Apple: The Crows come home to roost

Apple warns that it may blow its select listing with Nasdaq

Apple has given warning that it could be removed from the highly regarded Nasdaq Global Select Market, as the maker of iPod and Macintosh acknowledged for the first time that it was the subject of a federal investigation into its stock option practices.

The company, which last June revealed “irregularities” in its stock option grants and took an $84 million (£43 million) charge six months later, said that the investigation by the US Securities and Exchange Commission (SEC) could lead to further restatements and delays to its financial reporting.

“The resolution of these matters will be time consuming, expensive and will distract management from the conduct of the company’s business,” Apple said yesterday in a regulatory filing. “Furthermore, if the company is subject to adverse findings in litigation, regulatory proceedings or government enforcement actions, the company could be required to pay damages or penalties to have other remedies imposed, which could harm its business, financial condition, results of operations and cashflows.”

Apple also noted that the investigation could “subject the company to a potential delisting from the Nasdaq Global Select Market”. That market, which started last July, comprises about one third of the companies listed on the Nasdaq exchange. Membership confers an extra degree of respectability on a company’s accounting and corporate governance proceedures and, accordingly, gives investors an increased level of confidence.

The SEC is investigating the way that Apple accounted for “backdated” options, which the company has admitted that it granted to key employees, including Steve Jobs, the chief executive. The most sensitive case under investigation relates to options granted to Mr Jobs in December 2001. The award was backdated to October, when Apple’s share price was lower, thereby guaranteeing a much bigger profit for Mr Jobs if the options were cashed in.

Apple acknowledged in December that it had falsified records to show that a board meeting was held to approve the move when no such meeting took place. Apple also said that Mr Jobs was not aware of accounting implications of backdating and that he returned the options so that he would not benefit from the practice.

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http://business.timesonline.co.uk/tol/business/industry_sectors/technology/article1319327.ece