Apple shares fell more than 2 per cent in early trading on Friday after it became one of the biggest companies to announce irregularities regarding issuance of stock options, with one case involving its chief executive Steve Jobs.
Apple said an internal investigation had discovered irregularities in some stock option grants made between 1997 and 2001. The one involving Mr Jobs had been cancelled subsequently and resulted in no financial gain.
A committee of Apple’s outside directors has now hired independent counsel to investigate and the company has informed the Securities and Exchange Commission, it said after the New York market closed. Nearly 60 companies have announced investigations into stock options awards and the SEC has been investigating a number of them, many from the technology sector, over alleged backdating of the options in order to retrospectively choose a low point for the shares as a strike price.
Most cases seem to relate to a roughly six-year period prior to the Sarbanes-Oxley legislation – before then option grants were disclosed once a year and could be made in a 45-day window, which has now been cut to two days.
Apple did not detail the “irregularities” and said executives would refrain from commenting until the investigation was concluded.
“Apple is a quality company and we are proactively and transparently disclosing what we have discovered to the SEC,” said Mr Jobs.
“We are focused on resolving these issues as quickly as possible.”
Apple’s shares had closed sharply higher on Thursday – up 5.3 per cent at $58.97. But after the announcement, the shares fell 3.3 per cent in after-hours trading to $57.
Christopher Cox, chairman of the SEC, has said the agency is considering adding fresh guidelines on stock-options disclosure to a landmark executive compensation reform proposal that he presented earlier this year.
The proposals would provide shareholders with a total compensation number for the CEO, CFO and the three other highest-paid executive officers. That would require options to be disclosed in a “summary compensation table” at fair value on grant.
Latest accounting standards mean a company cannot hide the real value of the option by fixing option terms on a date other than the true grant date.
Additional reporting by Jeremy Grant