Apple Admits Wrongdoing But Rallies Around Leader

By Alan Sipress and Carrie Johnson
Washington Post Staff Writers
Saturday, December 30, 2006

Apple Computer disclosed yesterday that it had falsified approval of 7.5 million stock options for its chief executive and innovative co-founder, Steve Jobs, raising new questions about the role he may have played in a scandal that has swirled around the dynamic technology company for months.

Apple said in a pair of overdue earnings filings to the Securities and Exchange Commission that it had recorded a fictitious meeting at which Jobs's options were ratified and that he may have recommended the dates for some of the stock options issued to company employees. The company repeated yesterday that Jobs did not benefit from the options.

Apple's board, which includes former vice president Al Gore, gave Jobs its full support. "The board of directors is confident that the Company has corrected the problems that led to the restatement, and it has complete confidence in Steve Jobs and the senior management team," said the statement by Gore and Jerome York, who heads Apple's audit and finance committee.

Wall Street also rallied around Jobs, who is more closely identified with and central to the success of his company than any other executive at a major technology firm. The stock rose nearly 5 percent, and many industry analysts said investors could return their attention to Apple's sound fundamentals, which include strong sales of iPods and Macintosh computers.

But white-collar crime experts said the action may signal more serious issues.

"The acknowledgment of greater involvement by Mr. Jobs than previously disclosed can only cause the government to use an even finer toothed comb in its own review of Mr. Jobs's conduct," Washington defense lawyer Barry Pollack said. "The government may ultimately come to share the company's conclusion that Mr. Jobs was unaware that the options were not properly handled, but not before putting him under their own magnifying glass."

Peter J. Henning, a law professor at Wayne State University in Detroit and co-author of a blog on white-collar crime, went further, saying Apple appeared to be minimizing Jobs's role in the options imbroglio. He cited Apple's admission that Jobs may have recommended some of the dates that would have allowed employees to make a larger profit when they sold their stock.

"Steve Jobs's plausible deniability is being narrowed here," Henning said. "This is serious. This has cost people their jobs. Admittedly he didn't get any money out of it, but that's not the criteria for judging a chief executive."

In previous investigations, Henning said, prosecutors and securities regulators have relied on accounts from corporate insiders to build cases against high-ranking executives. Apple has blamed two former executives, identified as former financial chief Fred Anderson and former general counsel Nancy Heinen, for the options misconduct. It is unclear whether either of the executives, who left Apple this year, are talking to law enforcement authorities.

Spokesmen for the SEC and the U.S. attorney's office in San Francisco said they would not discuss any investigation concerning Apple. Apple yesterday confirmed that it had responded to "informal inquiries" from authorities.

Yesterday's disclosures tie Jobs more closely to improprieties than Apple acknowledged this summer when it said some options had been granted improperly.

In its regulatory filings, Apple said its board of directors never met in October 2001 to ratify stock options for Jobs, as previously claimed. While company records indicated that the options were ratified at a special board meeting, no such session was held and the grant was not finalized until two months later.

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