Will the dust settle on the Apple stock options backdating scandal, or will it envelope and bring down Steve Jobs? That’s the thrust of coverage this week as the former Apple CEO Fred Anderson settled his case with the SEC over backdating options, with little more than a slapped wrist and then went straight after Jobs, publicly accusing him of giving the order.
While you’d expect someone who had been left in the lurch to hang, to be a little upset, and want to blame someone else, it is now a matter of whether or not this is letting off steam or whistle blowing which the SEC takes seriously.
Interestingly, stock option backdating was a widespread US practice until the crackdown was started by the SEC and Jobs got himself embroiled in the scandal. So far he has said nothing on the subject and his own shares are not at issue. Backdating options to a date when the share price is at its lowest means that the option obtains more value at the vesting point. If there has been no reporting period between that date and the issue date, it is hard to see exactly when an option was granted since paperwork is filed retrospectively, often by several months.
Let’s look at this very clearly. The SEC is there to protect investors. How many Apple investors would be happy to see Jobs forced to resign for any matter, never mind public accusations that have been made by someone that has already resigned and who has taken the fall. Never has a CEO been so intimately connected to each of the decisions that a company makes about its products and market as Jobs is.
A resignation by Jobs would cause the share price to go into free fall, it would trigger multiple class actions and result in a continued spiral and panic sell off. Potentially it could crash the tech sector single handedly and that might even have a strong enough effect to lead the US market into recession, although that’s pretty unlikely.
The message would be that if Jobs can be targeted by something that is the responsibility of the CFO, and if this is a widespread as the SEC seems to accept, then nobody is safe. Our take is that unless Anderson can produce signed documents (which he will have already produced) saying that Job authorized the backdating, then the SEC will be unlikely to chase Jobs, especially given that Anderson has not been prohibited from continuing to serve as the CFO of a US public company or from any other financial role.
Anderson claims to have warned Jobs that backdating options might create an accounting charge. US news paper reports say that Anderson paid the SEC a $150,000 fine and had to pay back around $3.5 million of his option grants.