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Group of enraged shareholders file class action for backdating practices which sunk their shares' worth

Angry investors have filed suit against Apple Inc., CEO Steve Jobs, former financial officer Fred D. Anderson, former general counsel Nancy R. Heinen, and several members of the company's board of directors on Friday.  They allege that as a result of Apple's security fraud, they experienced massive losses on the stock market.  They filed their case in U.S. District Court in San Jose, California.

The case is led by plaintiffs Martin Vogel and Kenneth Mahoney, who are seeking class action status.  They stated that the aforementioned plaintiffs and board members William V. Campbell, Millard S. Drexler, Arthur D. Levinson, and Jerome B. York filed false financial statements, concealing millions in executive perks through backdated stock grants.

Apple already acknowledged that such practices did indeed occur.  It said that there were "accounting irregularities" between 1997 and 2001, according to a 2006 report.  It acknowledged that some of the funds in question went to Jobs, but "i
t was subsequently canceled and resulted in no financial gain to the CEO." 

Apple has been subject to numerous government investigations due to its questionable accounting.

After Apple's admission in 2006, the stock price dropped 14 percent, a loss of over $7B USD to shareholders.  The shareholders filing suit hope to regain this money from Apple.

The report in question came in
December 2006.  In it, Apple said that it would be forced to rework its financial results to include an additional non-cash stock-based compensation expense of $84 million after tax [$105 million pretax], including $4 million and $7 million in fiscal years 2006 and 2005, respectively.  However, despite the ongoing irregularities, Apple said it found no irregular grants after Dec. 31, 2002.

The plaintiff's complaint weighs in at a hefty 105-pages.  It basically accuses Apple of knowing what it was doing and intentionally acting in a way that could damage shareholders.  It charges, "
The defendants knew that options were not granted on the dates that were disclosed to shareholders and falsified the company's records to create the appearance of illegality, and thus bear direct responsibility for their actions.  Here, Jobs and the Individual Defendants clearly appreciated the fraudulent nature of their conduct."

Jobs, a controversial figurehead of the tech industry, has received many "instant paper profit[s]" according to the complaint.  The first it says was $20,325,000 when, on Dec. 18, 2001, thanks to 7.5 million Apple shares in a stock option grant dated back to Oct. 19, 2001.  The second was an even bigger 10 million-share option grant in January 2000 resulting in $83,762,000 for Jobs.  The first, it says was not even recorded in Apple's books, while neither were disclosed to shareholders.

Apple would not comment formally on the allegations.

Owen Pell of 
New York law firm White & Case said the case offers up little new in the way of fraud allegations.  Most of the matters in question have already been widely reported.  The case may be a tough one for the plaintiffs, he said, as they must prove that the drop in stock price corresponded to the admission from Apple.

Loss causation is not necessarily obvious on the face of the complaint in terms of the plaintiffs adequately pleading the link between the news of Apple's income restatement and the stock drop.  Apple may be able to point readily to other news, either about the company or the market in general, that coincides with market movements," said Mr. Pell.

Mr. Pell added that Apple can elect either to put the suit on hold while pending lawsuits are resolved or more likely apply to have it dismissed.  If the plaintiffs can't offer up sufficient evidence of causation, the case is likely headed to the legal graveyard.

Gary S. Graifman, a partner in the firm of Kantrowitz, Goldhamer & Graifman, P.C. and one of the plaintiff's attorneys, argues that his clients have a very strong case.  He stated, "I think the timing of the drop in the stock and the [Apple] announcements would speak for itself and demonstrate that there is causation."

Pertinent to the case is the
April 2007 filing and simultaneous settlement of U.S. Securities and Exchange Commission charges against former Apple CFO Anderson.  According to the SEC, Mr. Anderson should have noticed Apple general counsel Heinen's fraudulent backdating activity and may have cast a blind eye to it.  Mr. Anderson settled with the SEC, "without admitting or denying the allegations in the commission's complaint," agreeing to pay a $150,000 penalty, agree to an injunction on further security law violations, and to return $3.49M USD in stock options.

Past private efforts to sue Apple for stock options violations have been largely fruitless. 
The New York City Employees Retirement System filed a similar suit, but this May U.S. District Court Jeremy Fogel said that the group could not sue Apple.  He said they couldn't prove that Apple's actions had caused the pension fund harm.  He advised them to join a separate stock-options lawsuit currently in progress.  The results of that suit also remain to be seen.

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By oab on 7/2/08, Rating: 0
RE: Gee
By Cheapshot on 7/2/08, Rating: 0
RE: Gee
By FITCamaro on 7/2/2008 12:42:49 PM , Rating: 5
True. But if there was true foul play, that is not part of the risk of playing the stock market.

However I do believe that these people should only get the money THEY lost if they win.

RE: Gee
By Denigrate on 7/2/2008 12:44:59 PM , Rating: 5
Investors need to be protected from fraud. Nice to know that the huge premium charged by Apple is going directly to Jobs bank account through fraudulent Stock Options.

Investors should be able to go after a Corp if they can prove fraud.

RE: Gee
By DCstewieG on 7/2/2008 1:12:56 PM , Rating: 2
It acknowledged that some of the funds in question went to Jobs, but "it was subsequently canceled and resulted in no financial gain to the CEO."

RE: Gee
By Oregonian2 on 7/2/2008 1:29:58 PM , Rating: 1
And in any case, the dollar amounts talked about are insignificant in terms of Apple revenue and profits (and isn't real money anyway, "money" spent on stock grants and the like are only opportunity-lost sorts of money in that they COULD have been corporate money had the company sold those same shares on the open market).

So the actual value in terms of Corporate health and the business being run was of insignificant impact.

If there is somebody to sue, it'd be those who were involved in the transactions where shares traded hands at lower prices. Their psyche is what lowered the share prices, not the company's actions.

RE: Gee
By MrBlastman on 7/2/2008 1:27:05 PM , Rating: 2
I agree - but they should be compensated fairly as well.

As it is right now, they receive such a paltry sum from any settlement it is absurd, while the lawyers laugh all the way to the bank.

.10 to .20 cents a share is a pittance. Sometimes, there are "hidden fees" that are deducted from _that_ sum which reduce it even further.

RE: Gee
By oab on 7/2/2008 6:14:30 PM , Rating: 2
In that case, what is the SEC for anyway? Just let the civil courts handle it. Who needs them.

RE: Gee
By afkrotch on 7/2/2008 11:40:05 PM , Rating: 2
The problem is, that money they lost, could have been used other ways.

Let's say you got paid $7 billion and somehow tax irregularities caused you to get nothing. So you had to go through the hassle of getting your money back. 12 months later you win in court.

Should you get back $7 bil or should you get back $7 bil plus the interest you would have gain, if said money were in the bank? $7 bil at 2% compound interest over 12 months is $141 mil. As they work with stocks, that money could have been turned into a lot more than $141 mil.

I find it no different than someone who got hit by a car that is sueing for their hospital bills and loss of income cause they were injured and couldn't go to work. That money they lost could have been used to make more money.

RE: Gee
By abzillah on 7/2/2008 3:03:52 PM , Rating: 2
What are you expecting from these apple lovers? I'm not surprised.

By pauldovi on 7/2/2008 12:17:49 PM , Rating: 2
The plaintiff's complaint weighs in at a hefty 105-pages.

Something tells me the author of the article didn't read it....

RE: Wondering
By jonmcc33 on 7/2/2008 1:16:58 PM , Rating: 1
I'm just surprised to see a negative Apple blog from Jason Mick. It's unheard of! Maybe he'll address all the bugs that Apple had to patch with OS X 10.5.4 next?

Here, Jason. I will help you out!

RE: Wondering
By Pirks on 7/2/08, Rating: -1
RE: Wondering
By SuperFly03 on 7/2/2008 4:26:38 PM , Rating: 4
Get a life.

You are nit picking the command console in Vista? really? Take your Job's worshiping self somewhere into the realm of failure where Crapple products belong.

RE: Wondering
By Pirks on 7/2/08, Rating: -1
RE: Wondering
By Gneisenau on 7/2/2008 4:31:25 PM , Rating: 2
Wow, right off the bat an Apple fanboy appears to defend all things Apple. I don't see where this story took a shot at Apple's OS. It's about a lawsuit against the Corp. Talk about jumping to conclusions..

RE: Wondering
By Pirks on 7/2/08, Rating: 0
RE: Wondering
By mikeyD95125 on 7/2/2008 5:49:23 PM , Rating: 2
The original comment was being critical use Jason Mick's tendency blog about negative Apple stories. And you turned it around like he was being critical of Apple.

You took it totally out of context. Just take your time to read next time instead of jumping to conclusions. You only made yourself look like a jackass.

RE: Wondering
By Pirks on 7/2/2008 6:10:30 PM , Rating: 1
It's jonmcc33 who took it out of context. Ask jonmcc33 why the heck he started to post about some Mac OS fixes here?

I just showed jonmcc33 that he should be bothered more about some serious problems with Windows Vista instead of picking on minor things in a well polished OS from a Microsoft competitor.

Got it? If not - just read this thread from the beginning and you'll understand how totally out of context jonmcc33's post was here.

RE: Wondering
By oab on 7/3/2008 2:04:51 AM , Rating: 2
Maybe you'd like to discuss Vista bugs instead? Like constant ugly window flickering/slow redrawing when windows are redrawn after you press Win-D twice, _even when Aero is on_?

It's instant for me. Perhaps you have other problems going on. Turning down some visual settings might help. Or updating your drivers to their latest.

How about braindead non-resizable console window - you still can't change its width on the fly, only the height, why?

You can't, because it starts at the same width as the original DOS terminal, probably to prevent people from screwing up the display and wondering why things look really funny after they "didn't do anything!"

You can still change it in the properties menu. Annoying yes, but it's not a huge problem.

How about braindead cut-n-paste functionality in console through the pop-up menu instead of direct drag-drop or alt-c/alt-v like in Mac OS?

That's not a bug, you go into "defaults" from the context menu, and choose "quick edit".

Some programs are not compatible with quickedit however (ie. MS Edit doesn't allow mouse access to menus when quickedit is on, but it does if it is off).

XP had the same thing. It's not a bug, it's not a feature, it's a default setting that YOU CAN CHANGE IF YOU WANT TO.

RE: Wondering
By Pirks on 7/3/2008 2:27:24 PM , Rating: 1
It's instant for me
Was instant for me too until I tried to press F11 in Mac OS X. Everything looks different in comparison. Try to compare Win-D in Vista with F11 in Mac OS X and you will immediately see the difference I was talking about.
Annoying yes, but it's not a huge problem
My point was that jonmcc33 should be bothered more with those annoying little problems in Vista than picking on much more polished and not annoying Mac OS. Deal with bigger trouble first, pick on minor things later. Got it? ;-)

No sympathy here
By psychobriggsy on 7/2/2008 1:16:11 PM , Rating: 2
But if they forced Apple to give up $7b (1/3rd of Apple's savings) then that would cause a REAL material drop in value of the company, which would affect the share prices of all the existing shareholders.

In addition the company's share value has more than rebounded, meaning that long term investors haven't lost out. The only losers were the skittish sheep investors that sell because someone else sold. I bet lots of shareholders who bought at that time actually made a nice profit as well - why didn't this lot of shareholders do that?

No sympathy at all. The stockmarket is gambling, and they should know that.

RE: No sympathy here
By Oregonian2 on 7/2/2008 1:32:45 PM , Rating: 2
But if they forced Apple to give up $7b (1/3rd of Apple's savings) then that would cause a REAL material drop in value of the company, which would affect the share prices of all the existing shareholders.

At which time, those other shareholders sue the first set.

RE: No sympathy here
By DASQ on 7/2/2008 1:38:54 PM , Rating: 2
'Gambling' != Fraud.

The stock market is a 'calculated risk' as the advisers like to put it. But this is a loss due to what most consider fraudulent activity

RE: No sympathy here
By seraphim1982 on 7/2/2008 4:39:06 PM , Rating: 2
Ok... so your saying people that invested in Worldcom, Bre-X, Nortel... deserved to lose their money, because they were investing on the stock market. Those companies and CEOs f*cked the shareholders, no if and or buts. These people do not deserve to lose their money the corporate jack@$$es are the ones who should have their wallet cleaned.

Another day,
By MrBlastman on 7/2/2008 11:55:49 AM , Rating: 2
Another dollar in the class-action suit attorney's pockets. I actually grow bored with the number of suits I see on a daily basis.

Weather there is a wrong or not at stake - the quantity of such suits is astounding. In the end, the shareholder will get their .10 - .20 cents a share and the attorneys will keep the remaining 30-40% of the total settlement.

This will net your average Joe who owns say, 100 - 1000 shares, perhaps the grand sum of 20.00 - 200.00.

Yay. *the townsfolk cheer in Clouds of Xeen intro enthusiasm*

RE: Another day,
By callmeroy on 7/2/2008 2:18:58 PM , Rating: 2
*the townsfolk cheer in Clouds of Xeen intro enthusiasm*

You brought back some good gaming memories with that line...what a phenominal series that was.

It's business, sooo...
By Clauzii on 7/2/2008 12:45:10 PM , Rating: 2
... sometimes You win, sometimes You lose. And I don't see why Apple couldn't gain 14% in the long run.

If the case settles, SOME shareholders at Apple will then have stocks at 14% over value, or what?

Insurance Scam
By Qel on 7/2/2008 10:20:09 PM , Rating: 2
Talk about a crazy system.

Stock holders own the company, so they're suing themselves. Any money the company pays out comes of the company so it WILL reduce its value by that amount.

Ok, so maybe these guys have sold their shares. So they're suing the guys that bought their shares off them after the fact. Here have these shares, if they go down - SUCKER!. If they go up, we'll sue you for it - SUCKER!

Why not sue the people involved? The executives, the accountants, the auditors - or does the company cover that sort of thing through its insurance policies. So this is just a scam to get some money off Apple's insurance companies - splitting it with the lawyers (of course).

"I'm an Internet expert too. It's all right to wire the industrial zone only, but there are many problems if other regions of the North are wired." -- North Korean Supreme Commander Kim Jong-il

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