Apple Computers, the maker of the iconic iPod, has admitted its profits for the next four years could be cut after uncovering stock options irregularities.
Shares in the group fell sharply yesterday because of uncertainty over the extent to which Steve Jobs - feted for his turnaround of the company he founded 30 years ago - may become more seriously embroiled in Wall Street's latest scandal.
In a filing to the US financial regulator, Apple has said all its earnings issued since September 2002 should not be relied upon. Apple is one of about 80 companies under investigation for peculiarities in the way executives were granted share options. As the scandal has widened, company after company has been accused of illegally back-dating share options to maximise profits for executives, when they are cashed in years later.
Wall Street's regulator, the Securities and Exchange Commission, has been taken aback by the scale of the deception, and this week it charged the first three executives in its 18-month-long investigation.
Apple shares, which have been skittish before a vital series of product launches next week, tumbled 5 per cent in morning trading yesterday. Investors worried how the scandal may affect the reputation of its visionary leader.
In January 2000, Mr Jobs received an option to purchase 10 million shares, dated on the stock's low point for the month. That coincidence meant that, when Apple shares shot up in the following days, Mr Jobs was already sitting on a paper profit. The SEC is investigating whether the grant really was made on the day Apple said it was.
Options allow executives to buy shares at a fixed price at regular intervals over the next several years, and they pocket the difference between the share price then and the price at which the option is exercised. The idea is that executives are then incentivised to boost the share price.
Apple says Mr Jobs' option was subsequently cancelled and resulted in no financial gain, but while the options were cancelled in 2003, Apple granted Mr Jobs five million shares in exchange.
Gene Munster, a technology analyst at Piper Jaffray, said nervous investors had even started questioning whether the scandal might force Mr Jobs out, although he demurred.
"Apple blew the whistle on this themselves, three weeks ago. It is partially a black eye for his reputation but the talk of Steve Jobs getting expelled for this is just ridiculous. He just took options that were given to him. He is beyond compensation, he is fighting bigger battles than worrying about the timing of options."
Until now, Apple has played down the scale of the options problem and indicated it was not likely to affect its published results. But in a statement late on Thursday night, after findings from its own internal investigation, it abandoned that position and said it was delaying its next results until it could sort out the accounting mess that the irregularities had caused.
"Although the investigation is ongoing, the company has discovered additional evidence of irregularities and will likely need to restate its historical financial statements," it said. "The company has not determined the amount of such charges. Financial statements relating to periods commencing on 29 September, 2002, should therefore not be relied upon."
It refused to go beyond the statement. Earlier this week, the SEC and federal prosecutors charged three executives of Brocade Communications for doling out back-dated options to hundreds of employees. Christopher Cox, SEC chairman, said not every investigation will lead to charges, but "deliberately lying, deceiving, in many cases, boards of directors or investors, and forging documents, these are things that bread-and-butter enforcement cases are made of."Reuse content