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Summary:

Ryan Block has an awesome post on Apple Phone and why everyone wants one. He puts the odds of an Apple Phone launch at the MacWorld pretty low. Perhaps he is right, though I think it is perfect time to launch one, and divert attention, from […]

Ryan Block has an awesome post on Apple Phone and why everyone wants one. He puts the odds of an Apple Phone launch at the MacWorld pretty low. Perhaps he is right, though I think it is perfect time to launch one, and divert attention, from company’s current problems relating to the backdating of options.

Apple and Steve Jobs are caught up in a maelstrom that has landed them on the front page of The Wall Street Journal. This is the kind of story that leads to other negative headlines, and a bearish sentiment on Wall Street, leading to a decline in the stock price. And when that happens, the proverbial shine is off the Apple.

More importantly, it can tarnish the haloed Apple brand, that is finally beginning to get traction with the mainstream consumers, a remarkable achievement for a company that has thus far been propped up by Mac enthusiasts.

To recap, this is essentially what happened. Jobs was granted 7.5 million options on October 19, 2001 at a so-called special meeting of board of directors. The meeting actually never happened, an internal investigation showed. Instead, the investigation shows that options were approved on August 29 at an exercise price of $17.83.

The terms of the grant were not finalized till December 18, 2001 when the stock price was $21.01 a share. The grant was back dated to October 19, 2001 with an exercise price of $18.30 a share. The discrepancy between $21.01 and $18.30 works out to about $20.32 million. Hence Apple is taking a $20 million charge. Later, In 2003, Jobs traded those 2001 and 2000 options for five million shares of restricted stock, worth about $70 million at the time.

This backdating stuff isn’t something authorities take lightly, and they are going after CEO types pretty aggressively. Ask Gregory Reyes, former CEO of Brocade Communications, who is facing two criminal cases brought against him by the federal prosecutors.

“I can’t understand why they’re [the board] not recouping those shares,” Patrick McGurn, executive vice president of Institutional Shareholder Services said, adding that the cloud hanging over Apple isn’t cleared by the filing because “there’s a risk though that some other body [of regulators or others] will reach a different conclusion about this matter based on exactly the same set of facts.”

Wall Street Journal story does a masterful job of weaving spin (of the post-1990s bubble vintage), finger pointing and liberally peppers it with with quotes from options experts – all of it adding up to the old adage… something’s up!

How the cards will fall, only time can tell. One thing is for sure – this is not the last you have not heard the last of it. SEC and other investigators are looking for a high profile case. Apple and Jobs just might have given them that. While an Apple Phone (or iTV or any new gizmo) is not going to help ward off the maurading hordes from Washington (unless a quick “one phone call becomes necessary”), it would help restore some sheen to the company, and keep the stock flying high.

  1. It won’t be a factor. Old news within couple months. That’s my bet.

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  2. Does the average consumer care/know?

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  3. Well if it keeps showing up on the front page of your local newspaper, the average consumer would care.

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  4. So Apple takes a $20m charge for worthless options. That’s why options expesning is so lame until a decent valuation scheme is produced. Black/Scholes clearly doesn’t work for employee options.

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  5. I think that tying the options things to product launches is a strange thing. Apple is certainly a very savvy marketing company, and they have handled this thing quite well. But Apple is a products company and they have more or less resolved the options thing.

    The press talking about it won’t have any effect on sales or on any product launches.

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  6. RT @stevetomasco: Why it’s so hard to talk about cloud http://t.co/PpZHv2QZ…; good take, we’re really just gettn started on…

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  7. RT @stevetomasco: Why it’s so hard to talk about cloud http://t.co/OuJhX4d6…; #ibmcloud

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  8. RT @RiaHyman: RT @stevetomasco: Why it’s so hard to talk about cloud http://t.co/PpZHv2QZ…; good take, we’re really just gettn started on…

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  9. RT @ivankamenken: @mattberan http://t.co/ArxFYicH… here it is again.. >> My response to this article http://t.co/OsYzzduQ

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