It Took Apollo Group How Long to Figure This Out?

I’m holding in my hands a report on the potential for backdated options grants at Apollo Group, Inc.—the company whose stock collapsed following the November 3 announcement of suspicious option grants:

Apollo Group today announced that its ongoing internal investigation into the issuance of certain stock option grants has discovered various deficiencies. After discussing earnings restatements and other details, the company said:

Apollo Group also announced that Chief Financial Officer and Treasurer Kenda B. Gonzales resigned on November 1st, citing personal reasons. In addition, Chief Accounting Officer Dan Bachus is currently on administrative leave.

Now, the report I’m holding in my hands (actually, I’m looking at it on my computer screen, but “holding in my hands” is more dramatic) is titled:

Did Apollo Backdate Options? Its front page summary begins as follows:

While it is impossible to tell definitively from a company’s proxy and other SEC filings whether or not it is guilty of backdating, Apollo Group’s option grant history looks highly questionable, in our opinion, and we believe that scrutiny by the SEC or other gov’t bodies is a real risk to consider. The report then goes into chapter and verse—actually three devastating tables—about how Apollo Group’s option grant prices occurred almost miraculously at the lowest price of the year in 2000, 2001, 20002 and 2004.

(Something went screwy in 2003—the option grants were 10% above the low.)

Furthermore, no other company in the educational services group included in the tables came close to Apollo. Only one company had even one year when options were granted at the lowest price possible.

The date of this report?

June 8, 2006. Almost half a year ago. The author?

Gary Bisbee of Lehman Brothers. His methodology?

Publicly available information from Apollo Group filings.

So it took the educational geniuses at Apollo Group how long to figure this out and hold somebody accountable?

Jeff Matthews I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.