The Steve Jobs/backdating thing held our interest for a while but ultimately tapered off because of the all talk, no action nature of the whole situation. Yes, we get that it’s hard to take (literal) shots at the man who brought us the singular sensation that is the PC half of the “I’m A MAC, I’m a PC” commercials but come on—don’t get us all excited with your verbal assaults for nothing. So we were pretty happy to read that The New York City Employees’ Retirement System will be the lead plaintiff in a shareholder suit against Apple, brought to you by the fund’s law firm, Grant & Eisenhofer. The NYC fund was selected by Judge Jeremy Fogel, of the U.S. District Court for the Northern District of California, late last Friday. The fund owns about 1 million shares of Apple (approximately $87 million).
New York pension fund takes lead in Apple lawsuit [Reuters via ZDNet via Daily Intel]
Steve Jobs
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Apple
The New York City Employees’ Retirement System Thinks Jobs Blows (If We Have To Make Mountains Out Of Molehills We Will Do It And You Will Like It)
By Bess LevinThere’s admittedly been a lot of backdating talk around these parts of late (and mostly of the will they/won’t they Steve Jobs sort). Backdating this. Backdating that. Carney, Larry Ribstein, and Holman Jenkins (of the eponymous “Backdating Dissident Crew”) think Jobs has done nothing wrong. Everyone besides Carney, Ribstein, and Jenkins wants Jobs to fry. Jobs considers any attempt to take him down (and, perhaps more importantly, John Hodgman) an act of war. And so on and so forth. We were going to issue a fatwa on writing anything else about the aforementioned but that went to hell when we realized this damn thing just won’t die. But just so you know, we do feel bad about forcing you to ride what we regard as a dead horse with us. Anyway, today Fortune’s Roger Parloff writes about former Apple chief financial officer Fred D. Anderson and former general counsel and corporate secretary Nancy R. Heinen, (who was also Jobs’ general counsel at Next). Mere clogs in the machine right? Wrong, apparently. Anderson and Heinen are the two former officers that the results of Apple’s own internal investigation flagged as having “serious concerns regarding [their] actions.” More importantly, they may be evidence of Jobs’s wrongdoing.
Though most investors dearly hope the company’s conclusion [of “no misconduct by current management”] holds up, many can’t quite suspend disbelief. “The idea that Nancy or Fred would’ve acted independently of the biggest control freak in the entire tech industry is laugh-out-loud funny,” says one big Silicon Valley player.
Lawyers for Heinen and Anderson have issued statements “vigorously denying” any illegal behavior, and Mark Pomerantz has been hired by Jobs, though neither he nor Apple would confirm this. This “they couldn’t have acted without Jobs” theory may actually be kind of a tough one for the big guy to sort out, in regards to which story he should go with. Either Jobs acted with Heinen and Anderson, and, therefore, did something kind of illegalish, or they did it all by themselves, WITHOUT The Most Powerful And Influential Man On Earth (because of him you can watch “The Office” on your phone for god’s sake!), and he’s actually just a big puss.
Apple’s Jobs could face uphill court battle [Fortune]
The early reactions to news that federal authorities are probing the backdated stock option grants to Apple CEO Steve Jobs are coming in. Not surprisingly, the best reactions are coming from the Backdating Dissident Crew (which now includes Jobs himself).
Larry Ribstein at Ideoblog makes the point that no-one negotiating their salary really gives a damn about when a stock option was priced. They care about what you’d care about: that you know the value of the grant and that no-one is going to game the grant by handing the options to you on a high-water stock price date. If you agree on the date of the past, you can understand exactly what the grant is worth. What Steve Jobs cared about was how much it was worth to him. This is an important point that bears repeating: it’s the level of compensation that an employee or an executive cares about. As in, “Show me the money!”
In the typical backdating situation (and there may be some cases of more serious abuse—the things that allegedly went on at Comverse seem far fishier than the typical backdating case), fiddling around with the grant date was not a way for employees or executives underhandedly inflate their compensation. It was an attempt by company to compensate its employees while avoiding having to expense the grant as an “in the money” option. This violated accounting rules (rules by the way that many people seem not to have understood very well) but, well, let’s let Larry ask the appropriate question:
My question: is this really the stuff of a criminal investigation? Which bad result are the screeching journalists and executive compensation moralists going to make us live with: trashing the career of one of the country’s most successful business executives? Letting him walk and ruining the life of a young lawyer who found herself in the middle? Or letting Apple off the hook because it’s successful and the journalists all have iPods, but sending backdaters at lesser companies to jail?
And over at Houston’s Clear Thinkers, Tom Kirkendall draws a comparison between the abusive, malicious and absolutely evil prosecution of the Duke lacrosse team with the mob mentality that seems to have arisen in the immediate wake of the first backdating revelations:
In the Duke lacrosse team case, it is particularly ironic that many in the media and on Duke’s faculty were enablers of abusive, dishonest law enforcement and prosecution tactics that are far more often used in cases against minorities that those enablers would decry. They now share responsibility for the continued use of such tactics long after the spotlight on the Duke lacrosse team case has moved on to the next fixation of the mob.
A report on the Apple investigation [Ideoblog]
Rabinowitz on the mob in the Duke lacrosse team case [Houston's Clear Thinkers]
The recent disclosures about backdating at Apple and the receipt by Steve Jobs of backdated options grants seems to have created an entirely new line of legal defense: if Steve Jobs did it, it can’t be so bad. And, as we’ve discussed at length, it’s probably not a bad thing if Jobs role in backdating helps the public understand move away from the impression that backdating is akin the embezzling. Yesterday’s Wall Street Journal editorial page ran a story by two Skadden Arps lawyers representing the former CEO and chairman of Brocade Communications attempting to piggyback on Jobs popularity to exonerate their client.
Steve Jobs recently became the latest chief executive thrown into the options-timing imbroglio. Apple disclosed that its CEO was “aware or recommended” favorable grant dates on option grants to employees, but that he did not “receive or benefit” from any of the grants or “appreciate the accounting implications.” Apple’s board concluded that Mr. Jobs had done nothing wrong, and emphasized its “complete confidence” in its CEO. The markets followed suit. Rather than fret, investors actually bid up Apple’s stock by more than $5 per share.
Given the stock bump, the board’s exoneration and Mr. Jobs’s lack of accounting experience, could this possibly be a case of criminal securities fraud? Believe it or not, in the minds of some prosecutors applying a far-reaching and unproven theory of fraud, it is. Just last summer, the government indicted Gregory Reyes, the former CEO of Brocade Communications, despite the fact that Mr. Reyes, like Mr. Jobs, was a non-accountant who didn’t personally benefit one cent from the option grants at issue.
The problem with the government’s theory is that it conflates books-and-records violations with criminal securities fraud. In the process, the government untethers securities fraud from the legal elements that help safeguard executives from conviction for inadvertent accounting violations resulting in little or no harm to companies or to investors.
One irony of this line of reasoning is that it might work the other way around. It may increase pressure on the SEC to bring charges against Jobs in order to demonstrate that “Jobs did it” is not a workable defense.
[Disclosure note: John Carney formerly worked for Skadden.]
Should Steve Jobs Go To Jail [Wall Street Journal]
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Apple
How Successful Was The iPhone In Diverting Attention Away From Apple’s Backdating?
By John CarneyWe warned you today was going to be a big day in backdating coverage. Here’s a bit more.
Yesterday we speculated that one probable effect of yesterday’s iPhone announcement from Steve Jobs would be to divert attention away from backdating at Apple and the backdated stock options Jobs received. Today’s news coverage pretty much bears this out. In fact, Peter Cohan at Blogging Stocks even goes so far as to criticize the Wall Street Journal for not paying enough attention to the iPhone and its implications because the “editorial page editors’ rage at Al Gore and Steve Jobs kept that from happening.”
So how did the major business newswires and dailies handle the iPhone versus backdating stories? After the jump, a quick rundown of how the news sections (leaving out the editorial pages) dealt with the Apple story.
Blessed is the editor who can say to a writer, “Make sense of Subject X for me,” and hope to receive back something more than a distillation of tropes already in the media. Most editors are not so blessed, a factor just now reaching critical mass. On Sunday, a lagging commentator in the New York Times likened backdating to “getting to pick lottery numbers after the winning numbers are drawn.” A confused Washington Post editorial called on Mr. Jobs to reimburse Apple for the compensation he stole.
Against this (who would have thunk it) stands Mr. Gore, yelling stop to the lynch mob. In Apple’s own backyard, the San Jose Mercury News delivered a critic’s delectable complaint that the Gore investigation had “tried to preserve the company’s No. 1 asset” in Mr. Jobs. Isn’t that exactly what a shareholder wants from the Apple board right now? The Apple case is a marvelous example of why corporate governance reformers do shareholders no favor even as they expand their own bailiwicks by making governance reform a never-ending end in itself. Indeed, Mr. Gore deserves credit for putting himself in the line of fire at all. And worse is surely coming: Mr. Jobs is starting to face insinuations of insider trading for stock sales after the first backdating cases broke but before Apple was implicated.
Oh, and yeah, somewhere in there he makes a nice mention of DealBreaker‘s coverage. So, you know, “big ups” to the Holman.
Apple’s Gore [Wall Street Journal]
Not too be too cynical about it, but are we the only ones wondering if it was just a coincidence that the report on backdating at Apple, and Steve Jobs role in it, came out just a few days before the conference where Jobs announced the headline grabbing Iphone?
Still, it seems that even this, uhm, well-timed announcement hasn’t completely drowned out the critics of Jobs. Daniel Gross takes note of the disparity between the way many CEOs have been treated after revelations that they received backdated options grants and Apple’s exoneration of it’s CEO.
So let’s review. Jobs recommended some backdating dates for other employees. He received a massive grant that was approved at a phantom board meeting, though he didn’t know about the phony meeting. And he never cashed in those options because they were replaced in 2003 by a grant of restricted stock.
CEOs at other companies have been forced to resign for such activities. So why is Jobs getting off so easy? His job may be saved by the fact that he did not directly profit. More likely, though, he’s been saved by his special status. Jobs is Michael Jordan in the 1990s, Citigroup in the 1980s, Walter Cronkite in the 1960s. He’s a revered Hall of Famer who doesn’t get whistled for fouls that send other pros to the bench.
Jobs is too big to fail. He is too popular—among investors, journalists, employees, analysts, and in the culture at large—for anyone to recommend that he be deposed.
Oh, and the Economist thinks it may be too early to think that Jobs is totally in the clear.
Snow Jobs [Slate.com]
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