It’s been a couple days since what has now been a widely panned dud of a keynote speech by Steve Jobs at Macworld. No “one more thing … ” No breathtaking surprises. No stunning celebrity. (Randy Newman? Come on.)

I was in the audience, and I thought the lower-key keynote was just fine. It’s true that Jobs blew no one away. Top honchos from Twentieth Century Fox and Intel (CEO) won’t wow the crowd. Movie rentals can’t compare with the reinvention of an industry. And while Apple’s (AAPL) new ultrathin notebook looks fabulous, it’s not priced for the mass market. (And will people pay $1800 and up for a device with no Ethernet port? These are the types of topics geeks can endlessly debate.)

But so what? After a year like Apple had last year, it’d be silly to try to blow people away at Macworld. Perhaps it was better to lower expectations. I’m guessing that whether intentionally or not, that’s what Jobs did on Tuesday. And for what it’s worth, while Randy Newman isn’t as sexy as John Mayer or Kanye West, past Macworld performers, his two songs were really good.

The faithful’s disappointment had nothing on Wall Street’s, though. Apple’s shares have now fallen $19, or almost 11%, since Monday’s closing price. This will seem confusing to market watchers of the amateur variety as well as the pros. No one has answers, only guesses. Citi analyst Richard Gardner, for example, called Tuesday’s stock behavior a “typical seasonal pullback.” His explication covers all the bases:

While we are surprised by the magnitude of today’s pullback in Apple shares following an as-expected Macworld keynote, we believe the reaction reflects the view that today’s product announcements will do little to help Apple during [the first half of calendar-year 2008]. The products either represent minor enhancements to existing products (i.e., software updates for iPhone and iPod touch), niche products (i.e., the new ultraportable MacBook Air) or new services that will drive iPod and AppleTV sales over the long-term but contribute little or nothing to operating income during 2008 (i.e., iTunes movie rentals).

Trying to understand the selloff almost isn’t worth the effort. Apple is one of those stocks that defies explanation. It was equally tough to understand is recent high of almost $203.

So focus instead on how the company is valued. At $160 a share, Apple trades for about 31 times expected earnings for its year that ends in September. Analysts expect Apple to grow earnings this year about 31%, an astounding growth rate for a company this size. Next year they see 25% growth. In other words, at its current multiple, Apple is getting little or no premium to the market, despite the iPhone working out to be a bigger than expected seller and the Macintosh picking up speed. (Google (GOOG), by the way, at $616, is off 18% from its high. It trades for about 30 times expected 2008 earnings and is expected to grow by 33% … I’m just saying … )

Apple reports earnings next week. It has a habit of underpromising and overdelivering. It isn’t the expensive stock it used to be.

Even before Brocade Communications System’s (BRCD) former CEO Gregory Reyes was indicted last summer for his role in that company’s stock options back-dating scandal, he seemed to be preparing to implicate Palo Alto superlawyer Larry Sonsini in the mess.

Sonsini’s firm, Wilson Sonsini Goodrich & Rosati, was Brocade’s outside counsel and Sonsini was a director on Brocade’s board. In an interview with Business Week in February 2006, available here, Reyes suggested that the company’s board was scapegoating him, and he seemed particularly incensed with Sonsini. Reyes argued that Sonsini — who had talked Reyes into resigning in January 2005, after an internal investigation at the firm confirmed backdating problems — had been the one who counseled him in 1999 to serve as a “committee of one” when granting stock options, rather than requiring the full board to approve each grant. This was a factor that had presumably made it easier for Reyes to backdate with impunity.

When I wrote a profile of Sonsini that ran in the November 17, 2006, issue of Fortune (available here), Reyes’s criminal defense attorney Richard Marmaro, of Skadden Arps Slate Meagher & Flom, also seemed to be linking Reyes’s plight to Sonsini, albeit more backhandedly: “Sonsini at all times acted totally above board and with the highest ethics of the profession,” Marmaro told me then, “and my client relied on his sage advice.”

But last Wednesday, the day Marmaro had told reporters he would be calling Sonsini as a witness , he didn’t, and it now appears likely that Sonsini won’t be called at all. (Marmaro did not respond to an email seeking comment.) The government had also put Sonsini on its witness list, but didn’t call him.

Reyes’s accusation against Sonsini — that he advised setting up the committee of one — was always a giant step removed from anything that would either truly exonerate Reyes of wrongdoing or truly implicate Sonsini in it. Notably, Reyes never accused Sonsini of telling him that it was okay to backdate, which is what the crime was. Committees of one were, and still are, commonly used for awarding options for lower level corporate executives, especially at companies like Silicon Valley startups for which options constitute a critical part of rank-and-file employees’ compensation. The law of Delaware, where Brocade was incorporated, authorizes their use for that purpose, and that’s the only use Brocade made of them. (Committees of one can’t be used for granting options to corporate officers, directors, or 10% shareholders — which would create a risk of self-dealing — and Brocade didn’t use them for that purpose.)

When I did my profile, Wilson Sonsini’s spokesperson also noted that, for what it was worth, the firm hadn’t even been the one that set up Brocade’s “committee of one” in any event. She said that committee had already been in place when Sonsini began advising Brocade, having been set up when a different law firm was advising Brocade, although she declined to name it. But in late May (as the Wall Street Journal reported here), after civil class action lawyers asked a judge to take judicial notice that Sonsini had set up Brocade’s committee of one (relying on press accounts of what Reyes told Business Week), the firm finally produced a copy of the February 1998 board minutes which do, indeed, show that the committee was created then, about 11 months before Sonsini began representing Brocade and joined its board. The firm’s outside attorneys in February 1998 had been Fenwick & West, another highly regarded Palo Alto firm, and the minutes were signed by its partner Dennis DeBroeck, as Brocade’s corporate secretary. (Wilson Sonsini’s filing, with the minutes attached as Exhibit A, is available here. DeBroeck, by the way — and I’m really just offering this in the spirit of “small world!” and not as an intimation of a vast conspiracy — is the husband of Nancy Heinen, the former general counsel of Apple (AAPL), who has been charged civilly by the SEC in connection with Apple’s backdating problems. (Calls and emails to DeBroeck and the firm’s chairman were returned by a spokesperson, who declined comment.)

Meanwhile, the pivotal issue in the Reyes trial has turned out to be what it so often is in white-collar trials: criminal intent. And though Marmaro has developed a rather complicated and interesting theory about why backdating involved no “material” misrepresentation (required to make out a fraud case), see earlier post on that, the crux of the case is proving to be much simpler and more basic: Did Reyes even realize he was doing anything wrong? In essence, it’s the Steve Jobs defense: Marmaro says Reyes didn’t understand the accounting repercussions of backdating. And just as the SEC evidently did not think it could prove Jobs knew that backdating was wrong (even by a less rigorous civil standard of proof), Judge Charles Breyer is now weighing seriously whether the government failed to meet its burden of proving beyond a reasonable doubt that Reyes knew he was doing something wrong. Breyer said he’d deliver his ruling on Thursday.

If Judge Breyer rules against Reyes and allows the trial to proceed, the moral for Reyes may be a hackneyed one: it’s not the crime, it’s the cover-up. The best evidence at the moment that Reyes knew he did anything wrong is that he allegedly lied to the attorney performing Brocade’s internal investigation in late 2004 when asked whether he used “look-backs” to price options at Brocade. The attorney, Craig Martin of Morrison & Foerster, testified that Reyes denied using look-backs — i.e., retrospectively looking for the lowest stock price of the previous quarter and then backdating options grants to that date — when in fact the company used them routinely and the evidence establishes that Reyes had to have known it did.

As bad as that looks, though, a crucial question remains as to when Reyes learned that there was something wrong with using look-backs. The backdating occurred from 2000 to 2002, so Reyes may have only learned that there was a problem much later. Much of the other evidence offered by the government as to Reyes’s state of mind suffers from the same problem. An email he authored, saying “IT IS ILLEGAL TO BACKDATE OPTIONS GRANTS,” was not written until October 2004. Similarly, a human resources officer who testified that Reyes told her, “It’s not illegal if you don’t get caught,” was uncertain as to precisely when the conversation occurred and even as to what Reyes meant by “it.”

The most likely outcome is that Judge Breyer will deny the motion for acquittal and let the jury grapple with the same questions itself. If he grants the acquittal motion now, the trial is over, the jury never gets to consider the case, and the acquittal order is unappealable, law professor Robert Weisberg of Stanford tells me, since double jeopardy attaches immediately. If, on the other hand, Breyer lets the jury decide the case, and the jury ultimately convicts, the judge could still enter a judgment of acquittal notwithstanding the verdict (called a judgment “NOV,” the acronym for the equivalent Latin phrase) at that point. In that event, the government could appeal the acquittal NOV and an appeals court, if it disagreed with Breyer, could reinstate the jury’s conviction.

Whenever I write about backdating, many people write in to tell me that backdating’s not illegal; you just have to account for it correctly.

Since so many people think this is an important point, I thought I’d do a post addressing just that contention.

It’s not really true. What I assume people mean is that granting in-the-money options is not illegal, so long as you account for it properly. That’s true. But the whole point of backdating is to pretend that you’re not granting in-the-money options when in fact you are. And to say it’s up to the bean-counters to catch this situation is silly, because the whole reason you’re using phony dates is so that the bean-counters won’t know what you really did.

And this is why defenses to backdating sometimes get hard for me to understand. Sure the accounting rules are arcane and most people don’t know them. But if someone asks you to write down a date from a month ago on a legal document, rather than today’s date, doesn’t it give you pause? If someone presents you with a spreadsheet of the last month’s stock prices and asks you to pick the date on which you want to pretend that you granted, or were granted, several million options, might that not at least spur further inquiry?

When then-general counsel Nancy Heinen emailed Apple (AAPL) CEO Steve Jobs such a spreadsheet on January 30, 2001, she noted that it was a bad idea to choose January 2 as the grant date–even though that was the day the stock had been at its lowest–if they wanted “to avoid any perception that the Board was acting in appropriately [sic] for insiders prior to Macworld announcements.” (They ultimately chose one of the next-best dates from after Macworld.) Now isn’t it obvious to everyone on that email that shareholders are being misled? She’s saying that shareholders will naively think that the options were really granted on January 2, leaving them suspicious of springloading. It goes without saying that they also won’t realize that, in reality, it’s all being done a month later.

Now the fair response in Jobs’s defense at this juncture would be to say: “Well, look, people just didn’t look at this stuff the way they do today, post-Sarbanes-Oxley, and so on. This was spitting on the sidewalk back then.” And I can understand that argument. My question is, if that’s your position, how can anybody be feigning shock that Nancy Heinen then went on to file all the false documents that would be required in order to carry out what everyone understood to be a spitting-on-the-sidewalk type infraction they were willing to commit. At a public company, it’s not just foreseeable that any deception upon shareholders will eventually have to be reduced to writing–it’s inevitable.

Last October I interviewed Scott McNealy, CEO of Sun Microsystems (SUNW), for a different story, and I brought up the subject of options backdating. I thought his comment was telling: “When I sign a document and it has a date thing there? Usually I write down the date when I sign it. I didn’t even go to law school, and I figured out that that’s probably the most appropriate thing.”

By the way, even in the unlikely event that someone backdates options and accounts for them properly–i.e., treats them as in-the-money options–he would still almost always be violating the terms of the stock option plan which has been approved by shareholders. Those plans almost always require that the options be granted at fair market value on the date of the grant. And if  there is a stock option plan that doesn’t contain that language, the backdater would still have to make disclosures in a half-dozen publicly filed documents about what he was doing. And what a weird disclosure it would be. Something like: “Please note that when we grant options, we sometimes pretend that we grant them on certain dates when in fact we grant them weeks later. Not to worry, though. We just do this to amuse ourselves, because we account for them properly using the real dates.”

Could the next person who writes in to remind me that backdating isn’t illegal do me a favor? Please name for me one company that has ever, in the history of corporate law, backdated stock options and yet properly disclosed and accounted for them.

Not far from the San Andreas Fault, a new fault line opened up in Silicon Valley yesterday — one that residents are actually thrilled to have discovered. We’ll call it the It’s All Nancy Heinen’s Fault. Heinen was Apple’s general counsel, and the SEC evidently believes she was the only one at Apple who engaged in any intentional wrongdoing in connection with that company’s repeated and blatant backdating. If only Heinen had also worked at Pixar.

In any event, we did get vivid new insight yesterday into exactly how the options backdating may have occurred at Apple (AAPL), as the SEC made public its civil complaint against Heinen and CFO Fred Anderson. (For the complaint, click here.) Anderson settled the less serious charges against himself and then filed an eye-opening press release of his own.  Heinen, through her lawyer, still denies the complaint’s allegations and Anderson neither confirmed nor denied its accusations against him. (Anderson was only accused of failing to notice what Heinen was doing and failing to take affirmative steps to put things right.)

Apple, the company, is now home free, though the status of its CEO, Steve Jobs, remains slightly clouded. The SEC praised Apple for its “swift, extensive, and extraordinary cooperation,” citing in particular its “prompt self-reporting, an independent internal investigation, the sharing of the results of that investigation with the government, and the implementation of new controls designed to prevent the recurrence of fraudulent conduct.”

The cloud over Jobs stems from the written statement released by Anderson’s lawyer yesterday, which says that Anderson explained to Jobs the accounting implications of backdating in January 2001, at the time Jobs was backdating a 4.8 million-share grant to the company’s executive team, and 11 months before Jobs himself was granted 7.5 million backdated options.

The Executive Team grant, which was nominally dated January 17, 2001, worked like this, according to the SEC complaint. On January 30 Heinen emailed CEO Jobs and CFO Anderson spreadsheets laying out Apple’s stock prices for every day in the month of January, and recommending possible dates on which to retroactively date the grant. In her email to Jobs she wrote, “To avoid any perception that the Board was acting in appropriately [sic] for insiders prior to Macworld announcements, I suggest we use Jan. 10, the day after your Macworld keynote, at $16.563. That was one of the lowest closes of the month, after the $14.875 price on Jan 2. I don’t think the [Executive Team] would object to the $1.688 difference to avoid claims of inappropriate conduct.”

The email seems grimly ironic, since she evidently fears leaving the misguided appearance that they were springloading — granting options just before favorable news — when in fact they were backdating, which is even more underhanded. (How Jobs processed all this, I leave to you.)

Ultimately they settle on January 17 (stock price $17.813), and the paperwork — unanimous written consent forms, or UWCs—are drawn up falsely reflecting that board action was taken on January 17. Heinen finally collects all the signed UWCs on February 7, when the stock price is $20.75.

It’s not explained what each board member was thinking when he signed the UWCs in early February, but I suppose some may have really believed that the grant decision had been made on January 17 (though it was supposed to be the board’s decision to make, since there was no compensation committee at the time), while others didn’t examine the UWCs closely, and still others didn’t know what difference any of it would make. Still, one of the board members was Jerome York—a former CFO of IBM and Chrysler—a point former CFO Anderson emphasized in his lawyer’s statement yesterday. (York was also later named to the three-person special committee that conducted Apple’s internal investigation of the backdating. He has previously said that he recused himself from looking at decisions he was personally involved in.  The others on the committee were former vice president Al Gore, who headed it, and Google (GOOG) CEO Eric Schmidt. Schmidt was formerly CEO of Novell, which has not yet completed its own internal inquiry into backdating that occurred there during Schmidt’s tenure.)

The conversation Anderson says he had with Jobs — in which he explained the accounting ramifications of choosing any date prior to when the board had actually given its approval — would have had to occur early in the process of awarding the grant, at a time when Jobs was planning to use the Jan. 2 date for the grant (the date Heinen thought would look too much like springloading). Anderson’s attorney says that Anderson “was told by Mr. Jobs that the Board had given its prior approval and the Board would verify it.” When asked about this account by the Wall Street Journal yesterday, Jobs referred the question to an Apple spokesperson, who declined comment.

Later that year, in August, the board decided to award Jobs a huge options grant, because a previously awarded 10-million share grant was now under water. By that time, Apple had set up a compensation committee, which consisted of York, Genentech (DNA) CEO Arthur Levinson, who chaired it, and Intuit (INTU) chairman William Campbell.

On August 29 the board decided (really, really decided) to issue Jobs’s options as of that date, when the price was 17.83. But subsequently Jobs became unhappy with the vesting schedule, and he and the compensation committee began haggling over that. (Technically, matters like vesting schedules are supposed to be settled already by the time the strike date is set, so this created an awkward situation.) The haggling went on for months, with the compensation committee holding meetings on October 16 and 19, and again on November 19 and 20. (Heinen, as corporate secretary, attended these meetings.) By mid-December, the complaint says, Heinen decided that the August 29 date would “no longer withstand scrutiny,” since, among other things, Apple’s fiscal year ended in late September, the relevant information had still not been supplied to auditors at KPMG, and the SEC filing deadline for reporting an August 29 grant had passed. So on December 17 she emailed the chair of the compensation committee, Levinson, with a spreadsheet of three months worth of stock prices and some recommended dates for backdating the grant. “There are several days in October and November, following the first meeting of the Compensation Committee . . . that are close to the Aug. 29th close of $17.83,” she wrote. “I suggest using a day that the Compensation Committee held a telephone call, either jointly or individually with the members.” I assume the SEC includes that detail because it believes Heinen made that suggestion so that the company could plausibly pretend that a board decision had already been reached on one of those dates.

On December 18, when Apple’s price was $21.01, the compensation committee and Jobs finally came to agreement on the vesting schedule, and the next day Levinson emailed the full board, cc-ing Heinen, explaining that the grant date would be October 19, when the price had been $18.30. (That corresponded to the date of one of the compensation committee calls.) Levinson wrote, “For the record, I informed Nancy [Heinen] in advance of our intentions and of the above specifics to be certain we were conforming to all legal requirements/guidelines.” This assurance, presumably, was sufficient to satisfy that SEC that all the other directors did not realize that anything improper was happening. (Levinson referred a request for comment to an Apple spokesman, who referred me to the SEC’s exoneration of Apple as a company, and its glowing endorsement of Apple’s cooperation in the its inquiry.)

In January 2002, Heinen allegedly had phony board minutes drawn up to reflect a “special meeting” on October 19, and saw to it that the August 29 board minutes (which had already been approved by the full board in November) were altered, with similar changes being made to the compensation committee minutes. (None of these alterations were cleared with the board, the SEC says.) Then she allegedly signed the phony minutes and an accompanying Corporate Secretary’s certificate, affixing the latter with the corporate seal and falsely attesting that the date was then November 2, 2001.

What do people think? Everyone happy with the It’s All Heinen’s Fault theory? Honestly, I don’t know anymore.
 

On Friday, in a terse, one-paragraph statement that was even more opaque than the very similar one Apple (AAPL) issued in December, the audit committee at Walt Disney Co. (DIS) cleared Steve Jobs of any “intentional or deliberate acts of misconduct” in connection with the options backdating that concededly occurred at Pixar (PIXR). Disney, which acquired Pixar in 2006, shed no light on how the backdating came to pass, but cleared anyone “currently associated with Disney” of wrongdoing.

The backdating at Pixar was in some respects even more extreme than at Apple: top officers were repeatedly granted options on dates when Pixar stock was at its lowest point for the year. On the other hand, unlike the situation at Apple, none of the Pixar options went to Jobs himself. At Apple, the special committee also acknowledged that Jobs may have actually been involved in “recommending” dates for options grants — a circumstance that, on its face, suggests involvement in either backdating or springloading. (The latter term refers to the suspect practice of executives granting options to themselves or others just before new market events are about to give the stock price a big boost, as the executives know due to inside information.)

The story line at both Apple and Pixar appears to be that Jobs, the notorious micromanager who headed both companies at the time of the backdating, did not understand the legal or accounting ramifications of backdating. Interestingly enough, virtually Jobs’s only compensation at either company during this period was coming from the Apple options whose workings he so poorly understood. (During the relevant years, his salary at Apple was famously just $1 per year, while at Pixar it was about $55 per year.)

The thing that puzzles me most is this: If you don’t understand the accounting ramifications of backdating, why do it? Why not just issue the options dated as of the actual date you’re issuing them, and simply choose whatever strike price you think is appropriate — even though it may not correspond to the current stock price?

Take, for example, the situation at Apple, for instance, where Jobs received a grant of 7.5 million options options that wasn’t finalized until December 19, 2001, when the stock price was $21.01. The special committee found that these options were backdated to October 19, 2001, when the price had been $18.30. (Phony documents were created to reflect a board meeting on October 19 which never really occurred.) Well, if you don’t understand the accounting implications of backdating, why not just issue the options as of December 19, but announce a strike price of $18.30?

The answer, of course, is that someone at the company certainly did understand that if you did that, you’d be granting “in-the-money” options, which have onerous accounting and income tax repercussions for the company. The whole point of backdating is to avoid those consequences. To do that, you pretend that the options aren’t in-the-money, even though they really are. So why go through that deception if you don’t understand the accounting implications of granting in-the-money options?

And if Jobs himself didn’t understand the accounting implications that were driving the deception that he himself (at Apple, at least) was benefiting from and, to the extent he was “recommending” grant dates, participating in, why didn’t the underlings who did understand ever try to explain to Jobs the perilous legal situation he was getting himself into? Were they too petrified to tell him something they assumed he didn’t want to hear, or already knew, or both? What a guy to work for.

Can readers explain to me why a company’s executives would engage in backdating when they didn’t understand its accounting implications?

You’ll recall that in late December, when a special committee of independent Apple (AAPL) directors exonerated CEO Steve Jobs of any wrongdoing in connection with the options backdating that it admitted had occurred at that company, it stressed, among other things, that Jobs had not “financially benefited” from any of the backdating.

Others have already questioned the special committee’s interpretation of financial benefit (see, e.g., this Washington Post article, focusing on the fact that the options were later exchanged for 5 million shares of restricted stock), and I have previously argued (here) that whether someone ultimately succeeded in realizing a financial benefit is irrelevant to the question of whether he attempted or conspired to violate various securities, tax, or accounting laws or rules.

But there’s a simpler reason, still, that, I think, Jobs did “financially benefit” from some of the backdating at Apple. It stems from a very unusual fact about Jobs’s two enormous options grants, which I only stumbled on recently when re-reading some of his SEC filings: large portions of each grant vested immediately.

Usually, of course, options don’t start vesting for at least a year. (Under a typical vesting schedule, about a quarter of the optinons vest after a year, and the remainder vest on a pro rata monthly or annual basis over the next three or four years.) The delayed vesting is what makes them so hard to value: no one knows whether they’ll be worth squat to the recipient by the time they start vesting. That’s why people come up with complicated statistical estimation formulas for valuing options grants, like the Black-Scholes test.

Now I’m not criticizing Apple for making an exception from the usual vesting customs for Jobs, because Jobs had famously been receiving only $1 per year in compensation at Apple since returning to the company in 1997, so he was clearly entitled to some immediate compensation for past performance.

But the immediate vesting does seem to me to change the analysis of whether he “financially benefitted” from options backdating. (So far as I know, the committee was not using “financial benefit” as any term of art, with a specialized definition; they seem to have been using it the way it’s understood at a gut-level in ordinary English.) The special committee acknowledged, remember, that the 7,500,000 options that Jobs was ostensibly granted on October 19, 2001, when Apple’s price was $18.30 a share, had not really been “finalized” until December 18, 2001, when the price was $20.01 per share. (In addition, the committee found, the Apple board had not really met at all on October 19, 2001, as board minutes falsely indicated.) Accordingly, the committee determined that the accounting for these options had been improper, and it included a correction for this mistake in Apple’s restatement. (The commmittee also found, in fairness, that the Apple board had first approved this grant to Jobs in August 2001, at a time when Apple’s price was even lower than it was on October 19, 2001.)

Well, one-quarter of these admittedly backdated options — representing 1,875,000 underlying shares — vested immediately, according to a Form 4 Jobs filed with the SEC on March 20, 2003. (Similarly, fully one half of the 10 million shares ostensibly granted to him on January 12, 2000 vested immediately. But I’m ignoring those, because the the special committee concluded that that earlier grant — notwithstanding some eyebrow-raising circumstances — was properly accounted for.)

The value of Jobs’s 1,875,000 vested options as of the day on which we now know that they were really granted are easy to calculate. On December 18, 2001, when the grant was finalized, the value of those vested options was the fair market value of the underlying shares ($39,393,750) minus the cost of exercising them at the strike price ($34,312,500). That’s $5,081,250. All of that money was available to Jobs for the asking, then and there, and therefore I don’t see why all of it wouldn’t be considered “financial benefit.”

How much of that financial benefit came from backdating? All of it. Had those options’ strike price been set as of December 18, 2001, as the special committee says they should have been — instead of as of October 19, 2001, when the phantom board meeting took place — their intrinsic value to Jobs on that date would have been zero.

At this point in my argument, I’m sure, members of the Apple special committee would protest: there was no financial benefit, because Jobs never exercised those options. (He cancelled all his options in March 2003, when they were underwater, and received restricted stock in their place.) And I would reply: No, he did financially benefit, but he then took a calculated gamble with his gains — the way we are all constantly taking calculated gambles with all of our assets — which did not pay off in the short term. He chose not to exercise the options immediately, hoping for even bigger gains down the road. His gamble didn’t happen to pay off, or at least hadn’t as of March 2003, when he took another calculated gamble, and traded in the options for restricted stock. (My colleague Geoff Colvin analyzes here why agreeing to the trade-in was actually Jobs’s biggest mistake of all.)

Say someone gives me a gift of $5,081,250. Say I sink it all into an uninsured beach house which later gets leveled by a flood surge stemming from a hurricane. Or say I put it all into the next Enron, and it soon plummets to worthlessness. Would anyone say that I had experienced no “financial benefit” from the $5,081,250 gift? I don’t think so.

Apple spokesman Steve Dowling says: “The most important point is that both options grants, which were underwater, were cancelled. No options were ever exercised. . . . Following exhaustive independent investigation, the special committee found that Steve [Jobs] was not aware of any irregularities associated with [these grants].”

Of course, from previous posts on this subject, I understand by now that any reader of this blog who owns Apple shares does not care one whit whether Jobs backdated options or benefited from the practice; they just want him to stay as CEO and make them some more money. But what do people think about my reasoning? Did he experience “financial benefit” from backdating, or didn’t he?

Apple’s SEC filing last Friday disclosing the outcome of its internal probe into options backdating is masterfully, tantalizingly opaque. Though entitled “explanatory note,” the 20-paragraph document contains precious little explanation. It recounts that certain events did, indeed, occur at Apple, but sheds almost no light on how or why.

Investors greeted the announcement with glee–Apple’s stock rose 4.9%–but I can’t imagine why.

It must be because the Special Committee of outside directors who looked into the matter said they “found no misconduct by current management.” At the same time, the committee said that its inquiry “raised serious concerns regarding the actions of two former officers in connection with the accounting, recording and reporting of stock option grants.” The designated fall guys here, though unnamed, are widely reported to be former general counsel Nancy R. Heinen and former chief financial officer Fred D. Anderson, but each of their lawyers issued statements vociferously denying any wrongdoing. This seems to set the stage for some lively he-said, she-said colloquy before federal regulators or prosecutors, and would not be prodding me to buy Apple stock at the moment.

The most intriguing factual revelation of the filing, of course, was that one of the two enormous options grants that CEO Steve Jobs received was priced as of October 19, 2001, a good two months before the grant was actually finalized on December 18, 2001. The price of these 7.5 million option shares had increased 15% during the time lapse, from $18.30 to $21.01. Worse still, records had been falsified, the committee concluded, to make it appear as if a special board meeting had been held on October 19 to approve the options grant when, in fact, none had occurred. The SEC has noted in the past (sensibly enough) that an important factor it uses to distinguish accidental-and-innocuous backdating from serious, enforcement-action-worthy backdating is any evidence of falsification of documents. (By the way, the circumstances surrounding Jobs’s other options grant–for 10 million shares–were also fishy, as the New York Times describes toward the end of this good article.)

But here’s the mysterious crux of the filing: “Although the investigation found that CEO Steve Jobs was aware or recommended the selection of some favorable grant dates, he did not receive or financially benefit from these grants or appreciate the accounting implications.”

Let’s unpack that sentence. What would it mean to “recommend the selection of some favorable grant dates”? I can think of three possibilities.

Scenario one is, he said something like: “Let’s grant options as soon as we can since, in my opinion, our stock is generally undervalued at the moment.” Nothing wrong with that at all. But if that’s all he did, I can’t believe they’d even be disclosing it, let alone doing so in such ominous terms.

Scenario two is: “Let’s grant options now, since we’re going to announce the release of our newest iPod next week, and our stock will soar.” That would be spring-loading and, depending on what the directors were told and other variables, it could be a form of securities fraud.

Scenario three is: “Let’s grant options today, but set the grant date as of two months ago, because our stock was much lower back then.” That would be Backdating with a capital B, and under most circumstances it would be illegal.

So problematic scenarios sound more likely than innocuous ones. More worrisome still, the only reason we have to guess this way is that Apple chose not to tell us precisely what the special committee thinks Jobs did. I guess it concluded that the nitty-gritty just wouldn’t interest us.

We’re then told that no one needs to worry about whatever it was that Jobs “recommended” regarding “favorable grant dates” because “he did not receive or financially benefit from these grants or appreciate the accounting implications.” That clause contains three arguments, so now let’s look at those.

The first is: We don’t have to worry about whether Jobs was trying to backdate or springload options because “he did not receive” some or all of the options in question. Well, his not having personally received the backdated options is no defense to anything. If he was knowingly giving someone else backdated options, he could still be deceiving shareholders and the IRS, and he could also be unfairly gaining an advantage over law-abiding competitors in the labor pool by being able to offer Apple employees illegally priced (i.e., improperly accounted for) options.

The second argument is: We don’t have to worry about whether Jobs was trying to backdate or springload options because “he did not . . . financially benefit from these grants.” Again, this is no defense. If a hypothetical CEO gave himself backdated options in a effort fraudulently to deceive shareholders and enrich himself, that attempt would be a completed crime regardless of whether the dot-com bubble subsequently burst before he could capitalize on the attempted fraud. (The bursting of the bubble did, in fact, wipe out the value of all Jobs’s options. Apple replaced them with 5 million shares of restricted stock, worth almost $75 million, in 2003.) And if a hypothetical CEO gave someone else backdated options, then it’s hard to believe that he really wasn’t benefiting financially–albeit indirectly. His company would have been benefiting–it was able to offer higher compensation to employees than its law-abiding competitors could–and anything that benefited the company would have indirectly enhanced the CEO’s compensation and the value of his stock.

The third claim is that we don’t have to worry about whether Jobs was trying to backdate or springload options because he didn’t “appreciate the accounting implications.” Well, that’s getting closer to a defense, but I still don’t think he’s there yet. None of us fully appreciated the accounting implications of awarding in-the-money options at that time; the rules were excruciatingly complex and everyone twisted themselves into pretzels to avoid ever having to grapple with them. The relevant question is whether Jobs understood that backdating was morally or legally wrong–and the filing doesn’t tell us the answer to that one.

Furthermore, even if Jobs says he didn’t understand that backdating was illegal or wrong, and even if we believe him, I’m still not sure that gets him out of the woods. Yes, ignorance of the law is a defense to some white-collar crimes (mainly tax offenses), but it’s not a defense to most others. (Look at Pattie Dunn, the former chairman of Hewlett-Packard (HPQ), now facing four state-law felonies for having conducted an investigation that two top in-house attorneys repeatedly kept assuring her was A-okay.)

To me, Friday’s filing does not look like the curtain closing on this particular play, but more like the curtain closing on Act I, Scene I. What do others think–am I missing something?