Analysts and former securities regulators said Apple Computer not stand out as an egregious example of stock option backdating, despite options temporarily granted to Chief Executive Steve Jobs in 2000 at a six-month low.
Apple announced Thursday that an internal probe had uncovered irregularities in its stock option grants between 1997 and 2001, but it did not mention an outside investigation.
“Our internal investigation was undertaken from general industry concerns,” Apple spokesman Steve Dowling said in an interview.
A widening stock option probe has embroiled dozens of companies. The investigation by federal prosecutors, the U.S. Securities and Exchange Commission and the Internal Revenue Service centers on possible manipulation of options to maximize executives’ returns.
The flurry of company disclosures has had analysts and class action litigators scrambling in recent weeks to examine other companies for possible problems. Experts said Apple was largely passed over because researchers were hunting for companies with suspicious patterns of stock option grants that lacked a rational explanation.
Apple’s stock volatility, management changes and high profile didn’t necessarily fit the mold of a company that would engage in backdating, they said.
One analyst, speaking anonymously before Apple’s announcement, said he would be shocked if the company were implicated in the option backdating scandal.
“Steve Jobs is a founder. He has all the cheap stock in the world,” he said. “It doesn’t make sense in that instance.”
In its announcement, Apple said one of the grants in question was to Jobs, but it resulted in no financial gain for Jobs. The options were canceled and replaced with restricted stock in 2003.
Todd Fernandez, a senior research analyst at investment research firm Glass Lewis & Co. who has looked at Apple options, said the reference is likely to a grant dated Jan. 12, 2000.
SEC documents show Jobs was awarded 10 million stock options on that date at an exercise price of $87.1875 per share, near the $87.19 closing price for Apple stock that day. The price represents a low for 136 consecutive trading days straddling the grant date and a low for the 46 trading days prior to the grant date.
Backdating is when options are granted after a rally in the market price of the underlying stock, but the options are given a grant date and exercise price from before the rally. The practice boosts the value of the options to their recipients.
While not illegal on its face, it can be considered fraud when a company does not properly disclose it or does not properly account for it as compensation to the executive.
SEC documents show Apple granted a number of options at 40-day lows before post-Enron Sarbanes-Oxley reform laws went into effect in 2002, requiring companies to disclose option grants within 48 hours and limiting backdating opportunities.
On Oct. 26, 2000, the company granted 200,000 stock option grants at $18.50 to Corporate Controller Peter Oppenheimer, and 300,000 stock option grants at $18.50 to Senior Vice President Ronald Johnson.
The exercise price, also that day’s closing stock price, represented a low over at least the previous year.
Another large grant during a low over a significant period occurred on Dec. 14, 2001, when Oppenheimer got 100,000 stock options at a strike price of $20.39, that day’s closing price and a low over at least a 6-month time period.
But during the time period Apple highlighted in its statement, the company granted options on other dates that didn’t represent lows or were lows over only short spans of time.
Fernandez said Apple didn’t necessarily raise analysts’ suspicions as other companies did because many of Apple’s option grants were dated at lows over short periods.
“If you’re looking at tech stocks, especially around the late 90s, over a 40-day period, there’s going to be volatility,” Fernandez said. “It’s going to create too many false positives looking at a small period.”
A former SEC official also said Apple’s options might have escaped some scrutiny because irregularities could have been explained by volatility linked to management uncertainties.
“I remember Apple going through a tough time before Jobs came back in 2000,” he said
Jobs officially took on the title of CEO in 2000.