August 03, 2006

Common Valley Stock Practice Biting Apple

Having always worked in private companies, and having not yet ever reached the promised land of an IPO and public markets, the world of stock markets and public trading always has belonged to other folks. I'd often hear stories of how some saw their options first become real, and then rise and fall with the whim of the traders, but it wasn't brought home to reality - sounding more like fairy tales. But some got new cars, and some got new scars, and most lived to tell about it.

I can't recall whether it was through the gossip mill or from friends who worked at these newly-public companies, but many would tell stories of how their options would be priced at the lowest point of the stock's crest in the most recent month or quarter - meaning that regardless of its present condition, they were guaranteed to have been in the money, at least a little bit. This was normal, and if I remember right, was used as an incentive - like a company perk.

However, with increased corporate scrutiny from the SEC following all the mega-scandals at the beginning of this decade, more than 60 companies are under fire for such shenanigans, and among the most well-known is Apple Computer, where a good chunk of my investments are right now. (Okay, a huge chunk.)

After market close today, the company disclosed that it may have to restate previous quarters' earnings due to the practice, which they originally hinted was not going to be significant. As you know, any uncertainty is not good news to the markets, and it's highly unlikely that Apple stock will get away with not being punished tomorrow, even if the issues took place years ago, and the people involved are themselves gone.

As the Wall Street Journal notes, it's not clear "just what the irregularities are", and that today's announcement marked a "noticeable shift" in the company's position on the option grants. Just two weeks ago, Apple said it wouldn't need such an adjustment.

For those of us holding Apple stock, the next week or so should be a bumpy ride. Next week is the kick-off for WWDC, and many new products are anticipated. We could go down before we go up, and then back down again. Buckle up.

Listening to ''The One (Driftwood Remix)'', by Dee Dee (Play Count: 7)

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