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Monday, March 24, 2008

Teflon Jobs?

Was Apple CEO Steven Jobs personally involved in backdating stock options? This question is explored in detail in a highly informative article by Peter Elkind in the current issue of Fortune titled “The Trouble with Steve Jobs.” Apple has acknowledged that Jobs “was aware [of] or recommended the selection of some favorable grant dates. ” But Apple’s investigation concluded that Jobs’s involvement did not amount to misconduct because he “was unaware of the accounting implications.” While Jobs has not been charged by either the SEC or the DOJ, the investigation continues. Former Apple CFO Fred Anderson, who has been charged by the SEC with securities fraud for misleading investors, has publicly stated that Jobs knew all about the accounting implications of backdating options.

Meanwhile, on March 19 in San Francisco, a tearful Stephanie Jensen was packed off to jail. The former Brocade human resources chief was sentenced to four months in federal prison by U.S. District Judge Charles R. Breyer (brother of U.S. Supreme Court Justice Steven Breyer) for her involvement in options backdating. Judge Breyer stated that her sentence should send “a message to individuals who may be confronted with a situation very similar to the one you were confronted with, and that if they don’t say ‘no’ they are going to spend a lifetime regretting the decision they have made.”

This fundamentally unjust situation highlights how inequitable it is to single out individuals as scapegoats to serve as deterrent value for a widespread and largely bygone corporate compensation practice. Options accounting rules were technical, complex, and muddled. Regulatory changes and company restatements have mostly addressed the issues. The government has convicted Jensen and former Brocade CEO Greg Reyes at trial and is 2-0 in the options backdating arena. Let’s hope it exercises fairer and more reasoned judgment going forward. CR

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