Apple found itself in the middle a financial controversy two years ago as top executives of the company, including Steve Jobs, were accused of alleged illegal backdating of stock options awards.
The current lawsuit was brought on by shareholders on behalf of the company over the alleged damage the company suffered due to the controversy, with the Apple executives and board members now having made a preliminary deal to settle this issue. According to the Associated Press, insurers representing Apple’s board will pay Apple $14 million and reform part of its stock option plan with the settlement expected to get final approval on October 31, finally putting the the issue behind the company. The settlement for Apple comes at the expense of nearly $9 million in attorney fees and other expenses.
A stock option is essentially a form of non-cash payment for employees, often being executives, made up of common company stock offered by the company as an incentive to benefit both company and executive. If the executive performs well, the executive, the stockholders and the company will benefit from the increased company stock value. Options backdating is the practice of modifying the date of those issued stock options to a date back before when it was actually issued. Since stocks are valued differently at different dates, by making it seem as if the stocks were issued at a time when the value of the stocks were low, the stocks would essentially be issued at a discounted price.
While options backdating is not necessary illegal, not properly claiming that stocks were backdated is against regulations as it could mislead the company’s investors with inflated financial reports — and the practice could go against the stockholder’s wishes.
Apple was brought under investigation for such improper practices by the Securities and Exchange Commission, and charges were laid in 2007 against Apple’s former CFO Fred Anderson and general counsel Nancy Heinen. Steve Jobs was allegedly granted 7.5 million backdated stock options in 2001, among other top company executives, yet Apple defended their visionary leader claiming that, while he was aware of or even recommended the backdating practices, he did not benefit from the practices or appreciate its accounting implications. Apple corrected the $84 million error in its reported profits and was cleared of wrong doing.