Apple’s ex-CFO to settle claims
Apple Inc.’s former top accountant has agreed to pay more than $3.5 million to settle claims about his involvement in the manipulation of dates on stock options, a person familiar with the situation said.
Fred Anderson, who resigned as chief financial officer in October, will admit to no misconduct in the settlement, which will be filed in federal court this week, the person said.
The Securities and Exchange Commission is still pursuing a lawsuit against Nancy Heinen, Apple’s general counsel until May 2006, regarding improperly dated options granted to Chief Executive Steve Jobs and his team, including Heinen herself, people familiar with that case said.
Heinen’s lawyer, Cristina Arguedas, said her client had done nothing wrong.
“The timing of every grant she had anything to do with was authorized by the entire board,” Arguedas said. “She is going to defend herself based on evidence and accounting principles at that time.”
Federal regulators’ pursuit of Anderson and Heinen might indicate that Jobs could be “off the hook,” said Peter Henning, a professor of law at Wayne State University who blogs about white-collar crime.
“If you are going to bring a case against the chief executive, you do it together with the others,” Henning said. “This is how high the case is going to reach and that’s pretty high.”
Apple, based in Cupertino, Calif., acknowledged last year that it improperly dated stock options for six years beginning in 1997, saying there were 6,428 cases of backdating. The first incident occurred a few months after Jobs, who co-founded Apple, returned to the company as interim chief executive.
An internal investigation into the stock option debacle concluded in December that Jobs didn’t receive or otherwise benefit from any of the options in question and wasn’t aware of the accounting implications of the practice. Jobs at the time apologized for letting it happen “on my watch.”
The company took $84 million in charges to correct its accounting.
Changing the dates on stock options is in itself not illegal and used to be widespread at Apple and elsewhere in Silicon Valley, where options are valuable recruitment and compensation tools. The trouble comes when companies don’t properly financially account for or disclose what they have done.
More than 100 companies have been implicated in the backdating scandal.
The price of a stock option is for the most part determined by the stock’s closing price on the day a company’s board grants the option. In backdating, grant dates are changed to match the stock’s lowest price during a set period, giving people who receive the grants big gains -- at least on paper -- and resulting in a company understating its compensation costs and overstating its earnings.
A shareholder lawsuit filed against Apple in December alleges that the company timed its stock option grants to coincide with corporate news in a violation of its fiduciary duty. The case is pending.
In the case of Anderson, now a managing director in a private equity firm in Menlo Park, Calif., he will agree to a settlement of claims that he filed false financial reports and had inadequate accounting controls at Apple, the person familiar with his case said.
Anderson will pay a $150,000 fine and return $3.5 million in stock option gains as part of the settlement, the person said, and won’t be barred from serving as a corporate officer or director in the future.
Heinen’s lawyer said the issue in her client’s case was stock options granted from 2000 to 2001 to Jobs and his executive team, including Heinen.
On Jan. 12, 2000, Apple’s board awarded Jobs 10 million options. The next year, the stock price dropped and Jobs’ options were “underwater,” below the price Jobs could exercise them.
In August 2001, the board decided to give Jobs 7.5 million new options, a grant that was discussed though not approved by the board’s compensation committee in October.
In December 2001, the board finalized the grant and decided to make the value of each option the same as the price of an Apple share in October, $18.30 rather than $21.01.
Fake minutes of the December meeting were prepared to make it appear that the entire board, not just the compensation committee, met that day, according to Apple’s internal investigation.
Both grants were canceled in March 2003 before being exercised, when Jobs received 5 million shares of restricted stock.
The other stock option grant under scrutiny was in January 2001 for Apple’s executive team, including Heinen and Anderson.
In late 2000, Jobs approved the grant, which typically was recorded the following Tuesday. In this case, Tuesday fell on Jan. 2., a week before Apple’s annual Macworld conference. Later in January, when Heinen was doing the paperwork for the grant, she was concerned that Jan. 2 was too close to the conference and would appear to be timed to news that comes out of the event, her lawyer said.
“To the extent that she had anything to do with, it was to move the grant date forward in time and upward in price,” Arguedas said.
Apple’s stock closed up $2.54 at $93.51 on Monday.
