I think people/companies who sue (and the thieving lawyers who feed off them) should be locked up. The more out of control these lawsuits get, the fewer freedoms Americans will have to enjoy.
Life is hard. A two wrongs don't make a right. Just because you were wronged doesn't mean you have to use my tax money via the courts to make it right again. People need to learn how to take a few punches on the chin before running off to the courts screaming bloody murder.
(And yes, by the way, I am indeed an AAPL shareholder -- one who holds no ill will against the Apple executives named in this case.)
Originally posted by JDW
Herein lies the root problem with America today. The more I hear talk of any sort of lawsuit, the more I think people/companies who sue (and the thieving lawyers who feed off them) should be locked up. The more out of control these lawsuits get, the fewer freedoms Americans will have to enjoy.
Life is hard. A two wrongs don't make a right. Just because you were wronged doesn't mean you have to use my tax money via the courts to make it right again. People need to learn how to take a few punches on the chin before running off to the courts screaming bloody murder.
(And yes, by the way, I am indeed an AAPL shareholder -- one who holds no ill will against the Apple executives named in this case.)
I disagree - the few lawsuits that occur deter a much larger amount of corporate crime.
Originally posted by e1618978
the few lawsuits that occur...
"few"? We are both speaking about the United States, right?
"Slip-and-fall? Call John Riley. John Riley got me $356,000 for just one accident."
While not every case is composed of such utter foolishness, the fact is that frivolous suits are a natural result of a sue-happy country.
...deter a much larger amount of corporate crime.
If that were true, there would be no case against Apple because lawsuits should have deterred such a thing from happening in the first place. Or taking it a step further, we might envision a news article in the future which states, "Under the ominous threat of legal action, Americans at long last forge a utopian society."
The fact is though that such suits are not a deterrent any more than increasing the number of police will be a cure for murder. Frivolous legal action only works to drive some crimes underground, increase the cost of everything, and make the common man think the only way to solve his problems in life is to go to court (or "settle" out of court with some blood-sucking lawyer). And even if you could point to a few cases that have brought a superficial good to someone or some company, that little bit of good doesn't outweigh the great amount of bad that comes to society from these nutty lawsuits.
Again, what's so bad about being wronged once and a while? Exhibit a little patience and grin-and-bear-it. Life isn't perfect. But sadly, most people who initiate a battle in court somehow think they can make life a little better.
The willingness to sue in society directly reflects the ethics and morals of that society.
Originally posted by JDW
The willingness to sue in society directly reflects the ethics and morals of that society.
Yes, it shows a society that believes that fairness is not determined by who has the most money or power. Furthermore, it shows a society that is actively interested in setting right as best as possible the wrongs one person does to another.
Originally posted by rasnet
Yes, it shows a society that believes that fairness is not determined by who has the most money or power.
You are speaking of the ideal case for why courts are needed and why they were created. America is not ideal, and I dare say you will not find many who will say America is a "completely fair nation." Most often, those with the most money hire the best lawyers to get them cleared of whatever charges are thrown against them. It wasn't always that way, but it is today. In the ideal case (of which you speak) the poor and innocent will find protection in the courts. To wish for the ideal case is laudable, but it is not reality in our modern society, unfortunately.
But real justice does not emanate from a judicial system, as shocking as that may sound. Real justice comes when the majority of people can discern for themselves right and wrong, and act accordingly. But because many Americans lack even the most general sense of right and wrong, numerous injustices abound and people find themselves longing for what they deem an easy escape (rather than turning the other cheek) -- that "escape" being the courts.
In Japan, there are relative few lawyers (and a proportionally lower number of lawsuits too) due to the culture and ethics of the Japanese. Most Japanese would rather not go to court even if they stand to win. Why? Because neither party is a true winner in the eyes of Japanese society when they go to court. Both parties are treated with some level of suspicion in Japan. Hence, there are few frivolous lawsuits in Japan (relative to the US).
This goes back to my point of "the willingness or eagerness to sue" being rooted deeply in culture. The fact there are so many apologists for suing in this thread simply reflects the state of the nation in the United States -- most Americans think there is nothing wrong with going to court when the need arises. My stance is, "life is hard, grin and bear it, keep the courts as the LAST of all last resorts."
Originally posted by rasnet
They aren't personally entitled to money they made. They owe it to the entity they made that money for, and thus the stockholders.
I think this is largely good statement within the context of asking for Apple to begin paying out dividends. I myself would never use such a statement as a defense of this lawsuit though.
The fact is, Apple now has the money to pay dividends and I think they should give it some serious consideration. I don't think Apple should pay dividends only because some people think they are greedy corporate evildoers. Rather they should do it because It would bring more value to the stock, and that interests me as an AAPL shareholder.
Originally posted by JDW
But real justice does not emanate from a judicial system, as shocking as that may sound. Real justice comes when the majority of people can discern for themselves right and wrong, and act accordingly. But because many Americans lack even the most general sense of right and wrong, numerous injustices abound and people find themselves longing for what they deem an easy escape (rather than turning the other cheek) -- that "escape" being the courts.
Judicial systems emanate from justice. The civil courts certainly don't get everything right every time, but they do try and do a pretty good job. If it were about the most money and the best lawyers, doctors, tobacco companies, and computer executives would almost always win and no one would be crying foul about all the "frivolous" lawsuits. The courts aren't an escape. They are a form of arbitration.
In Japan, there are relative few lawyers (and a proportionally lower number of lawsuits too) due to the culture and ethics of the Japanese. Most Japanese would rather not go to court even if they stand to win. Why? Because neither party is a true winner in the eyes of Japanese society when they go to court. Both parties are treated with some level of suspicion in Japan. Hence, there are few frivolous lawsuits in Japan (relative to the US).
Neither party is a winner in the eyes of the American courts either. It's not about "winning" and the view that it is has contributed to some of what is wrong with both civil and criminal courts. As I said, lawsuits are about setting a wrong right. It's as simple as that.
This goes back to my point of "the willingness or eagerness to sue" being rooted deeply in culture. The fact there are so many apologists for suing in this thread simply reflects the state of the nation in the United States -- most Americans think there is nothing wrong with going to court when the need arises. My stance is, "life is hard, grin and bear it, keep the courts as the LAST of all last resorts."
Life is hard, and there are a lot of instances where there's nothing you can do about it. Things go wrong, and you deal with it. However, there are also a lot of cases where things go wrong and it's someone's fault. Within certain constraints (reasonable man, in particular), shouldn't you be responsible for correcting the wrongs you do to others?
Originally posted by rasnet
...shouldn't you be responsible for correcting the wrongs you do to others?
Yes. Outside the courts, where ever possible!