Wall Street Unmoved By Apple Stock Troubles - InformationWeek

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Wall Street Unmoved By Apple Stock Troubles

Wall Street on Thursday was unshaken by Apple's admission of its mishandling of stock options and its disclosure that chief executive Steve Jobs knew about some of the irregularities.

Wall Street on Thursday was unshaken by Apple's admission of its mishandling of stock options, and its disclosure that Chief Executive Steve Jobs knew about some of the irregularities.

Apple stock remained relatively stable the day after the Cupertino, Calif., computer maker announced that an internal investigation found that stock option grants made on 15 dates between 1997 and 2002 appeared to have dates that preceded the approval of the grants. Such a practice, called backdating, retroactively grants options on dates when a company's stock price is relatively low, maximizing the potential profits for the option holder. Depending on the circumstances, the practice could be illegal.

Apple stock price ranged throughout the day between a low of $74.13 and a high of $76.16 on the Nasdaq Stock Exchange. The stock had closed at $75.13 on Wednesday. The lack of movement indicated that Wall Street didn't believe Jobs was in any danger of being ousted. Jobs has been credited with Apple's resurgence over the last few years and is the creative force behind the company.

"At this particular point, it would seem virtually impossible that the level of activity we've seen so far is enough to remove Steve," Rob Enderle, analyst for the Enderle Group, said.

While the company acknowledged that Jobs was aware that dates on grants in a few instances were changed, he did not receive, or benefit from, these grants. Jobs was also unaware of the accounting implications, according to the company.

Enderle said these facts, assuming they are true, would make it highly unlikely Apple's board would need to force out Jobs.

"I don't see this having any impact on Steve long term," Enderle said. "It's going to be a distraction for a short period of time, but I don't see it going beyond that."

Nevertheless, the case won't be officially closed until federal regulators and prosecutors make a final determination. Quoting a person familiar with the matter, The Wall Street Journal reported Thursday that federal prosecutors in San Francisco were investigating Apple's stock option practices. In addition, an Apple attorney met with securities regulators and prosecutors on Tuesday, the newspaper said.

The U.S. Attorney's Office did not have an immediate comment on the report. Apple late Wednesday said it had told the Securities Exchange Commission about its findings, which prompted the resignation of board member Fred Anderson, Apple's former chief financial officer. Anderson said he was leaving because he believed it was in the best interests of the company. Anderson served as CFO from 1996 to 2004.

In a statement included in the company announcement, Jobs was contrite, saying, "I apologize to Apple's shareholders and employees for these problems, which happened on my watch." He also said that he would work toward resolving the problems, and to put "the proper remedial measures in place to ensure that this never happens again."

Apple is not the only company connected with Jobs that has run into trouble with stock option irregularities. Jobs was a board member of Pixar Animation Studios at a time when top executives of the company co-founded by Jobs received favorably priced options, the Journal reported. Jobs never received options from Pixar, which was sold to Walt Disney Co. this year.

Apple, Pixar and scores of other companies, most of them in the high-tech industry, have come under scrutiny by the SEC for reporting of stock option grants.

While a few may eventually be found guilty of wrongdoing, Enderle believes the problem in the majority of the cases lies with federal accounting rules that aren't "clear enough."

"The fact is a majority of these cases have been a misunderstanding of the rules," he said.

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