SEC closes Apple probe
In the stock option backdating predicament that never quite reached the level of full-blown scandal, Apple Inc. might have done some things right -- once it acknowledged it had a problem.
Even as Apple’s former chief financial officer blasted Chief Executive Steve Jobs for ignoring early warnings, the Securities and Exchange Commission praised the company on Tuesday for its “swift, extensive and extraordinary cooperation” in the investigation that led to an SEC lawsuit against the former CFO and another ex- executive. The agency credited the company for the steps it took in handling its stock option backdating problems, such as quickly reporting the mishandling, conducting an independent internal investigation and sharing the results of that investigation with the government.
It’s too early to know whether Apple and Jobs are really in the clear. Although the SEC said it was closing its probe of the company, it stopped short of saying it wasn’t looking at Jobs. The company is under criminal investigation by the U.S. attorney’s office in San Francisco and is the subject of shareholder lawsuits.
Still, because the agency didn’t sue the company, “it makes it really difficult for me to imagine Apple facing criminal indictment,” said James Sanders, a former SEC attorney and federal prosecutor who is a partner in the Los Angeles office of McDermott, Will & Emery.
As for Jobs, Sanders said, “the fact that he wasn’t named in this round is good news for him.”
Fred Anderson -- the former Apple CFO, who settled the SEC charges against him Tuesday by agreeing to pay more than $3.5 million -- suggested that Jobs shouldn’t be off the hook.
In a statement issued by his lawyer, Anderson said he had warned Jobs about the financial implications of backdating stock options without board approval. Jobs not only ignored the CFO’s warnings but also misrepresented the board’s level of approval of the stock option grants, the statement said.
Anderson’s allegation contradicts the company’s internal report, which said Jobs was aware of Apple’s backdating of options and in some cases picked favorable dates but didn’t “appreciate the accounting implications.”
“We’re not looking to place blame here,” said Anderson’s lawyer, Jerome Roth. “We believe in light of the complaint it was important to get out background facts.”
Asked to comment on Anderson’s statement, an Apple spokesman said: “The SEC brought charges against two former Apple employees and it did not file any action against Apple or against any of its current employees.”
The SEC filed its lawsuit against Anderson and Apple’s former general counsel, Nancy Heinen, in federal court in San Jose. The suit says that Anderson, now a managing director of Elevation Partners, a Menlo Park, Calif., private equity firm, should have noticed and stopped what was going on at Apple. Anderson resigned in October.
The suit says that the dates on stock option grants were falsified and that paperwork was created to make it seem as if the dates were legitimate.
The suit charges that Heinen, who resigned in May, backdated options granted to Jobs and his executive team, including herself. Of 4.8 million options granted to six members of the team, the suit claims, 1 million went to Anderson and 400,000 to Heinen.
One of Heinen’s lawyers said in a statement that “every action that Nancy did was fully understood by Apple’s board of directors.”
The suit says Heinen was instrumental in Apple’s backdating of two large option grants -- a February 2001 grant of 4.8 million options to six executives and a December 2001 grant of 7.5 million options to Jobs.
The suit also claims that she altered company records to conceal the date changes.
The suit mentions several e-mails that may show that Heinen and Jobs looked at records of Apple share prices and their dates and discussed the best days to grant stock options.
In a Jan. 30, 2001, e-mail to Jobs cited in the suit, Heinen suggested picking Jan. 10, when the stock had “one of the lowest closes of the month.” In another e-mail, this one dated Feb. 1, she asked the board to sign documents about stock option grants for Jan. 17, when the stock price was $16.81, even though there was no board action that day.
The board returned the documents Feb. 7, when the stock price was $20.75, the suit says.
The result, the suit says, gave the executive team stock options that were already “in the money,” worth $3.94 more because of gains since Jan. 17.
“We view the e-mails as bombshell disclosures in terms of implicating the board of directors,” said Mark Molumphy, a lawyer for plaintiffs in one shareholder lawsuit filed last year. “They all signed off.”
Apple, based in Cupertino, Calif., said 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 CEO.
Apple’s shares fell 26 cents to $93.24.
