Judge Nixes Apple Option-Backdating Suit
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Apple may now be closer to clearing charges stemming from its post-dating of stock options, following a federal judge's dismissal this week of a lawsuit against the company.
The suit, filed on behalf of shareholders by Mark C. Molumphy, a principal attorney at Burlingame, Calif.-based Cotchett, Pitre & McCarthy, claimed that Apple CEO Steve Jobs had committed fraud, lying to shareholders about how the company had back-dated stock option grants between 1997 and 2002.
Apple admitted in a filing to the Securities and Exchange Commission last year that it had backdated 6,428 stock options during that period. The company also disclosed at that time that Jobs had known that some of the options granted to Apple executives, including himself, had been backdated.
In his ruling on Nov. 19, Fogel said he found the claim against Apple was not specific enough to warrant applying the longer five-year statute of limitations for fraud.
"Plaintiffs pleading in its present form is characterized by conclusory, general, and non-individualized assertions as to all of the Defendants," Fogel wrote in his decision. "The only individualized allegation is that Apple found in the course of its investigation that Jobs was aware of the backdating."
More detailed allegations, he said, are required for a claim of fraud against Apple.
Despite the dismissal, Apple is not yet in the clear. Fogel said the shareholders could amend the suit if they were able to present evidence that Apple had filed false statements about options after July 30, 2003.
Representatives from Apple and Cotchett, Pitre & McCarthy were not available for comment.
The dismissal came on the heels of a similar move last week, when Fogel dismissed a suit by another group of stockholders.
That suit, led by the New York City Employees' Retirement System, claimed the issuance of 200 million shares through the backdated options had diluted Apple's stock price.
In his Nov. 14 decision, Fogel said the case failed to show that investors had been injured by Apple's backdating.
"While the subsequent disclosure that the options were backdated might require a restatement, without a discernible drop in the stock price there is no basis upon which to establish an injury to shareholders," he wrote.
While Apple's stock price did not fall as a result of the backdating, the company in December revised its earnings to reflect the actual expenses of its backdated options. Those totaled $84 million after taxes -- including $4 million for its fiscal year 2006.
During last week's ruling, Fogel also left the door open for the New York City Employees' Retirement System to amend the suit as a "derivative complaint" if it could be shown that the backdating injured Apple itself as a company.
However, he stated at the time that it would likely be consolidated into Cotchett, Pitre & McCarthy's now-dismissed suit.
Since this week's dismissal, however, it remains unclear about how either suit will proceed.
Aside from the specter of continuing shareholder suits, the company also came under SEC scrutiny. To date, however, the SEC has charges pending only against Apple's former general counsel, Nancy Heinen, for her connection to the backdating.
Heinen left the company in May 2006 without explanation. The SEC accused her the month before of backdating 7.5 million share option grants to Jobs.