The S&A Digest: Steve Jobs is Going to Jail... And He's Not the Only One

Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)

As of 06/28/2013

Not taking a fall for Steve Jobs... Spring arrives in the bog... A fight for ABN Amro... Short positions build... Need a loan? See a hedge fund... Another dividend to grab...

It sounded like an elementary school symphony was warming up in the fields below our house yesterday evening... There was honking, screeching, ticking sounds, and snorts. It was shockingly loud.

If you walk past our barns and go about a quarter of a mile down a gentle hill, you'll see a small lake and a little stream. In between the two lies a genuine bog – marshy grass and small mud puddles. A hill surrounds it on three sides, directing any of the bog's sounds up toward my back porch. All winter long, there's been nothing but silence. Last night, however, for the first time this spring, the bog erupted in a cacophony of nature. Spring has arrived, at last.

On to financial matters...

Royal Bank of Scotland, Santander, and Fortis bid $98.5 billion for ABN Amro. The group's bid is 13% higher than Barclays' all-stock bid, which was accepted yesterday. The deal is contingent upon the cancellation of the sale of ABN's LaSalle Bank to Bank of America for $21 billion.

Short positions in the Nasdaq reached a record for the monthly period ending April 13. In total, 8 billion shares were short, up 1.5%. The short ratio, or the number of days' average volume represented by short positions, increased to 4.4 from 3.7.

The Walton family will give up some control of Extreme Value pick Wal-Mart (WMT). After the death of family matriarch Helen Walton, her shares, amounting to 8.1% of the company, will be donated to charity. This disposition will send 336 million shares onto the open market and decrease the Waltons' control of the company from 41% to 33%.

American hedge funds and other nonbank investment groups now account for more than half of the lending to risky European companies, pushing banks into second place for the first time. This number is in stark contrast to the beginning of the decade, when banks accounted for 95% of leveraged lending, or even in 2005, when the number was 75%.

To grab or not to grab... Asset Acceptance (AACC), a buyer of consumer debt, will pay a $75 million dividend, roughly $2.16 a share, and repurchase $75 million in stock. The company will announce dates for the transaction in May. (We'll be advising subscribers to our S&A Dividend Grabber newsletter on this situation shortly...)

New highs: Exelon (EXC), Janus (JNS), KHD Humboldt Wedag (KHDH), Oneok (OKE).

In the mailbag... lots of feedback about our book list. We've also gotten more than a few excellent resumes from people interested in joining our advisory board. The response has encouraged us to move forward with the project. We're looking for five to eight subscribers who have a lot of experience in their chosen fields and/or significant financial-sector experience to serve on our advisory board. We'll ask you to read several of our letters, attend our one or two meetings each year, and help us improve the quality of our research when it pertains to your area of specialty. In exchange, we'll pay you a small annual retainer ($10,000) and pay for your travel expenses as they relate to our meetings. If you're interested, please send us a resume. All feedback (and all resumes) to this address, please: feedback@stansberryresearch.com.

"Oh, Porter, I can't care less whatever Dan is going to e-mail U regarding your top ten book list. The education you put through Digest is worth a life subscription. How I wished I knew your research before the DOT-COM [bust]. It is public holiday today in Australia (ANZAC Day), but it won't be enough time for me to read all your recommended free information. THANKS THANKS THANKS. To prove your comments on college education, I am a certified practicing accountant with two Master Degrees, but I learned hips more about investing after I subscribed to U guys than in all eight years in uni." – Paid-up subscriber Rachael

Porter comment: Dan was actually pleased with my list. He replied, via e-mail, "any list of investing books that doesn't have Reminiscences of a Stock Operator on it is okay with me."

"I was stunned this morning to not see Van Tharp on your Top 10 reading list. I thought his principles about position sizing were critical to your investment strategy." – Complimentary subscriber Mark T.

Porter comment: My list was limited to books about how to find and buy stocks for the long term. I left dozens of valuable books on investing off the list because of this specific qualification – and Van Tharp's classic is certainly one of them.

That being said, diversification is a poor substitute for knowledge and investment wisdom. The more you know about a great business, the less diversification you require. That's why we don't recommend trailing stops in Extreme Value, and why I will occasionally recommend extraordinarily large positions (25% of your portfolio). That's also why we always recommend trailing stops and small position sizes for anyone that hasn't already made a lot of money investing. Investment knowledge and wisdom can be incredibly expensive to acquire.

"I enjoyed reading Rule #1 recently. It seems to show the important steps for those who will take the trouble to follow them." – Paid-up subscriber Dick McClure

"I was an early subscriber to The Pirate Investor newsletter. I was a true believer in the strategy of finding young biotech and tech companies with a great story. You provided me with super research on lots of companies to invest the way I thought I had to in order to make me wealthy. (It really was very good, instructive research – how could those companies not become the next Microsoft?). Well, some were winners, but many were losers, and I had no strategy to exit with limited losses, so overall I lost money. Then, after the tech meltdown, you found religion and changed your investment strategy. You even changed the name of your investment letter to its present name and started bringing on new writers. I thought you were apostate – I was a pirate at heart (another way of saying a gambler) and nearly let my subscription expire because you weren't supplying me with enough of the type of recommendations that I craved. I must say your conversion did not occur overnight as it seems it took you quite a while to finally find your direction. Fortunately, I broke down and bought an alliance membership (on sale), so I would have more stock picks to choose from to get the most risky ones. I say 'fortunately' because it kept me on board to learn proper investing later on." – Paid-up subscriber Gary S.

Steve Jobs is Going to Jail... And He's Not the Only One

Yesterday, Fred Anderson, the former CFO of Apple Computer, confirmed what we've been saying for years.

Steve Jobs is a crook. And he's going to jail.

Anderson yesterday said publicly that Jobs "mislead him" about board actions on stock-options awards. Anderson claims Jobs told him that the board had approved options grants when, in fact, it hadn't. The statements came on the same day that the SEC announced no charges would be brought against Apple, leading many pundits to speculate that no further action would be taken against Jobs.

Here's a fact most people don't appreciate: Anderson had NO incentive to make his announcement. He'd already settled with the SEC and continues to serve on eBay's board of directors, where he has the support of eBay CEO Meg Whitman.

Anderson's attorney, when asked why Anderson would make such statements, said: "[I]t was important that people understand our view of what occurred here and that people not speculate that Fred did things he didn't in fact do."

In other words: I'm not going to take the fall for Steve Jobs.

Anderson's statements came on the same day charges were brought against Apple's former top lawyer, Nancy Heinen. In short, the charges allege the backdating at Apple was all Heinen's fault. Heinen's lawyer says, "Nancy did not backdate stock options, and she didn't deceive anyone either inside or outside the company."

In other words: I'm not going to take the fall for Steve Jobs.

Anderson's statement might also have been motivated by problems with the federal investigation of Apple. The Wall Street Journal reports that the Justice Department has been putting pressure on its San Francisco office to drop the case against Jobs. U.S. District Attorney Kevin Ryan was dismissed and another prosecutor working on the case is on "leave."

My bet? I still think Steve Jobs is going to jail.

But, really, who cares? This issue is far larger than Jobs and Apple. This scandal goes to the heart of the integrity of public companies.

I first began writing about the gross abuses of stock options grants way back in 2002. I felt like I was shouting in the wilderness. Finally, early last year, The Wall Street Journal published research from an obscure financial journal that exposed what was obvious to anyone who bothered to look: Corporate insiders were ripping off their shareholders on a grand scale.

I've been pointing the finger at three CEOs in particular: John Gifford of Maxim Integrated Products, Scott Kriens at Juniper Networks, and Steve Jobs.

"Black Jack" Gifford was fired last year, and Maxim is now under federal investigation.

At Juniper and Apple though, wrongdoers have been allowed to remain in power.

Juniper's audit committee found that Scott Kriens received two backdated grants and approved thousands of other backdated grants. The fraud was rampant. The total cost of these misdeeds? The company took a $900 million charge.

Keep this in mind: Prior to this $900 million charge, Juniper Networks' cumulative earnings totaled $491 million. The size of this fraud was more than twice the size of the company's total profits over its entire life as an operating business!

Incredibly, Kriens has not been fired.

Meanwhile, the U.S. Attorney's office for the Eastern District of New York is currently investigating Juniper Networks. Even Inspector Clouseau would be able to nail Kriens. A study done by the Corporate Library finds "two directors in the network of option-scandal boards – William H. Kurtz and Scott G. Kriens – connect the most boards."

These guys are crooks. Their wealth and power shouldn't matter. They ought to go to jail. They attempted to steal hundreds of millions of dollars from the shareholders they pledged to serve.

It's a disgrace.

Best,

Porter Stansberry

Baltimore, Maryland

April 25, 2007

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