Former Apple Chief Financial Officer Fred Anderson issued a statement Tuesday claiming that he advised Apple CEO Steve Jobs of the accounting implications of backdating in January 2001, contrary to Apple's previous statements that Jobs had no idea of the ramifications.
Anderson's statement came just after the Securities and Exchange Commission filed a lawsuit against Nancy Heinen, the former general counsel at Apple, saying her actions led to "fraudulent" stock option backdating at the company. A similar lawsuit against Anderson was filed but simultaneously settled. The SEC said it doesn't plan to file any actions against Apple as a company.
The lawsuit comes after months of investigation by both regulators and Apple into the backdating, which Apple has admitted occurred in relation to two options grants made to Jobs and other executives--including Heinen and Anderson.
The SEC is charging that Heinen fraudulently selected earlier grant dates for two options grants, one in February 2001 to several Apple executives including Jobs, Anderson and herself, and one in October 2001 to Jobs. The agency is also saying that she falsified records to cover it up and prevent Apple from having to record expenses associated with those dates.
"Every action Nancy took was fully understood and authorized by Apple's board of directors, was consistent with the interests of shareholders--and consistent with the rules as she easily understood them."
--Miles Ehrlich, Nancy Heinen's attorney
Heinen's attorney issued a statement saying that her actions were in line with Apple's wishes and legal.
"Every action Nancy took was fully understood and authorized by Apple's board of directors, was consistent with the interests of shareholders--and consistent with the rules as she easily understood them," said Heinen's attorney, Miles Ehrlich of Ramsey-Ehrlich.
The practice of stock option backdating has engulfed hundreds of companies over the past couple of years, including CNET Networks, publisher of CNET News.com. Backdating occurs when a company's officers assign a grant date for a stock option award that was earlier than the date it was actually awarded, generally to take advantage of a lower stock price on the earlier date. This is legal if properly recorded, but many companies didn't record the expenses involved with this practice, and the SEC has been investigating several companies in connection with backdating.
Some CEOs have been forced to step down or fired over their role in the mess, but Apple has stuck by Jobs, considered by many as one of the most indispensable CEOs in the technology industry, if not the business world. It has said several times that Jobs didn't understand how accounting for backdating options should be handled and that he didn't profit personally from the backdating.
"Although (Apple's) investigation found that CEO Steve Jobs was aware or recommended the selection of some favorable grant dates, he did not receive or financially benefit from these grants or appreciate the accounting implications," Apple said in a filing with the SEC last December.
But in his own statement, Anderson implied that Jobs was in fact aware of the accounting implications of the options backdating.
Apple spokesman Steve Dowling declined to comment on Anderson's allegations beyond noting that the SEC filed its lawsuits against former Apple employees, and no current members of the company's executive team.
Anderson said Jobs told him in late January 2001 that the board of directors had approved a grant date of January 2, 2001, for the executive team grant. He also said that Jobs and Heinen later agreed to move that date forward to January 17 to avoid the perception that the company awarded the grants on the earlier date to take advantage of a post-Macworld rise in Apple's stock. Under Apple's rules at the time, that was fine as long as the stock price on January 17 was higher than the price on January 2, which it was.
Anderson said he advised Jobs in January that the options dates had to be priced as of the formal approval of the grant dates, or Apple could have to record an expense. But Apple's board of directors didn't actually approve those dates until early February, calling into question whether Jobs really had received prior approval of those January dates from the board. As a result, Anderson repaid the difference in gains between the January 17 date and the February approval date as part of his settlement with the SEC.
Anderson said he had no involvement in the October 2001 grant. In August 2001, Apple's board of directors approved a grant of 7.5 million options to Jobs, but didn't finalize the grant until December 18. However, a date of October 19 was assigned to the grant, when a board of directors meeting was supposedly held to approve it. Apple has admitted that meeting never occurred.
The minutes of a supposed special meeting of the board were created to provide cover for the October date; who is responsible for those minutes appears to be a key question in the case. The SEC is charging that Heinen ordered the creation of the falsified documents, but the San Jose Mercury News reported earlier this week that Heinen's lawyers plan to argue that an in-house lawyer, Wendy Howell, was acting on her own when she created the minutes. Howell's lawyers disputed this.
As part of his settlement with the SEC, Anderson did not admit to any wrongdoing nor did he deny the charges. He will pay almost $3.5 million in restitution for the January 2001 stock options that he exercised, reflecting the profit gained from the earlier grant date. He will also pay a $150,000 fine, and will not be barred from serving as an officer or director of a public company, a penalty that Heinen faces if found liable.
Anderson's statement, while potentially embarrassing for Jobs and Apple, probably won't have any lasting legal effect on the CEO or the company because the SEC was likely aware of Anderson's story before it filed the suits against him and Heinen, said Gene Munster, an analyst with Piper Jaffray. And still, the SEC neglected to charge Jobs and cleared Apple.
"Steve Jobs is like Teflon," Munster said. "With any other CEO, these last-minute grenades would probably be damaging. (But) whether it's investors or individuals, they feel like if Jobs is in trouble, these cool products I've been getting are in trouble."
The stock-options affair also isn't expected to put too much of a damper on Apple's first-quarter earnings report, scheduled for tomorrow. Apple is expected to post a "solid" quarter, with decent Mac and iPod sales in what is usually a slower quarter for the company, Munster said.