SEC Charges Former Apple Counsel in Backdating Probe

By Scott Ferguson  |  Posted 04-24-2007

The U.S. Securities and Exchange Commission charged Apple's former top attorney April 24 with fraudulently backdating millions of stock options to the company's top executives, including CEO Steve Jobs, in 2001.

After months of speculation following an internal review by Apple, the SEC filed civil charges against Nancy Heinen, the company's former general counsel, accusing her of fraudulently backdating a grant of 4.8 million stock options in February 2001 to Apple's executive team.

Later, in December 2001, the SEC charged that Heinen again backdated 7.5 million options to Jobs. All together, the backdating meant that Apple, which is based in Cupertino, Calif., underreported its expenses by $40 million.

In both cases, Heinen altered the company's records to report that the options had been granted to Jobs and the executive team at a time when Apple's stock price was much lower. The SEC charged that Heinen manipulated to records in order to ensure that the company did not have to calculate these expenses into its financial statements.

In addition to Heinen, the SEC charged former Chief Financial Officer Fred Anderson with knowing that Heinen had backdated the stock options to executives and then failing to correct Apple's financial statements.

Click here to read more about Apple's internal probe of the backdating of stock options.

After filing charges against Anderson on April 24, the SEC announced that it has agreed to settle its complaints with the former CFO and Anderson agreed to pay a $3.5 million fine. That agreement was first reported by the Wall Street Journal.

Anderson and Heinen each received stock options and other compensation during the time when the backdating was taking place, according to the SEC.

"Apple's shareholders relied on Heinen and Anderson, as respected legal and accounting professionals, to ensure the accurate reporting of the company's executive compensation," said Marc Fagel, the associate regional director of the SEC's San Francisco office, in a statement. "Instead, they failed in their duties as gatekeepers and caused Apple to conceal millions of dollars in stock option expenses."

The civil charges against Heinen and Anderson were filed in the U.S. District Court for the Northern District of California.

In a statement, the SEC said it would not file charges against Apple, citing the company's "extensive and extraordinary" cooperation with the probe.

Anderson's attorney claimed that his client warned Jobs about the problems with the stock options, but the CEO assured him that everything had been handled properly.

Click here to read more about the start of the internal probe and Anderson leaving the company.

"He was told by Mr. Jobs that the Board had given its prior approval and the board would verify it," according to a statement Anderson's attorney, which was reported by Reuters. "Fred relied on these statements by Mr. Jobs and from them concluded the grant was being properly handled."

After Apple started its own internal probe in 2006, Anderson and Heinen each left the company.

After the internal probe was complete on Dec. 29, 2006, Apple said that it would adjust earnings, after tax, by $4 million in 2006, $7 million in 2005 and by $10 million in 2004. Additionally, Apple stated that the company will take an after-tax, non-cash stock-based compensation of $84 million.

Steve Dowling, an Apple spokesperson, declined to comment on the specifics of the complaints filed by the SEC on April 24. He did note that Anderson and Heinen were "two former employees" and pointed to the SEC's statement saying that it would not bring any additional charges against the company.

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