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January 16, 2007 > Federal prosecutors probing stock options

Federal prosecutors probing stock options

By JORDAN ROBERTSON, AP Technology Writer

SAN FRANCISCO (AP), Jan 12 _ Federal prosecutors confirmed that they have opened an investigation into stock options irregularities at Apple Inc.

The U.S. Attorney's Office in San Francisco acknowledged for the first time on Friday that it was investigating Apple's handling of stock options awards given to executives and other employees even though the company has cleared CEO Steve Jobs and all current management of any wrongdoing in the accounting shenanigans that resulted in thousands of mishandled grants. A spokesman declined to release further details of the probe.

The announcement came the same day it was revealed that federal investigators were examining one award in particular to Jobs as part of the wider probe and were looking to question a former Apple lawyer who was in charge of stock-options administration.

Federal authorities were looking into the circumstances surrounding an award granted to Jobs for options on 7.5 million shares, an award that carried a false October 2001 date when it was actually approved in December of that year, a person close to the investigation told The Associated Press. The person requested anonymity because the investigation is ongoing.

The Wall Street Journal first reported the development Friday, citing anonymous sources.

The Journal also reported that investigators with the U.S. Attorney's Office and the Securities and Exchange Commission are trying to question a former Apple lawyer, Wendy Howell, who was in charge of stock-options administration and was quietly dismissed last month.

Howell is believed to have falsified documents related to Jobs' grant, the Journal reported, citing the anonymous sources. Her lawyer, Thomas Carlucci, did not return a phone call from the AP on Friday.

Apple has said that the internal probe that exonerated Jobs and other current management also revealed ``serious concerns'' about the actions of two former Apple employees in connection with improperly accounted stock options grants. Those people are reportedly Fred Anderson, the former chief financial officer, and Nancy Heinen, former general counsel.

Defense lawyers for Anderson and Heinen have both said their clients did not knowingly participate in any manipulation of the awards.

The latest revelations about the federal probe appear to ratchet up the pressure on Jobs and Apple at one of the most prosperous times for the company and raises further questions about Jobs' future.

Apple's stock has been trading at all-time highs this week after Jobs unveiled one of company's most important and widely hyped product in years _ the iPhone.

Jobs' dramatic introduction of the multimedia gadget led to a federal trademark-infringement lawsuit from Cisco Systems Inc., which has owned the trademark on the name ``iPhone'' since 2000 and began shipping its own line of iPhone-branded Internet-enabled phones in spring of 2006.

Though the lawsuit could wind up costing Apple millions of dollars and possibly the loss of the iPhone name, investors and analysts have cheered Apple's announcement of the sleek iPod-cellular phone combination.

Investors sent the company's stock to a high of $97.80 on Thursday, creating more than $10 billion (euro7.76 billion) in additional shareholder wealth at the stock's peak, compared to its price before the announcement.

Charles Golvin, principal analyst with Forrester Research Inc., said investors and consumers want Jobs to stay with the company. It would likely take a dramatic turn such as criminal charges against Jobs or evidence of deep involvement in any manipulation to cause his ouster, Golvin said.

``The market has spoken _ the market wants Steve Jobs to be the head of Apple,'' Golvin said. They are more concerned about the loss of him as the leader of the company than they are about any options manipulation or anything like that. And the market speaks correctly _ the risk to Apple of this scandal causing him to leave would be devastating.''

Apple said two weeks ago that an internal investigation exonerated Jobs and members of the company's current management team of any wrongdoing involving improperly accounted stock-options awards.

The internal investigation looked at 42,077 stock-options grants made on 259 dates between October 1996 and January 2003. Of those, 6,428 grants on 42 dates were not dated properly, Apple said.

Apple said Jobs was aware of, or recommended the selection of, some favorable grant dates, but that he neither benefited financially from them nor ``appreciated the accounting implications.''

Apple has already acknowledged the grant to Jobs that federal prosecutors are looking at was improperly accounted for.

The grant was improperly dated Oct. 19, 2001, with an exercise price of $18.03, instead of the correct date of Dec. 18, when Apple shares were trading at $21.01.

Apple said Jobs did not cash in on those options _ the difference between the prices could have boosted his award by about $22 million _ and surrendered that grant and another earlier grant in exchange for millions of shares of stock.

Apple took a retroactive $20 million charge to earnings when the backdating was discovered in the internal investigation.

An Apple spokesman said he had no comment on the newspaper report, but said the company is ``proactively'' providing information to federal investigators about their internal investigation.

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