Apple's former finance chief said on Tuesday he relied on Chief Executive Steve Jobs in the handling of backdated stock options, putting the spotlight on the company's co-founder in
The U.S. Securities and Exchange Commission charged former Apple Chief Financial Officer Fred Anderson and ex-General Counsel Nancy Heinen with securities fraud, but settled with Anderson on Tuesday. It said they schemed to backdate more than $20 million worth of stock options awarded to Jobs, themselves and other executives.
The agency said it would not bring enforcement action against Apple , but that did not preclude more action against individuals at the company, said an SEC official in San Francisco.
The SEC complaint filed in the U.S. District Court for Northern California said Heinen caused the backdating of stock options and Anderson should have noticed it.
It said the false grant dates helped Apple avoid reporting nearly $40 million in expenses and said Heinen had fictitious board notes created regarding the options.
"Shortly after the Board approved the 7.5 million option grant, Jobs expressed dissatisfaction with its vesting schedule," the complaint said of the period after August 2001.
After a series of discussions between compensation committee members and Jobs, the filing alleges, the options price was set in December 2001 at $18.30 -- although the stock at the time was trading at $21.01.
"Heinen caused Apple to award Jobs 7.5 million in-the-money options, while avoiding reporting approximately $20.3 million in pre-tax compensation expense," the filing said.
The SEC said it would not pursue charges against Anderson after he agreed, without admitting or denying the allegations, to pay about $3.5 million in fines and disgorgement of profit.
Relying On Mr. Jobs
Anderson's lawyer, Jerome Roth, said his client had warned Jobs about an executive stock option grant in January 2001, saying the grant would have to be priced based on the date of the actual Apple board agreement.
"He was told by Mr. Jobs that the Board had given its prior approval and the board would verify it," Roth said in a statement. "Fred relied on these statements by Mr. Jobs and from them concluded the grant was being properly handled."
Apple's share price briefly dropped nearly 4% on the SEC news before recovering to end down 0.3% at $93.24.
Investors are particularly focused on whether the options scandal will hurt Jobs, 52, who co-founded Apple in 1976 and has been the driving force behind Apple's turnaround in recent years.
The maker of the Macintosh computer and the iPod portable music player has attracted a cult-like following for its innovative products. Its revenue and share price have both risen dramatically in recent years.
The SEC statement does not preclude additional action against individuals, said Marc Fagel, associate regional SEC director in San Francisco. "Our public statement is simply about the company as a company," he told Reuters. "There are times when we will settle with a company or tell a company 'we're not going to sue you,' but that has no bearing on what we might do with individuals."
Based in Cupertino, California, south of San Francisco in the heart of Silicon Valley, Apple has said an internal review found two questionable options awarded to Jobs, but found no wrongdoing by current management, including Jobs. "The inquiry has to be: does the person who is getting something understand the legalities of it," Fagel said. "There is a big difference between getting a TV off a truck and options accounting."
Apple is among dozens of companies under scrutiny for their accounting of stock options granted to executives, including the issue of whether they improperly dated stock options grants to take advantage of a temporary share price decline.
"In the SEC statement, it said it would not bring charges against Apple based in part on its swift, extensive and extraordinary cooperation in the commission's investigation," Apple spokesman Steve Dowling said. "I don't think they dole these words out lightly."
Heinen, 50, did not return a call to her home, but her lawyer said it was unfair to single her out for enforcement action among executives at more than 170 companies swept up in stock option scandals.
"To suggest that Ms. Heinen engaged in fraud is to misunderstand the facts of what happened," Miles Ehrlich said in a statement. "Nancy did not backdate stock options, and she didn't deceive anyone either inside or outside the company."