The Securities and Exchange Commission filed charges against two former Apple officers in its stock options backdating case, but questions remain about whether CEO Steve Jobs will emerge unscathed amid new accusations.
The SEC said it did not plan to pursue any further action against Apple itself, which fully cooperated with the government's probe, but it stopped short of saying its investigation was closed. Commission officials declined to comment on whether possible charges could still be filed against Jobs or other current officers.
The lack of clarity was compounded when Apple's former Chief Financial Officer Fred Anderson cast blame at Jobs after agreeing to settle the SEC charges over his alleged role in the backdating scandal. Anderson, 62, agreed to pay about $3.5 million in fines but did not acknowledge wrongdoing.
Jerome Roth, an attorney for Anderson, issued a statement saying the former CFO had warned Jobs about the implications of backdating one of the two grants that were the basis of the SEC lawsuit. Roth said Anderson was reassured by Jobs that the board of directors had given the necessary approvals, and that Anderson concluded that the grant was being properly handled.
Apple board members Bill Campbell, Millard Drexler, Albert Gore, Arthur D. Levinson, Eric Schmidt and Jerry York defended Jobs in a statement released late Wednesday.
"We are not going to enter into a public debate with Fred Anderson or his lawyer. Steve Jobs cooperated fully with Apple's independent investigation and with the government's investigation of stock option grants at Apple," the board members said. "The SEC investigated the matter thoroughly and its complaint speaks for itself, in terms of what it says, what it does not say, who it charges, and who it does not charge. We have complete confidence in the conclusions of Apple's independent investigation, and in Steve's integrity and his ability to lead Apple."
Roth's remarks contrasted Apple's earlier statements that Jobs was aware of some favorable grant dates but that he neither benefited financially from them nor "appreciated the accounting implications." Apple said in December that its own internal probe cleared Jobs and current management of any misconduct.
Meanwhile, the U.S. attorney's office is still investigating. A spokeswoman for the office declined to comment on status of the case.
Legal experts say the combination of Anderson's new accusations and the pending investigations leave Jobs' culpability in question.
"That statement and the disposition of the SEC does leave Steve Jobs in legal limbo," said Ralph Ferrara, a former general counsel for the SEC who now works at the New York-based firm of LeBoeuf, Lamb, Greene & MacRae. "It leaves him not knowing if he'll be swept up in heaven with Apple or cast into hell."
Apple spokesman Steve Dowling declined to comment on Anderson's claims but pointed to how the SEC named only two former officers in its lawsuit Tuesday.
"It did not file (charges) against Apple or any current employees," Dowling said. He declined further comment.
SEC Goes After Former General Counsel
Besides Anderson, the SEC filed civil charges against Apple's former general counsel Nancy Heinen, 50. Her attorneys vowed to fight the charges.
"Nancy did not backdate stock options and she didn't deceive anyone either inside or outside the company," her attorney, Miles Ehrlich, said in a statement.
The SEC accused Heinen of participating in fraudulent backdating and altering company records to conceal the fraud. The charges were in connection with two large options grants that caused the company to underreport its expenses by nearly $40 million, the SEC said.
The grants in question were a February 2001 grant of 4.8 million options to Apple's executive team and a December 2001 grant of 7.5 million options to Jobs.
The SEC alleged Heinen modified documents to backdate the grant to Jobs, to reflect that it had been approved during an October 2001 meeting that never occurred. The SEC said the executive team's grant was also fraudulently accounted for and that Anderson should have noticed Heinen's efforts to backdate it. The CFO failed to take steps to ensure that Apple's financial statements were correct, the SEC said.
Marc Fagel, an assistant regional director of the SEC in San Francisco, called the charges "serious." The civil lawsuit was filed at the U.S. District Court of Northern California in San Jose.
Heinen and Anderson 'were entrusted to ensure that accurate financial statements are shared with investors, and they failed to do that,' Fagel said.
Fagel and Mike Fortunato, an SEC staff accountant who investigated the case, disputed Heinen's claims of innocence and downplayed her attorney's statements that it was an "unfair" case of Heinen being "singled out."
"Documents were altered," Fagel and Fortunato said, "and the fact that the special (October 2001) meeting never happened -- it's hard to accept that she's an innocent victim here."
Anderson and Heinen both left Apple last year as the backdating scandal was unraveling.
The two former officers each personally received several million dollars in unreported compensation as a result of the backdating, according to the SEC, which is seeking penalties and fines against Heinen, as well as a court order barring her from serving as an officer or director of a public company.
Analyst Acknowledges Investor Worries, Sees Jobs Prevailing
Gene Munster, a financial analyst at Piper Jaffray, said he was surprised Anderson raised the accusations against Jobs. The finger-pointing will fuel investors' worries over Jobs and his critical role in Apple's continued success, he said.
"It gives the appearance that, 'I had a partner in crime and it was Steve Jobs,'" Munster said.
But Munster thinks the SEC would have charged Jobs already if it supported Anderson's claims. Munster predicted that Jobs would ultimately prevail and be able to keep his job with only a small chance that he might face some monetary fines.
Apple is arguably the highest-profile company among dozens facing stock options scrutiny by the SEC and federal prosecutors.
The backdating of stock options is the practice of pegging a grant date to an earlier, lower point in the company's stock price so the recipient can get a bigger future windfall.
The manipulation itself is not necessarily illegal but could pose legal violations if it is not properly disclosed, leading potentially to inflated corporate profits and underpayments in taxes. Several executives at other companies have recently pleaded guilty to criminal charges in connection with backdating.
After concluding a three-month internal probe, Apple said in December that it would take an $84 million charge for improperly backdating 6,428 grants from 1997 to 2002.