The Securities and Exchange Commission has charged two former Apple executives with fraud in relation to the company’s backdating of stock options granted to top company officers—including CEO Steve Jobs. The complaint alleged that former Apple General Counsel Nancy Heinen participated in the fraudulent backdating of options, and that former Apple CFO Fred Anderson should have noticed the backdating, but failed to ensure Apple’s financial statements were correct. According to the SEC, the options backdating led to the company underreporting its expenses by nearly $40 million.
At the same time the SEC announced its charges, it also announced it had settled charges against former CFO Anderson. Although Anderson is neither denying the SEC’s allegations or admitting to them, he has agreed to pay roughly $3.5 million in penalties and disgorgement of profits. But, in putting the SEC charges behind him, Anderson has apparently decided not to fall on his sword quietly. In a statement issued by his attorney, Anderson lays the backdating fiasco at Apple CEO Steve Jobs’ feet. According to Anderson, he had "cautioned" Jobs in erly 2001 that the options grant dates would have to be confirmed by the board; Jobs assured Anderson the board had given approval, and Anderson claims he "relied on these statements by Mr. Jobs and from them concluded the grant was being properly handled."
The SEC has also announced that it has no plans to charge Apple itself with wrongdoing, although it may still file charges against individual officers. The SEC’s decision to forego any enforcement actions against Apple stemmed in part from the company’s "extensive and extraordinary" cooperation with the SEC’s investigation.
According to the SEC charges, general counsel Heinen directed staff to fabricate documents indicate Apple’s board had approved the grants; in another instance, Heinen is charged with creating fake minutes for a board meeting in late 2001 which never occurred, backdating a 7.5 million option grant to CEO Steve Jobs which resulting in a $20.3 million revenue disparity.
An internal Apple investigation found that Steve Jobs was aware of option backdating, but did not personally profit and did nothing wrong.
Both Heinen and Anderson received millions of dollars in unreported compensation as a result of the backdating. The charges are particularly galling to the investment and financial community, since Heinen and Anderson were they very officers tasks with ensuring the company’s financial reporting is accurate. Options backdating is not itself illegal, if properly disclosed.
Anderson joined Apple in 1996 and retired from the CFO position in February 2004, and played a key role in the company’s day-to-day operations between 1997 and 2000, when current Apple CEO Steve Jobs was merely a "key advisor" to the company’s CEO search committee.
