In August 1997, Apple Computer Inc. handed four top executives options to buy a total of nearly 1 million shares. The next day, the value of those options jumped a staggering 48%, or $7.7 million.
This was no coincidence, according to a shareholder lawsuit filed against executives and directors of the Cupertino, Calif.-based company in federal court in Northern California. Rather, the options were granted to coincide with good news that would give the four executives an overnight windfall.
The stock soared when co-founder Steve Jobs announced that Apple's sworn enemy, Microsoft Corp., threw the struggling company a life raft in the form of a $150-million cash infusion. In exchange, Apple gave Microsoft a stake in the company and agreed to use the software giant's Web browser on its Mac personal computers.
The investment rocked the high-tech world at the time but became only a footnote in the astonishing comeback of a company as celebrated today for its marketing and design prowess as Nike, Prada or Mercedes-Benz.
But the grants are an example of the fast-and-loose practices that went unchecked in a corporate culture fashioned by Jobs to revive Apple, which by 1997 was hemorrhaging money, according to the lawsuit, a combination of 11 shareholder complaints.
"The company was struggling, was cash-poor and reliant upon stock options to bring and keep executives there, so the conditions [for manipulation] were ripe," said Mark Molumphy, a partner at Cotchett, Pitre, Simon & McCarthy, the lead law firm in the case.
Apple declined to comment on the lawsuit.
Filed days before Christmas, it alleges that Apple engaged in widespread manipulation of option grants to allow employees to buy shares at low prices. Apple "spring-loaded" options in advance of good news and "backdated" other grants to days when the stock traded at low prices to create an automatic paper profit, claims the suit, which has only recently come to light.
"What they've done -- and it's not isolated -- is utilized confidential internal corporate data in a way to divert to themselves substantial profits," said Darren Robbins, a San Diego lawyer involved in the shareholder lawsuit. "That constitutes both a breach of fiduciary duty and a violation of federal securities law."
