DailyTech - Disney Clears Steve Jobs of Stock Options Backdating

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IT Disney Clears Steve Jobs of Stock Options Backdating
Tuan Nguyen (Blog) - March 22, 2007 1:57 PM

19 comment(s) - last by Oregonian2.. on Mar 26 at 3:49 PM

Who needs backdating when you get to pocket $3.5 billion

Late last year, Apple CEO Steve Jobs and other Apple executives faced a barrage of lawsuits from lawyers representing the computer company's shareholders. The lawyers claimed that Jobs along with several other executives had participated in stock-options backdating -- that is changing the dates on stock grants to dates that have more favorable list prices. The lawyers also said that Jobs and company submitted "false and misleading statements" to the U.S. Securities and Exchange Commission. The news about Jobs' stock option practices extended beyond Apple Inc. and into his animation studio Pixar.

After Pixar was acquired by Disney early in 2006, Jobs pocketed a hefty $3.5 billion and stood as the largest single shareholder at Disney. This week the Walt Disney Company released a statement indicating that after an internal investigation, no current employees of Disney have been found guilty of participating in stock option misconduct. According to Disney:

The Audit Committee and the Board of The Walt Disney Company have completed their investigation into stock option practices at Pixar prior to the date of its acquisition by Disney. The Committee and Board have concluded that while options were backdated at Pixar prior to the acquisition, no one currently associated with the Company engaged in any intentional or deliberate acts of misconduct.

Although Disney's statement said that there were no deliberate acts of misconduct, the statement remains ambiguous about anything that could be labeled as accidental. Despite Disney's statement clearing the names of current employees, it confirms that some past employees of Pixar are guilty. However, since Jobs is a current employee of Disney, the statement directly indicates his innocence.

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interesting

By thejez on 3/22/2007 2:05:38 PM , Rating: 5

so the company that Steve is the single largest shareholder of cleared him of mis-conduct in an internal investigation huh?? interesting... that must have been one un-biased internal investigation.

RE: interesting

By dice1111 on 3/22/2007 2:12:48 PM , Rating: 2

Should they have had a legal, public, 3rd party enity conduct the investigation?

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RE: interesting

By DJSpyder on 3/22/2007 2:22:52 PM , Rating: 3

You would think they would have an outside party investigate, only makes since. But then again I'm sure that would be bad for all of them not just Jobs. It seems piculiar that it is only "former" employees that were guilty of doing this. But maybe thats just me.

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RE: interesting

By Tsuwamono on 3/22/2007 2:25:47 PM , Rating: 2

i would say yes..

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RE: interesting

By gramboh on 3/22/2007 3:07:51 PM , Rating: 2

The Audit Committee/board, who represent the shareholders, are releasing the report. They are taking on personal liability if they are wrong, and stand to lose a lot. Although Jobs is the largest individual shareholder he doesn't have enough ownership to appoint board members by himself by far. It's a fair process (as long as the AC signs off on the clearance).

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RE: interesting

By feelingshorter on 3/22/2007 3:16:36 PM , Rating: 2

Unless he is extremely greedy, I'd say that being the world's 2nd richest man is enough. What is he going to do with all the money before he dies?

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RE: interesting

By arteekay on 3/22/2007 3:54:08 PM , Rating: 2

Warren Buffet is the 2nd richest man, Jobs is 132nd (aka, not even in the top 100).

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backdating

By Oregonian2 on 3/22/2007 2:48:03 PM , Rating: 2

Note that backdating is perfectly legal. Nothing wrong with it. For that matter stocks can be given away completely free ("option price" of zero). It's only illegal when it shows up in the books some other way. AFAIK.

RE: backdating

By gramboh on 3/22/2007 3:09:26 PM , Rating: 2

The problem is, the options granting agreement ratified by the shareholders probably states (this is the case in 99.99% of public company option agreements) that the options will be granted at the closing market price on the date of grant.

It would require a 'special' grant with shareholder ratification for zero rated options or back-dating.

Representing that options were granted via a meeting/proxy at an earlier date than they were in reality is illegal.

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RE: backdating

By Oregonian2 on 3/22/2007 5:08:56 PM , Rating: 2

I'll admit that I've seen such documents for approval for companies that I own stock of, but in that my ownership was about 0.000000000001% I never took the time to actually read it, didn't think my votes would make or break things (and they usually pass with more than 99% "yes").

Do we know about those particular companies, and how do we find out what the rules are for the block of stock made available for the grants (without making it a life's challenge)? Might they award particular blocks a different way knowing it's for a specific person (such as Jobs)?

P.S. - All options that I've had (chicken feed stuff for the small fry's) were as you say, based on the grant day. Well, there was one really big one, but that was for a startup I was in that went belly up, but it had the same grant-day option price rule. Mostly a tax deduction because I had exercised the grant early (obviously a bad decision in retrospect). Buy high, sell low, deduct the losses -- that's my motto!

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RE: backdating

By gramboh on 3/23/2007 1:28:25 AM , Rating: 2

Well usually there is a shareholder agreement (sometimes unanimous) which outlines the way in which options must be granted. Usually it will say that the strike price of the option is the closing price on the date of grant. This agreement will also say that board members must vote (through a resolution of the board) for a grant to be issued.

So as a shareholder in a widely held company, you aren't voting on each grant of options, but rather the agreement that lets the board grant options throughout the year. The vote on the agreement would probably be done once by proxy when it was first setup. I'm not sure with large cap companies as large as Apple how it works as I've never worked with them.

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RE: backdating

By fic2 on 3/23/2007 11:42:50 AM , Rating: 2

Most of the time it wouldn't matter if a resolution passed with 1% of the vote vs 99% against. Voting for the most part in corporate elections is an "advisement". The board still just does whatever it wants. Look at some of the shareholder proposed things. Even if they get >50% of the vote the board still just says "ok, we'll take a look at it."

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RE: backdating

By Martin Blank on 3/23/2007 12:49:23 PM , Rating: 2

A board that does what it wants in spite of the stockholders' wishes is a board that does not last past the next election.

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RE: backdating

By Oregonian2 on 3/26/2007 3:49:07 PM , Rating: 2

The resolutions are for creating the block of stock to be distributed. Not sure if the board can create stock on it's own.

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RE: backdating

By theapparition on 3/24/2007 1:05:06 PM , Rating: 2

To answer all your questions, fist off, backdating is perfectly legal. If your company awards backdated options, they must "pay" the difference. This payment shows up in that quarter's accounting. Basically, its tax defferred execuive compensation. If the executive never exercises the option, the money can then be removed from the books. It is only illegal when the transaction is not recorded, basically, the company is printing its own money that way. These are the rules the SEC has mandated.

This has nothing to do with shareholders and votes. Very few (if any) companies call a vote anytime options are awarded. The board of directors are the ones approving shares. Now shareholder disapproval of the boards actions are another matter entirely........

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when the smoke clears

By kuyaglen on 3/22/2007 5:18:56 PM , Rating: 2

I hope to see some funny/clever joke to this at his next keynote address.

RE: when the smoke clears

By peldor on 3/22/2007 7:56:03 PM , Rating: 2

Would $2.5 billion in small bills stacked up to spell out F*** You Shareholders! be funny? Or is it just me?

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Descriminating pictures

By oTAL on 3/23/2007 10:31:16 AM , Rating: 2

What's up with the nice deep intelligent looking picture of Jobs? We want mugshots back!

Balmer's is still my favourite...

Guilty

By dpope on 3/24/2007 1:53:27 PM , Rating: 2

Jobs is guilty in backdating options with Apple and Disney.

Hell, Apple elects Al Gore to the board of directors and then he "chairs" the committee to investigate the back dating of options? Oh, and then he clears Jobs of that and in doing so happens to an option grant of 10,000 worth millions?

Anyone else see something wrong with this?