When Was the Last Time You Read Something Like This?

I give “Wall Street’s Finest” a rather hard time on these virtual pages, and, I think, for good reason.

Having been one once, I know the drill: work hard, know your companies, schmooze with your clients, and above all, don’t upset anybody—bankers, brokers, and buy-siders, not to mention CEOs and CFOs.

Cynic though I may be about the process, it ain’t as easy as a bystander might think, and the ones who do all those things well while at the same time picking good stocks are few and far between.

So my metaphorical hat goes off to the folks at my alma mater, the Merrill Lynch equity research department, for their continued in-depth work on the options back-dating scandal now spreading through Silicon Valley like ammonium perchlorate through an aquifer.

In a report that hit my email this morning, called “Risks of options irregularities at Apple (and Pixar),” Merrill’s Richard Farmer details the various issues involved in possible instances of back-dated stock options at both companies—and quantifies them, including the size of potential earnings restatements.

But Farmer goes further, and discusses as well the potential that Steve Jobs’ job is at risk, particularly owing to his presence on the board of Pixar, where “Statistical analysis suggests [option] grant pattern [is] unlikely due to chance.”

I won’t get into the details, and please don’t ask for them—ask your friendly Merrill rep.

But you will not find many analysts with the intellectual integrity—not to mention guts—to write something like this:

“…our review of Pixar disclosures does not allow us to rule out the possibility” that key Pixar executives, including Jobs, “might have been involved in creating options irregularities at Apple or Pixar.”

I can tell you that that sentence is much easier said than it was written.

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.