Saturday, September 22, 2012

Steve Jobs Stock Options

In 2001, Steve Jobs was granted stock options in the amount of 7.5 million shares of Apple with an exercise price of $18.30. It was alleged that the options had been backdated and that the exercise price should have been $21.10. It was further alleged that Jobs had thereby incurred taxable income of $20,000,000 that he did not report and that Apple overstated its earnings by that same amount. As a consequence, Jobs potentially faced a number of criminal charges and civil penalties.  


It has to be noted that the case was the subject of active criminal and civil government investigations, though an independent internal Apple investigation completed on December 29, 2006, discovered that Jobs was not aware of these issues and that the options granted to him were returned without being exercised in 2003.

 On July 1, 2008, a $7-billion class action suit was filed against several members of the Apple Board of Directors for revenue lost due to the alleged securities fraud.




According to Brett Arends of MarketWatch: "Jobs held 15 million options at an exercise price of $9.15, which meant they started to gain value only if Apple stock exceeded that price, and 40 million options at an exercise price of $21.80." Arends revealed: "Apple at the time was little more than $7 a share. (These prices have been adjusted to reflect the subsequent stock split.) Total value: $12.8 billion."

"In other words," Arends claimed, "Steve Jobs missed out on $10.3 billion in extra profits."

It has to be mentioned though that Jobs' 10 million shares are still worth about $2.5 billion today. Needless to say that in 2009 Steve Jobs was named the No. 43 richest American with a net worth of $5.1 billion by Forbes.


Just for the record, the chief executive famously takes a salary of only $1 for his work at Apple, but receives millions in compensation in the form of stock options.



While Arends suggested Jobs' move in 2003 was the "dumbest trade ever," Jobs has also been behind some quite successful deals. Perhaps his best move was buying Pixar from filmmaker George Lucas in 1986 for $10 million. He sold the company to Disney in 2006 for $7.4 billion in stock and was also given a seat on the Disney Board of Directors.


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