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 "it 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
"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.
quote: 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.