Backdating Scandal Bites Apple

"Think different" may be more than just a mantra for Apple Computer (Nasdaq: AAPL), as the Mac daddy becomes the latest company caught in the uncomfortable web of backdating accusations.

Last night, Apple announced that an internal investigation led to the uncovering of mishandled stock option grants between 1997 and 2001. One of the grants was for CEO Steve Jobs, though the company says that those options were subsequently cancelled, with no financial windfall for its charismatic chieftain.

It's noble that Apple has taken the proactive move of revealing its findings, but that doesn't make it any more palatable. CNET (Nasdaq: CNET) -- a Rule Breakers newsletter service pick -- did the same thing back in May. Two days later, the SEC was snooping around. A month later, a grand jury subpoena was issued.

Apple shares have grown more than tenfold since 1997. That may make the mishandling appear brutally damaging, but it's not that horrific. In 1997, for instance, Apple's stock traded at a split-adjusted price range between $3.19 and $7.39 per share. Cherry-picking issuance dates is evil, but they would all clearly be in the money today, with the difference lying only in the amount of money necessary to exercise the options.

The company didn't detail the irregularities it discovered, but they are likely related to backdating. The underhanded practice has become an epidemic, as more and more companies are accused of pegging grants to recent market lows instead of current prices. More than 50 companies are now involved in some form of investigation for mishandling their stock options. These aren't tiny companies, either. Last night, Motley Fool Inside Value recommendation Intuit (Nasdaq: INTU) became the latest public company subpoenaed to probe the potential backdating.

For Apple, restating distant financials that won't affect the company's current fiscal state may not seem like much of a blow. Its credibility has suffered the greater damage. The repercussions could get even worse if this scandal rattles investor faith in the market as a whole.

The mutual fund industry had its purge a few years ago, after fund-manager trading improprieties surfaced. Some will argue that the fund sector is better today as a result of the crackdown. Let's hope that these past few months -- and whatever lies in store -- will clean up the practice of stock option grants for good. Shareholders deserve that much.

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Longtime Fool contributor Rick Munarriz thinks that an Apple a day will help keep the short sellers away. He does not own shares in any of the companies in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.