Backdating Stock Options

What's the best kind of crime to commit? Easy question! The kind that few people recognize as a crime. You can keep up your good standing in the community that way. Take Steve Jobs, for example. Many people will recognize him as one of the founders of the inventive Apple Corporation. He's good buddies with former Presidential candidate Al Gore, who serves on Apple's Board of Directors. As if to prove that good buddy Jobs was an upstanding citizen of corporate America, Gore led an investigation into the CEO's involvement in a stock-backdating case. Not surprisingly, Gore found his pal innocent of any wrongdoing but left the door open to the possibility that Jobs may have been party to an accounting faux pas.

So what is "backdating" anyway? I suppose it's best defined by what it is not. It is not looking through your address book for that old girlfriend or boyfriend you used to date and trying again to hit one out of the ball park. It's much more prosaic. It involves nothing more than changing the dates on a financial document. Something like backdating your homework when trying to convince your eighth grade teacher you did your homework on the particular date it was assigned and then mislaid it. Here it is, absolute proof you're telling the truth. The difference between your getting a homework checkmark by changing a date and what Steve Jobs gets by changing a date is about $20 million.

Backdating is not so hard to understand. Giant successful corporations like Apple grant stock options as a kind of gift for their successful management of a company. A stock option is merely the opportunity to buy a stock at a certain price. Where's the crime in that? Didn't you say "buy a stock"? Yes, but at what price? You see, the government organization which tries to make sure that American companies are on the up and up has rules designed to protect the other stockholders, the out of the loop suckers like you and me. If we had the option to buy a large number of a hot stock ourselves, we'd pick a price that was as low as possible, wouldn't we? And then we'd sell it at the current much higher price, right? But the problem is that, unlike corporate CEOs and their jock-strap caddies, we don't get to select the price of the stocks that we buy.

What the financial officers of the Apple Corporation did is backdate the stock options grants to a favorable date in the past when prices were cheaper than they are now. That means instant millions, just like playing a select lottery in which all the tickets are winners.

There are at least two separate investigations going on simultaneously, one by the Securities and Exchange Commission and another by the San Francisco District Attorney's office. So far Steve Jobs has not been charged with any criminal or civil violations of the Securities and Exchange Law. Not so for Apple's former general counsel, Nancy Heinen, who has been charged by the SEC with preparing false documents indicating that Apple's board had met and approved the stock option grants to a small group of executives including Steve Jobs. Showing Apple employees' talent for innovation and invention, Ms. Heinen is charged with inventing a board meeting that never happened, several pages of "fictitious board minutes", and with filing false documentation reports to the SEC.

The other shoe dropped more recently when Apple's former Chief Financial Officer Fred Anderson made a statement through his lawyer that Executive Officer Steve Jobs misled him about the stock options grants. Mr. Anderson states that he informed Mr. Jobs that Apple would have to take a charge against earnings as a result of the backdating activity. The major import of Mr. Anderson's statement is that it contradicts the story that Jobs had no knowledge of the questionable backdating activity which might be in violation of SEC laws.

Will the Apple corporation backdating scandal turn out to be the perfect white-collar crime? Will big money and friends in high places shield a popular corporate entrepreneur from the slings and arrows of the cruel Securities Exchange laws? It is doubtful that Jobs will go unscathed, not in a world where Martha Stewart went to jail for what, by comparison, amounts to chump change.