A criminal probe of Apple Inc.'s co-founder and CEO Steve Jobs over stock options tampering is now over, but the potential legal shadow over him and the company isn't going away just yet.
Although Jobs is not being indicted for his role in Apple's backdating of stock options grants, he will likely be called to the stand in at least two other cases. And there could be trouble over stock options at Pixar Animation Studios Inc., where Jobs was also chief executive before its buyout by Walt Disney Co. Pixar has said its former chief financial officer could face civil charges from securities regulators.
The biggest options-related issue still looming over Apple is a shareholder lawsuit filed in U.S. District Court in San Jose accusing the company and Jobs of defrauding investors with the company's backdating practices. Most shareholder lawsuits are settled out of court, but Apple could be forced to cough up millions in penalties if a jury finds it liable.
Shareholders need to be careful with these kinds of lawsuits, said B. Espen Eckbo, founding director of the Center for Corporate Governance at the Tuck School of Business at Dartmouth College. Part of the cost may be a very expensive reduction in the reputation of the firm — one that goes way beyond that issue that's prompting the suit itself.
Jobs will also likely be called to testify in the Securities and Exchange Commission's civil trial of Apple's former general counsel, Nancy Heinen. That case carries less risk to Wall Street's perception of Apple than the shareholder lawsuit, but it could provide illuminating details about Jobs' role in the options scandal.
Heinen is charged with altering company records to conceal the backdating activities. Her trial is scheduled for 2009.
Apple's former chief financial officer, Fred Anderson, was also charged by the SEC. He agreed to pay about $3.5 million in fines and penalties, but did not acknowledge wrongdoing. He has cast some blame on Jobs, saying he warned Jobs about the accounting implications of the disputed option awards.
Still, Jobs' position won't likely be threatened by any testimony he might give in either case.
Apple has already acknowledged that Jobs was aware of backdating. But the company says he didn't benefit financially from it and didn't understand the accounting implications. Although Anderson's comments contrast from Apple's statements, Jobs' position is strengthened by the government's decision not to pursue criminal charges.
Hundreds of companies have been investigated over stock options backdating, but Apple is the most high-profile one to be examined for possible criminal violations. The specter of a possible indictment has loomed over Apple for a year and a half.
The U.S. Attorney's Office recently sent a letter to Jobs and his attorneys informing them that the criminal investigation into Apple's stock options handling had been closed, a Justice Department official familiar with the matter told The Associated Press. This person requested anonymity because of the confidential nature of the correspondence between prosecutors and the subjects of their investigations.
The news of the closed investigation was first reported by The Wall Street Journal.
Heinen's defense lawyer, Miles Ehrlich, also confirmed that he was notified by the Justice Department that the criminal probe had been closed. He declined to comment on whether he planned to call Jobs to the stand in Heinen's trial.
Apple declined to comment.
Apple took an $84 million charge after it acknowledged it had backdated 6,428 grants between 1997 and 2002. One of those grants was an award of 7.5 million options given to Jobs, which he later surrendered in exchange for millions of shares of stock.
Backdating is the practice of registering stock options as having been granted at some hand-picked point in the past, usually when the company's stock price is relatively low. The practice boosts the potential windfall for recipients, and isn't illegal if the company properly records the transactions, which Apple didn't do at first.
Twenty corporate executives have been hit with criminal charges over backdating. Two of them — Greg Reyes, former CEO of Brocade Communications Systems Inc., and Stephanie Jensen, Brocade's former vice president of human resources — have gone to trial. Both were convicted.
