With the Dow over 13,000, these are complicated times for
investors. They want performance, first and foremost. But investors
also want, and are demanding, better governance. The two - performance and governance - aren’t always related.
In general, better governance should lead to better performance at
least in the long run. But ranking high in “corporate governance” is
no guarantee that a company’s game plan and execution will be successful. Running a company is very different than running a PTA.
Nor does the fact that a company has a high “corporate governance
quotient” guarantee that its shareholders will be inoculated from
corporate fraud. As an attorney who represents investors who have been victimized by corporate fraud, I am often shocked when
I see a “high” corporate governance rating for a company whose
corporate insiders dumped their shares just before their company significantly restated their earnings downward. The corporate
insiders made huge and undeserved profits at the expense of its investors who suffered dramatic losses. How does that equate
with receiving a good governance rating?
Although these anomalies may be too frequent, we should all,
nevertheless, push for improved corporate governance. But I would
like to briefly discuss one of the most shocking anomalies -- Apple Inc. (NASDAQ: AAPL). Last week, as you are probably aware,
Apple was the focal point for both performance and governance.
As Apple stock hovers just below $100 per share, its investors and
Wall Street have to be pleased. Although Apple executives have
warned that its high margins are not sustainable, its performance
this quarter is very impressive. For the quarter ended March 31, 2007,
its earnings came in at 87 cents a share compared with 47 cents a share for the same quarter last year. In addition, its gross margin
came in at 35% compared to less than 30% for the same period a year ago.
Moreover, regardless how Apple performs in the future, its vision and
innovation the past few years has been a model for other companies.
With its iPods, iPhones and other new products, the Company has defined and then addressed consumer desires.
However, its stellar performance has been somewhat blemished
by certain corporate governance issues involving the alleged backdating
of options that took place several years ago at the Company. Perhaps, the word “alleged” isn’t necessary because the Company
has admitted that some option grants were backdated. To settle with
the SEC, Apple’s former CEO, Fred Anderson, recently agreed to pay
about $3.5 million in disgorgement and a $150,000 civil penalty.
But he wasn’t prepared to accept total responsibility and last week
he charged that Mr. Jobs misled him.
Last week, there was other negative news regarding Apple’s options
practices. The SEC filed civil charges against Apple’s former general
counsel, Nancy Heipen. Allegedly, she was not only involved in the
backdating, but, even more troubling for a general counsel, also falsified company documents in an effort to conceal the fraud.
The sooner Apple and its current and former executives get this
matter finally behind them, the better. The Company doesn’t
need this distraction. If documents were falsified, then there
are obvious consequences.
Of course, the whole backdated options scandal goes well beyond Apple and, by no means is Apple the worst example. In almost
every company implicated, the corporate executives who benefited by the backdating of options were already very highly paid. If
these executives wanted more money, their boards should have increased their salaries directly rather than indirectly and fraudulently
through the use of backdated stock options.
But, thankfully, if you were an Apple investor then you didn’t
feel the pain of the backdated options scandal because of the Company’s stellar
performance. However, investors at many other companies weren’t
so lucky.
Monster Worldwide, Inc. (NASDAQ: MNST) was one of those companies.
Last summer, the Wall Street Journal reported that Monster gave officials options ahead of share run-ups. Another company with
improper backdated options practices is Wireless Facilities, Inc. (NASDAQ: WFII). Wireless Facilities is one of several companies that
had to restate their financials as a result of their improper
options practices.
Three other companies that allegedly engaged in improper options practices are Transaction Systems Architects, Inc. (NASDAQ: TSAI),
Sonic Solutions (NASDAQ: SNIC) and Active Power Inc. (NASDAQ: ACPW).
In each of these cases, when allegations against the company were disclosed, its stock tumbled and hasn’t recovered.
We are investigating the situations discussed above and if you are
an affected investor in any of these cases or the other cases listed
below under investigation, you may wish to contact us at
info@securitiesleuth.com or 877 511 4717. More information is
available securitiessleuth.typepad.com or at www.securitiessleuth.com
Other cases under investigation are:
CTS Corporation (NYSE: CTS)
Cutera, Inc. (NASDAQ: CUTR)
Inphonic, Inc. (INPC)
Gaming Partners International Corp. (NASDAQ: GPIC)
Jackson Hewitt Tax Service Inc. (NYSE: JTX)
Fremont General Corporation (NYSE: FMT)
LCA-Vision (NASDAQ: LCAV)
Thor Industries, Inc.(THO)
U.S. Auto Parts Network, Inc. (NASDAQ: PRTS)
Now with respect to securities cases that have recently settled. If you
are an affected investor – you purchased any of these stocks during the
relevant class period, you may wish to contact the claims administrator
to obtain additional information. Remember, if you don’t submit your
claim form, you won’t receive your share of any settlement.
Catalina Marketing Corp. (POS)
Class Period: October 14, 1999 to August 25, 2003
Claim Deadline: May 21, 2007
Claims Administrator: Gilardi
Spear & Jackson, Inc. (SJCK)
Class Period: February 1, 2002 to April 1, 2003
Claims Deadline: June 26, 2007
Claims Administrator: Garden City
Information regarding other recent settled cases, including the cases
listed below can be found at www.securitiessleuth.com.
Winstar Communications (WCII)
Ibis Technology Corp. (IBIS)
Astropower, Inc. (APWR)
Again, you should contact the claims administrator (rather than us).
However, if you are an affected investor in any of the companies under investigation, you many wish to contact us so that you can
consider your options.
Likewise, if you happen to be aware of corporate restatements or other financial fraud -- especially if you're a victim -- you're encouraged
to contribute to the Sleuth by giving your own tip-offs at http://securitiessleuth.typepad.com or by e-mailing
info@securitiessleuth.com.
You can also call Mark McNair at 877-511-4717. If you have a friend or
colleague you think would benefit from The Sleuth, please pass along
this issue and ask them to sign up at
http://www.cartville.com/app/join.asp?MerchantID=47994.
Warmest regards,
Mark McNair
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