Wishes still != ponies.

Debunking the “it’s not illegal” defense.

Boy, the Macalope gets accused of being an Apple apologist, but you people take the cake. The “We got Steve Jobs’ back!” excuse du jour seems to be “There’s nothing wrong with backdating as long as it’s properly accounted for and reported!” (See comments here.)

Well, before you take that excuse and get all Diggy wit’ it, a couple of things.

First, it is illegal if it’s against Apple’s bylaws. The Macalope did some searching but couldn’t find Apple’s bylaws online.

He did find the complaint filed by Keller Rohrback, a firm representing Apple shareholders in the options suit:

The Complaint alleges that the defendants breached their fiduciary duties and colluded with one another to: (1) improperly backdate grants of Apple stock options to various Apple executives in violation of the Company’s shareholder-approved stock option plans; (2) improperly record and account for the backdated stock options in violation of GAAP; (3) improperly take tax deductions based on the backdated stock options in violation of the Tax Code; and (4) produce and disseminate to the Company’s shareholders false financial statements and other SEC filings that improperly recorded and accounted for the backdated option grants thereby concealing the improper backdating of stock options.

Now, the Macalope isn’t advising you just take the plaintiffs’ word for it, but their contention is that Apple violated the terms of its “shareholder-approved stock option plans.”

Just because backdating is OK at some companies, doesn’t mean it’s OK at Apple.

Second, the Macalope would suggest you take a look at Apple’s August 3rd SEC filing, in which the company stated:

On August 3, 2006, management of Apple Computer, Inc. (Apple) concluded, and the Audit and Finance Committee of Apple’s Board of Directors approved the conclusion, that Apple’s financial statements for the fiscal years ended 2003, 2004 and 2005, the interim periods contained therein, the fiscal quarters ended December 31, 2005 and April 1, 2006, and all earnings and press releases and similar communications issued by Apple relating to periods commencing on September 29, 2002 should no longer be relied upon.

(Emphasis the Macalope’s)

So, regardless of whether or not it violated Apple’s policies, it was not properly accounted for and not properly report.

If you want to convince yourself that all the other backdated options weren’t properly accounted for but Steve’s were, that’s fine. But the Macalope would point out that when you stick your head in the sand that far, it’s probably going to get in your ears and muss up your hair.

The Macalope holds an inconsequential number of Apple shares and, sigh, did some contracting for Keller Rohrback in the early 1990s on an entirely unrelated matter. He didn’t know they were counsel on this until he Googled up that complaint. And, no, the Macalope is not “legal professional” David Burke. Please.

6 thoughts on “Wishes still != ponies.”

  1. <insert statements claiming that the macalope is blowing things entirely out of proportion, and knows nothing about which he is talking. Also, add in some fresh greens, since antelope like those, so maybe the macalope will uh… partially like those too… yeah>

  2. Those quotes don’t prove that backdating is illegal. There has been no law passed against backdating stocks, period. Now, Sarbanes-Oxley introduced such stringest REPORTING requirements that one could argue that it functionally made backdating illegal, and one would have a point. But it still did not declare the actual act of backdating illegal, so when people talk about backdating as if it’s a crime and obviously immoral they are way, way off. There is nothing illegal about the backdating of a stock. There is no conflict of interest involved. There is nothing even immoral about it. Basically, when you backdate a stock option, you are simply giving the recipient more money. You are already giving them money, anyway. You’re just giving them more.

    If you don’t report it properly then you are misleading your shareholders and the government, and THAT is genuinely unethical. And currently, illegal. (Though it was not always so.)

    People talk as if choosing an opportune time to award a stock option is a great breaking of some kind of trust. What trust? That executives won’t be given an advantage over the rest of world in compensation for their work? Guess what. Million dollar paycheques and fat bonuses are a huge advantage over the rest of the world. And they did the work. They deserve it. This moral pulpit being pounded about backdating is totally bogus.

    If you’re going to wax moralistic, at least beat the CORRECT pulpit. Compensation was given that wasn’t disclosed and wasn’t accounted for. That’s the whole story.

    And BTW Steve Jobs getting stock options at a favourable time does not prove that the correct date wasn’t reported within the deadline in his case. See, this is where completely misunderstanding the law gets you.

  3. Those quotes don’t prove that backdating is illegal.

    That’s true. The Macalope never said they did. But have you read Apple’s compensation plan? Do you know that there isn’t a rule in it against backdating?

    People talk as if choosing an opportune time to award a stock option is a great breaking of some kind of trust. What trust?

    If you believe the class, the trust implied when Apple’s shareholders approved the company’s compensation plan. The Macalope doesn’t know what’s in the plan, but that’s what the class action suit is about.

    By your logic, though, there is no basis for the class action suit against Apple in which case the company could move for summary dismissal. Haven’t heard that they’ve done that.

    Compensation was given that wasn’t disclosed and wasn’t accounted for. That’s the whole story.

    That’s not what the class suit says. Whether that’s right or wrong will get decided in court (or settled) but the class’ contention is certainly that there’s more to it than the SEC disclosure.

    And BTW Steve Jobs getting stock options at a favourable time does not prove that the correct date wasn’t reported within the deadline in his case.

    What do you mean by “the correct date”? Do you mean that it’s possible the date Jobs was granted just happened to be the lowest date of the entire period Crystal looked at? It’s possible, but it’s statistically unlikely. Or do you mean that Crystal was using a date that was later changed? If it was changed, it would have been reported to the SEC in which case Crystal would have had access to the filing.

    See, this is where completely misunderstanding the law gets you.

    The Macalope understand the law. You seem to be reading things into the post that the Macalope isn’t saying while at the same time completely disregarding things he is saying.

    The Macalope never said Jobs broke the law. He said that if Jobs wanted to dispell any hint of impropriety he could give some of the compensation back. That’s quite different.

  4. I mean the ‘correct date’ as in the date the stock traded at the price that he was given the option to buy it. As long as that date is correctly reported within the deadline (which is now very short), there is nothing wrong whatsoever with choosing the moment when the stock is at its lowest to award the options. This is common practise. There’s nothing unethical about it.

    And if Steve Jobs gave his legally received compensation back he would be basically admitting impropriety, not dispelling it.

    If you were accused of embezzling $100,000 from your workplace, and in your defence you offered to pay them $50,000 of it back — would this make you look less guilty or more guilty?

  5. And by the way — that IS what the class suit says. It doesn’t say that he is accused of backdating stock grants. It says that he is accused of “improperly” backdating stock grants. That adverb is not in there just as a form of colour commentary — this is a legal document. Every word matters.

  6. On your first comment:

    Your first graph is just another way of saying “backdating is not illegal.” That’s true as long as it doesn’t violate Apple’s compensation plan.

    If you were accused of embezzling $100,000 from your workplace, and in your defence you offered to pay them $50,000 of it back — would this make you look less guilty or more guilty?

    That’s a bad analogy. A better analogy would be the one Crystal uses – someone who has unwittingly received stolen goods in which case you are obligated to return the money. “Stolen” is still not a completely accurate comparison, but at some point – regardless of how it looks – it may come down to having to make it right to the shareholders.

    On your second comment about the class suit, absolutely. They are charging he knew and colluded. There is no publicly available evidence Steve Jobs knew that any of this was bad news that the Macalope knows of and Apple is going to great pains to indicate that he did not know.

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