RealTime IT News

Apple's 'Pretty Big Scheme' May Include Forgery

CORRECTED:* Investigators may have found the smoking gun proving that officials at Apple  willfully broke the law when they backdated option grant dates.

The price of Apple stock fell by almost 5 percent during the day in response to a report published in the legal publication "The Recorder" and posted on the legal newswire Law.com that the company is about to disclose the existence of falsified documents used to corroborate illegal backdating of option grants.

Steve Dowling, a spokesman for Apple, would not discuss the rumors but confirmed that the company expects to file its annual report by the end of the week. That filing is expected to include results of its internal investigation.

"We're providing all the details of the investigation to the SEC," he told internetnews.com.

At the close of market Tuesday, Apple's stock was $81.51 and dropped to below $78 Wednesday on the news of the forgery. However, as of this writing, the company's stock is back up at $81.80.

"They've turned up a pretty big scheme here," said Mark Molumphy, an attorney at Cotchett, Pitre, Simon & McCarthy, which is representing Apple in its derivative lawsuit against current and former Apple executives.

Molumphy said the suit, filed last August in the U.S. district court of the Northern District of California, named many members of senior management employed between 1998 and 2002, including CEO Steve Jobs, former CFO Fred Anderson and former general counsel Nancy Heinen.

Derivative suits are brought on behalf of companies to indemnify them for harm incurred by executives, including the cost of financial restatements, and to have options that are found to have been granted illicitly returned to the company.

The "existence of fake documents takes it to a whole new level" because it shows there was intent to defraud investors, he said.

In many options-backdating cases that have recently come to light, said Molumphy, executives have tried to claim that their actions were inadvertent. Forgeries "proves the intent for purposes of criminal statutes," he said.

Apple has "already disclosed the existence of numerous options that appear to have been backdated. [The new filing] will have more to do with the extent of the restatement, which we believe is going to be significant," said Molumphy.

The tech industry has been hard hit by options backdating issues, but Apple would have seemed like an unlikely candidate for this kind of malfeasance, say observers.

Steve Jobs is "personally known to be interested in these issues," said Rich Cellini, vice president of Integrity Interactive, which advises companies on corporate governance.

"This is not a cynical person or someone who is winking and nodding, much less manipulating the system," he told internetnews.com. But having a CEO speak out against corruption is not enough to insulate a company from this kind of trouble, he said. "People are treating corporate integrity risks by deploying systems and smart tools to live up to the tone at the top," said Cellini.

Cellini, who is an attorney, added that courts look kindly upon firms that have pre-existing compliance programs in place, even if they don't work.

"Trying really matters."

Corrects source of Apple report.