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Apple Probing Option Grants

Markets

June 30, 2006|From Bloomberg News

Apple Computer Inc. on Thursday became one of the biggest U.S. companies to concede that it might have manipulated stock option grants to benefit executives, including Chief Executive Steve Jobs.

The Cupertino, Calif.-based company said it started an investigation of grants made from 1997 to 2001, including one awarded to Jobs.

Also Thursday, accounting software company Intuit Inc. said it received a subpoena from the Justice Department regarding option-grant practices.

The disclosures bring the number of companies that have announced possible stock option irregularities to almost 60. Investigators are trying to determine whether companies inflated the value of stock options awarded to senior executives by backdating or timing the grants to coincide with days when the stock price was low.

Given Apple's size, "For them to be potentially implicated definitely raises the profile of the scandal," said Todd Fernandez, an analyst at Glass, Lewis & Co., an investment research firm in San Francisco.

Apple said it notified the Securities and Exchange Commission and hired independent counsel to perform its investigation.

The company said the grant awarded to Jobs was subsequently canceled and didn't result in a financial gain.

"Our internal investigation was undertaken in response to general industry concerns about historical options-granting processes at a number of companies," an Apple spokesman said.

With so many option investigations underway, virtually all companies are trying to confirm that they did not grant suspicious options and are not doing so now, said David Larcker, an accounting professor at Stanford University's Graduate School of Business in Palo Alto.

Apple is "a huge company and one of the stars" of Silicon Valley, Larcker said. "Every company in the valley is going back and reviewing their procedures and looking at some of these situations. I would say it's a nervous time."

Mountain View, Calif.-based Intuit, maker of TurboTax and Quicken software, said it received a subpoena from the U.S. attorney for Northern California. The company said it would cooperate fully with the U.S. attorney.

Intuit disclosed June 9 that the SEC had begun an informal inquiry into its options practices.

Should the stock option scandal extend to companies the size of Apple, Congress might feel compelled to step in, said Richard Howe, an executive compensation attorney at law firm Sullivan & Cromwell.

"It's sort of like Enron," whose downfall led Congress to pass the Sarbanes-Oxley corporate reform law of 2002, Howe said. "Something comes out and we get new legislation."

Apple and Intuit made their announcements after regular stock trading ended. Their shares then dropped in late trading. During the regular session, Apple climbed $2.95 to $58.97 and Intuit rose 83 cents to $60. In after-hours trading, Apple slid to $57.30 and Intuit fell to $58.93.

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