The Options Scandal Hits Apple and CA, Equinix and Intuit

Includes: AAPL, CA, EQIX, INTU
by: David Jackson

Excerpt from today's Wall Street Journal annotated summary:

Apple and CA Report Problems In Options Grants

  • Summary: Apple announced yesterday after the market closed that it had found "irregularities" in stock option grants made between 1997 and 2001, and has appointed a board committee of external directors to investigate. The statement referenced a grant to CEO Steve Jobs which Apple says was later cancelled and did not result in a profit for him. Apple's SEC filings show that an option for 10 million shares was granted to Mr Jobs in January 2000 at the stock's lowest closing price that month. In the 20 days following the grant the stock rose 30%. Separately, Computer Associates said it is unable to provide audited results for its fiscal year due to problems with option grants from 1997 to 2001. CA says it sometimes failed to inform employees of grants for up to 2 years after they were awarded. That would allow CA's management to grant options at strike prices below the market price of the stock. Two other companies, Equinix and Intuit, announced that they had received options-related subpoenas from US attorneys following separate investigations by the SEC.
  • Comment on related stocks/ETFs: Apple (NASDAQ:AAPL) is the highest profile stock so far to be hit by the options scandal. The risk for investors isn't only the reputational damage and potential fines; it's that CEO Steve Jobs may be forced to resign if it is proved that he knowingly took an option grant at below market prices. The stock impact would be dramatic because Mr Jobs has been responsible for turning around Apple over the last few years. All these stocks -- Apple (AAPL), CA (NASDAQ:CA), Equinix (NASDAQ:EQIX) and Intuit (NASDAQ:INTU) may take hits today. More analysis from Jason Wood.