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U.S. investigating options grant to Apple CEO

Federal investigators are still examining whether any of the accounting shenanigans at Apple rose to the level of criminal behavior, according to a news report, even though the company has cleared CEO Steve Jobs and all current executives of any wrongdoing in an internal stock options backdating probe.
/ Source: The Associated Press

Federal investigators are still examining whether any of the accounting shenanigans at Apple rose to the level of criminal behavior, according to a news report, even though the company has cleared CEO Steve Jobs and all current executives of wrongdoing in an internal probe.

Federal authorities are actively investigating the circumstances surrounding one award to Jobs for options on 7.5 million shares, an award that carried a false October 2001 date when it was approved in December of that year, The Wall Street Journal reported Friday, citing anonymous sources.

The Journal also reported that investigators with the U.S. Attorney's office in San Francisco and the Securities and Exchange Commission are trying to question a former Apple Inc. lawyer, Wendy Howell, who was in charge of stock-option administration and was quietly dismissed last month.

Howell is believed to have falsified documents related to Jobs' grant, the Journal reported, citing the anonymous sources. Her lawyer, Thomas Carlucci, did not immediately return a phone call from The Associated Press early Friday.

Apple has said its internal probe revealed "serious concerns" about the actions of two former Apple employees in connection with improperly accounted stock options grants. Those people are reportedly Fred Anderson, the former chief financial officer, and Nancy Heinen, former general counsel.

Defense lawyers for Anderson and Heinen have both said their clients did not knowingly participate in any manipulation of the awards.

The latest revelations about the federal probe appear to ratchet up the pressure on Jobs and Apple at one of the most prosperous times for the company and raise further questions about Jobs' future.

Apple's stock has been trading at all-time highs this week after Jobs unveiled one of company's most important and widely hyped product in years — the iPhone.

Jobs' dramatic introduction of the multimedia gadget led to a trademark-infringement lawsuit from Cisco Systems Inc., which has owned the trademark on the name "iPhone" since 2000 and began shipping its own line of iPhone-branded Internet-enabled phones last spring.

Though the lawsuit could wind up costing Apple millions of dollars and possibly the loss of the iPhone name, investors and analysts have cheered Apple's announcement of the sleek iPod-cellular phone combination.

Investors sent the company's stock to a high of $97.80 on Thursday, creating more than $10 billion in additional shareholder wealth at the stock's peak, compared with its price before the announcement. The stock has retreated slightly.

Charles Golvin, principal analyst with Forrester Research Inc., said investors and consumers want Jobs to stay with the company. It would likely take a dramatic turn such as criminal charges against Jobs or evidence of deep involvement in any manipulation to cause his ouster, Golvin said.

"The market has spoken — the market wants Steve Jobs to be the head of Apple," Golvin said. "They are more concerned about the loss of him as the leader of the company than they are about any options manipulation or anything like that. And the market speaks correctly — the risk to Apple of this scandal causing him to leave would be devastating."

Apple said two weeks ago that an internal investigation exonerated Jobs and members of the company's current management team of any wrongdoing involving improperly accounted stock-options awards.

The internal investigation looked at 42,077 stock-option grants made on 259 dates between October 1996 and January 2003. Of those, 6,428 grants on 42 dates were not dated properly, Apple said.

Apple said that Jobs was aware of or recommended the selection of some favorable grant dates, but that he neither benefited financially from them nor "appreciated the accounting implications."

Apple has already acknowledged that the grant to Jobs, which is at the heart of the federal investigation, was improperly accounted for.

The grant was improperly dated Oct. 19, 2001, with an exercise price of $18.03, instead of the correct date of Dec. 18, when Apple shares were trading at $21.01.

Apple said Jobs did not cash in on those options — the difference between the prices could have boosted his award by about $22 million — and surrendered that grant and another earlier grant in exchange for millions of shares of stock.

Apple took a retroactive $20 million charge to earnings when the backdating was discovered in the internal investigation.

While Jobs did not gain directly from the options that he surrendered, he profited handsomely by selling more than 4.5 million shares of the stock he was granted in return, regulatory filings show.

Jobs sold the shares on March 19, 2006 for more than $295.7 million, and still owns more than 5.5 million Apple shares, potentially worth more than $500 million.

An Apple spokesman said he had no comment on the newspaper report, but said the company is "proactively" providing information to federal investigators about their internal investigation. A spokesman for the U.S. Attorney's office also could not immediately be reached.