Steve Jobs, saved by the rising stock

Thursday will mark a red-letter day for Apple: For the first time its stock will rise above $100 a share, a tenfold increase in a little more than three years. Think about that: If Google had risen that much since its IPO, it would be trading at $850.

Apple’s stock was trading at $102 in aftermarket trading Wednesday, a 7% surge above its formal closing price of $95.35. Unless something big happens overnight, Apple’s stock is likely to see a similar jump Thursday.

And why not? The company posted a net profit of 87 cents a share. That’s 85% above the 47 cents a share in the year-ago quarter and 36% above the consensus forecasts among analysts. This is a textbook case in a blowout earnings report and reason to wonder why analysts bother with Apple estimates.

Unfortunately, the success will also probably keep CEO Steve Jobs from facing deeper scrutiny for the company’s backdating scandal, an omission of clarity that could cause harm far beyond Cupertino.

The future looks just as bright. Sales for Mac products were up 36% year over year, substantially faster growth than in iPods and iTunes, which were up 25%. Apple is successfully broadening away from dependence on music products, a trend likely to strengthen later this quarter with the introduction of the iPhone.

The report caps a week that will probably be remembered as a milestone in the apotheosis of Steve Jobs. Looking past Apple’s earnings and its
stock price, it’s getting harder and harder to pretend that Jobs didn’t violate securities law in the options-backdating scandal facing the company.

The SEC filed civil charges this week against Apple’s former CFO Fred Anderson, who has settled with regulators, and its former general counsel Nancy Heinen. Then Anderson, who might just as soon put the episode behind him, took the extraordinary step of issuing
a public statement saying
Jobs misled him on board decisions on options and that Jobs knew about the risk of a backdating charge.

Mark McQueen, CEO of Wellington Financial, a firm that manages $400 million, summed it up well on his blog

“When was the last time in recent memory that a corporate scandal led to very serious charges being brought against the CFO
and General Counsel, but not against the CEO? … It’s curious that a former Apple CFO pointing fingers isn’t sufficient for the
Securities Exchange Commission to proceed against Steve Jobs.”

Anderson’s version of events actually makes sense, given Jobs’ reputation as a control freak and his instrumental role in using options to lure in talent after he returned to Apple. But Jobs is unlikely to face any action from the SEC, even though Anderson’s statement is begging for a deeper probe.

Why? Ask any attorney who has left the SEC’s enforcement division in the past few years. They’ll tell you the department is well-intentioned and talented, but criminally understaffed and toothless. They took on Anderson and Heinen to set a high-profile example in the options scandal, which involves more than 100 companies.

But they didn’t take on Jobs. And the Justice Department, which may be looking into the Apple as well, is unlikely to either. He has become, more than any American businessman, an icon of success. It’s like throwing the golden goose under the train. There would be a massive revolt among Apple shareholders.

It was a similar case with Mark Hurd, who accomplished the near impossible by turning around H-P. When it became clear he was involved in the pretexting scandal, ethicists suggested he should step down. Shareholders said he shouldn’t, and they won.

I like Steve Jobs. As a consumer, I’m grateful for his achievements at both Pixar and Apple. But I’m troubled by the very real possibility he participated in options fraud and is being treated as above the law. Otherwise, regulators are sending a disturbing message to tech
executives: As long as your stock is soaring higher, you can dabble in whatever scandals. If we ever get back in a bubble – when all stocks are surging, not just the deserving ones like Apple – that thinking will cause a lot of accounting messes.

An open, clean investigation would prevent this: If Jobs is innocent, the debate is over. If not, he makes amends while shareholder support
will keep him as CEO. Either way, this image of Steve Jobs as above the law, a toxic one for the stock market, would go away.


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