All You Need to Know About the SEC's Apple Probe

Earlier this week, the investigation into the practice of backdating stock options at Apple resulted in the U.S. Securities and Exchange Commission filing charges against one former Apple executive while reaching a settlement with another. Here's a summary of what's happened in the investigation so far and what could potentially happen in the wake of this week's events.

What is stock-option backdating, and why is Apple under scrutiny for it?

We offer a more thorough explanation of backdating here , but as a quick refresher, backdating is a perfectly legal practice in which a company backdates the strike price of an option to a more favorable date, so that the employee's option becomes more valuable. Again, this is all above board; it only becomes an issue when companies fail to notify shareholders and regulators that it's taking place so that everyone has the complete picture of the company's financial dealings.

That's why Apple--like hundreds of other companies--finds its practices under scrutiny. The company has acknowledged irregularities in some of the stock option grants it issued between 1997 and 2001. More troubling from the perspective of regulators is that some of the options in question were allegedly approved by Apple's board of directors at meetings that never took place.

What, specifically, has happened so far?

After announcing in June 2006 that its internal probe had found irregularities in stock option grants--including one issued to CEO Steve Jobs--Apple conducted an internal investigation, restated its quarterly earnings from 1997 to 2005, and cleared current executives of any misconduct . In October 2006, as Apple announced the results of a three-month probe into stock option practices, Fred Anderson, Apple's CEO from 1996 to 2004, resigned from his seat on the company's board of directors . His departure followed that of Apple counsel Nancy Heinen, who left the company last May.

The exits of Heinen and Anderson, coupled with Apple clearing current employees of any wrong-doing, seemed to suggest that the two ex-Apple executives would be the focus of the government's investigation . And that speculation proved correct this week, when the SEC announced its plans to pursue a complaint against Heinen while settling with Anderson .

source : www.pcworld.com