The Options Paper Trail

Apple's Chief Waited Months Before Filing Disclosure, Records Show

With federal prosecutors investigating the granting of stock options by Apple, the actions of its iconic chief executive, Steve Jobs, are being more closely examined.

A review of how Jobs handled his stock options from 2001 shows that he waited about two-thirds of a year to report the receipt of 7.5 million options that the company admitted last month were improperly backdated. The board meeting at which they were reportedly approved never took place.

The timing of Jobs's filing was not illegal and beat the deadline. But it broke with the practice common among other Apple officers and directors of submitting the report, in this case a Form 4, within weeks, not months.

"That's clearly an anomaly worth pursuing," said Michael Levy, a former federal prosecutor who heads the white-collar group at the McKee Nelson law firm in the District. "The fact that it was this grant in particular that was subject to such a delayed filing of Form 4 seems very interesting."

Jobs filed his statement with the Securities and Exchange Commission in August 2002, reporting that he had received the stock options on Oct. 19, 2001. Apple now says the options were actually finalized in December 2001, when the value of the options was significantly less because of changes in the stock price. Jobs filed his personal disclosure about eight months later.

In contrast, three other directors who filed within days of Jobs had waited only four weeks to disclose their options. In fact, the filings of 53 other Form 4s by Apple officers and directors between the start of 1999 and late August 2002 -- when new disclosure requirements came into force -- took just under four weeks, on average. When Jobs received a previous grant of 10 million stock options in January 2000, he filed his Form 4 in just under three weeks.

Steve Dowling, Apple's director of corporate communications, declined to comment yesterday on Jobs's filing and repeated that the company's "exhaustive investigation" had found no evidence that the chief executive, board directors or other current members of management had been involved in backdating irregularities. He said Apple had voluntarily provided all details of its investigation to the U.S. attorney's office for Northern California and to the SEC.

The U.S. attorney's office confirmed this month that it was investigating options "irregularities" at Apple. Luke Macaulay, a spokesman for the office, declined to give more detail but added, "We've said repeatedly and publicly that something comes into the U.S. attorney's realm and the criminal realm when there's an intent to defraud."

The SEC is also reviewing the backdating of options at Apple. The Recorder, a legal newspaper in San Francisco, reported Friday that Jobs was interviewed last week by federal prosecutors and SEC lawyers.

Sources familiar with the investigation said Wendy Howell, who worked as a lawyer in the office of Apple's general counsel, played a part in creating the paperwork for Jobs's options. The sources spoke on condition of anonymity because of the ongoing criminal investigation.

Her attorney, Thomas Carlucci, said in statement: "While an Apple employee, Ms. Howell acted as instructed by Apple management and with the company's best interest being paramount."

Howell's boss at the time, former general counsel Nancy Heinen, has sought to distance herself from the scandal. "Each of the grants involving Ms. Heinen was authorized and approved by her superiors," her lawyer, Cristina Arguedas, said in a statement.

Apple has said Jobs never benefited from his options because he gave them up before they were exercised. But when he relinquished them, he received restricted stock estimated to be of about the same value. Last year, he used nearly half this stock, worth about $296 million, to meet tax obligations.

In Jobs's Form 4 filing in 2002, he cited the false October date four times. Adding to the confusion, he reported on the cover page that the statement covers November 2001.

Under SEC rules at the time, officers and directors of companies were instructed to report the acquisition of stock options not on Form 4 but on Form 5, which is an annual statement of transactions involving stocks and options. Nine Apple insiders filed this from 1999 to 2002.

Jobs chose the alternative, filing a Form 4. SEC rules said that an insider could disclose the receipt of stock options on a Form 4 as long as it was submitted before the deadline for the annual Form 5. Ten Apple insiders took this route from 1999 through 2002, though none of the others waited nearly as long as Jobs did in disclosing his 2001 options. Jobs filed before the legal deadline.

Congress adopted stricter disclosure standards in 2002 as the result of corporate and accounting scandals involving Enron, WorldCom and other firms. Under the rules, company officers and directors were required to disclose their transactions, including the acquisition of options, within two business days.

Staff researcher Richard Drezen contributed to this report.