Fake E-Mail Results in Angry Apple Shareholders

drhamad writes "Apple stock dropped 2.2% today in mid-afternoon trading as Engadget published news based on a faked e-mail inside Apple. 'Apparently an internal memo was sent to several Apple employees--and forwarded to Engadget--around 9am CT today saying that Apple issued a press release with the news that the iPhone was now scheduled for October, and Leopard was delayed until January. About an hour and a half after that e-mail went out, a second e-mail was sent--this time officially from Apple--saying the first e-mail was a fake, and that the delivery schedule for the iPhone and Leopard had not changed.'"

Re:What are the implications for the website?

[DTemp]

This is why journalists do a thing called fact checking. You need multiple sources, or at least a source more convincing than a random @apple.com address, before you go to print with something like this. If Engaget was a legitimate news source, they would get hit HARD for this. But they aren't legitimate, so nobody really holds them in less esteem after this. Apple still has the right to legal action, however.

Re:And when do options expire this month? :-)

[Linagee]

Maybe they are adding actual useful features like HSDPA? Hahaha. (Or not.)

Re:Small potatoes

[DysenteryInTheRanks]

Sorry, to be clear, "backdating" itself is fraud, if you mean backdating the grant, granting "in the money" options is perfectly legal, even if you based it on a the strike price of a previous date, which has also been called "backdating."

So if you grant options based on a strike price in the past, but you admit this is what you are doing, and call them "in the money options based on Dec 1 1900 strike price" instead of "options granted Dec 1 1900", you are fine. Pretending you granted the options in the past is fraud, and it's what Apple has admitted doing.

There's more in the New Yorker article.

Re:Small potatoes

[Deslock]

whoever did this is engaged in very tiny-scale fraud compared to what Steve Jobs and the rest of upper management have already admitted doing.

They have admitted:

* Inventing on paper a fake Board of Directors Committee meeting that never took place (source [sfgate.com])

* Using this fake meeting to backdate options at a total benefit to Jobs of $20 million (contrary to Jobs' false spin) (same source)

{snip}

Those facts are agreed by all parties.

In the article that you linked to, an Apple spokesman is quoted as saying:

"After an exhaustive independent investigation, the special committee (conducted by outside legal counsel) found no evidence that Steve Jobs, any member of the current board or current management was aware of that irregularity," he said. "The options grant was canceled and Steve Jobs realized no financial benefit from the grant."

Sure the weight of that statement is diminished given that it's from an Apple spokesman, however, I didn't see anything in the article that contradicts him. So I'm puzzled as to why you used that article to support your assertion that Steve Jobs has "already admitted doing" this and that the "facts are agreed by all parties". Do you have another source to support your claims?

Re:Testing the waters?

[Anonymous Coward]

Actually the traditional meaning of leak pretty much REQUIRES that it be intentional. It's only been more recently that the term has been expanded to include unauthorized dissemination of information.

Apple hasn't given up secrecy

[hellfire]

The fact that Apple has given in to preannouncing some products lately (Leopard, AppleTV, iPhone) shows that they have given ground on their previously super-secret ways.

Fact: Leopard is just the next version of a product that everyone already knows about. They've always hyped their OS because that's what software makers do, and how they generate buzz and interest. Plus, you can't keep an OS secret because you have to get people to generate software for the OS. That's why you have beta periods, developer networks, and the like to make sure that as many developers who want their products compatible with the next version are ready the day of the official release. Sun, Microsoft, IBM, all do it/did it. It would hurt Apple too much not to.

Fact: AppleTV had about the same lead time as versions of the iPod and other hardware announcements from Apple. No hardware maker makes their product available right this second after it's announced. They announce it at the best time possible to generate buzz, and then gear up to ship. It helps stir speculation and anticipation. Apple TV was no exception.

Fact: As Jobs said, he had to submit the iPhone to the FCC for approval. Jobs only announced it this early because at this point, he couldn't keep it under wraps any longer. It becomes public record once the phone is submitted to the FCC. Therefore, you announce it to keep the thunder away from everyone else.

not with respect to the stock

[tacokill]

No, the rules do not change. And the rules are "there are no rules". They have zero liability here. In good faith, they thought the story was true.

Unless it is shown that a hedge fund or some other entity both made-up and profited from the story, it is what it is. A fake story and nothing more. Yes, the credibility of Engadget will be hurt but there isn't any legal implication whatsoever unless it was a true stock scam.

If you are actually dumb enough to trade on information like this, then you deserve what you get. "Bad" information is everywhere. That's why the smarter ones of us don't take everything we hear as the final word. As an example, don't you ever wonder how the "Microsoft is buying Yahoo" story got started? It's much much more subtle than this story and THAT is the proper way to do a stock scam. In that case, nobody can point to the originator of the story and it just seems plausible enough to actually be true. Meanwhile, as we idiots on /. debate the details of the story, several hedge funds trade out of Yahoo at a very nice profit.

Of course, nobody can prove the story is a pump and dump so nothing happens and the world goes on. However, I don't think the Apple/Engadget deal is the same thing.

Can't Be Real

[p0tat03]

As a former Apple employee, I can tell you without a doubt that they don't distribute this type of information in memos. The grunts like us are not privy to release dates for anything except pretty much our own assigned products. The only people who are at any point aware of big-picture information like this are the suits, and I doubt any of them would leak (especially considering you can count them on two hands).

Like the iPhone, Apple employees rely on the same sources regular joes do to find out about new releases. Nobody besides the iPhone team even knew what an iPhone looked like before it was shown at MacWorld.

Re:And when do options expire this month? :-)

[GlobalEcho]

The backers of those options would love nothing more than to see as many as possible expire worthless

You obviously don't understand how options traders operate. Those who write the options do not sell them "naked". Instead they purchase an appropriate amount of stock at the same time they sell the option, adjusting the amount according to the "Delta" as supplied by a variant of the Black-Scholes [wikipedia.org] model. See here [thepitmaster.com] for more information on how that works.

Because these options writers have sold the options short, and hedged the delta, they have sold volatility or are short gamma. Their best outcome is if the stock price does not move, because the risk-reward profile is positive for stable prices. They do not particularly care whether or not the options expire worthless. Big swings in the stock price like yesterday's, though, are quite painful for them.

Disclaimer: I am a finance industry professional specializing in options models.