The trouble with Steve Jobs
In 2006, after the Wall Street Journal ran its Pulitzer Prize-winning series about backdated stock options, Apple (which hadn't been named in the coverage) scrambled to assess whether it had a problem. The company appointed a special board committee to investigate, which concluded that it did. The company discovered "irregularities" with 6,428 grants between 1997 and 2001 - roughly one in six that Apple issued during that period. (New disclosure requirements after that time caused backdating to dry up.) The company also found no instances of backdating before Jobs took over as CEO. Apple was forced to restate its earnings, taking a pretax charge for unreported compensation expenses of $105 million.
Disney, which bought Pixar in 2006, also investigated and found a backdating problem there during Jobs' time as CEO. As the Wall Street Journal first reported, key Pixar executives received options grants priced at the stock's yearly low in 1997,1998, 2000, and 2003. A Merrill Lynch analyst put the odds of that happening by chance at one in 112 million. (Disney declined to comment on backdating.) But the events at the two companies don't quite fit the classic backdating template, which has cost dozens of executives their jobs. For one thing, Jobs didn't personally benefit from backdated options - at least not directly. For another, in a climate where many were rushing to judgment, Jobs enjoyed the benefit of the doubt from protective boards.
Was Jobs himself involved in backdating stock options? At Apple, the answer is yes: In an SEC filing, Apple acknowledged that Jobs "was aware [of] or recommended the selection of some favorable grant dates." But Apple's investigation concluded that Jobs' involvement didn't amount to misconduct because he "was unaware of the accounting implications." As for Pixar, Disney issued a four-sentence summary of its own internal inquiry, concluding that "while options were backdated at Pixar" before its sale to Disney, "no one currently associated with the Company engaged in any intentional or deliberate acts of misconduct."
The SEC and the Justice Department are still investigating backdating at both Apple and Pixar. The SEC last April announced that it would take no action against Apple, citing the company's "swift, extensive, and extraordinary cooperation," including its "prompt self-reporting, an independent internal investigation, the sharing of the results of that investigation with the government, and the implementation of new controls designed to prevent the recurrence of fraudulent conduct."
At the same time, the SEC filed charges against two former members of Jobs' inner circle - general counsel Heinen and CFO Anderson. Heinen, accused of orchestrating two backdated grants and falsifying documentation for them, has pleaded innocent to fraud claims and is preparing for trial. Anderson has settled a lesser claim of negligence involving one grant, paying $3.64 million in disgorgement and fines, while remaining free to serve as an officer or director of public companies (he chairs the audit committee at eBay).
Anderson, in an extraordinary public statement he issued after settling his case with the SEC, disputed Apple's exoneration of Jobs. Through his lawyer, he said he alerted Jobs to the accounting implications even as the CEO was in the process of picking a retroactive date for the grant to his top lieutenants. He also said Jobs assured him that the award had been properly approved by Apple's board.
