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.

Find financial advice you can trust in the pages of our Foolish newsletters. From the small-cap stalwarts to magnificent mutual funds, you can try each free for 30 days.

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 theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 514399, ~/Articles/ArticleHandler.aspx, 11/23/2014 7:32:30 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 17,810.06 91.06 0.51%
S&P 500 2,063.50 10.75 0.52%
NASD 4,712.97 11.10 0.24%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

11/21/2014 4:00 PM
AAPL $116.47 Up +0.16 +0.14%
Apple CAPS Rating: ****
CNET.DL2 $11.49 Down +0.00 +0.00%
CNet Networks CAPS Rating: ****
INTU $91.72 Up +0.99 +1.09%
Intuit CAPS Rating: ****

Advertisement