Wednesday, April 25, 2007

SEC to pursue Apple on options - Apple’s Jobs ‘was warned’ on options - Jobs looks safe for now amid probe

Apple’s Jobs ‘was warned’ on options
By Kevin Allison and Richard Waters in San Francisco and Brooke Masters in New York
Copyright The Financial Times Limited 2007
Published: April 24 2007 19:01 | Last updated: April 25 2007 01:25

Steve Jobs, chief executive of Apple, was warned in 2001 about the accounting implications of backdating stock options for top executives at the company, Apple’s former chief financial officer said on Tuesday.

The statement by Fred Anderson, who on Tuesday agreed to pay $3.5m to settle backdating charges with the Securities and Exchange Commission, raises fresh questions about the role played by Mr Jobs in improper backdating at the company.

It came as the SEC said it would not take any action against Apple itself. The regulator on Tuesday said its decision was due in part to the company’s ”swift, extensive and extraordinary cooperation” in the government’s investigation. However, fraud charges were filed against Nancy Heinen, the company’s former general counsel.

Mr Anderson’s lawyers declined to say whether he had made similar accusations under oath or as part of the SEC’s investigation into backdating.

While Tuesday’s events appear to signal that the enforcement agencies do not have evidence to pursue an immediate case against Mr Jobs, his standing as the most prominent executive to be drawn into the options backdating scandal that has engulfed more than 200 US companies has guaranteed close scrutiny of his role.

Apple has said Mr Jobs did not benefit from backdated grants and implied he was not aware of their accounting implications.

The company refused to comment on Mr Anderson’s allegations.

The SEC alleged on Tuesday that Apple backdated two large options grants, a February 2001 grant backdated to January 17 of that year, and a December 2001 grant backdated to October.

The earlier dates enabled the company to under-report compensation expenses by about $40m and personally benefited Mr Anderson and other top executives.

In a statement circulated by his lawyers, Mr Anderson alleged that he had received assurances from Mr Jobs in late January 2001 that an options grant to several members of Apple’s top management team had been approved by Apple’s board on January 2. That was two weeks before the January 17 grant date specified in Apple’s company filings.

Mr Anderson “was told by Mr Jobs the board gave its prior approval and the board would verify it”, Mr Anderson’s lawyers alleged.

“Fred relied on these statements by Mr Jobs and from them concluded that the grant was being properly handled. It now appears that the board may not have given the necessary prior approval to the grants.”

Mr Anderson also said he “understood” Mr Jobs and Ms Heinen selected the grant date.

The justice department is still investigating options backdating at Apple.

Jobs looks safe for now amid probe
By Kevin Allison and Richard Waters in San Francisco
Copyright The Financial Times Limited 2007
Published: April 25 2007 01:42 | Last updated: April 25 2007 01:42
For Steve Jobs, options backdating is the scandal that will not go away.

Questions about the Apple co-founder’s role in recommending improperly dated options grants have dogged the company since June, when Apple revealed that it was looking into options irregularities.

The sparse nature of Apple’s early disclosures on the subject, and its later amendments to some of these, have only served to add fuel to the smoldering fire around options backdating at the company.

However, as the Securities and Exchange Commission on Tuesday brought its first legal action in the case, the signs indicated that – for the time being at least – Mr Jobs is not about to be burnt.

Apple’s initial internal investigation into the matter, concluded last June, said only that a grant of backdated options to Mr Jobs had been cancelled, and he had received no financial gain. That was followed in October by an admission that the company’s chief executive had known about the backdating “in some instances”, but that he had not been aware of the accounting implications.

Apple later changed its stance, saying in a follow-up filing with the SEC in December that Mr Jobs had personally recommended some of the cases of backdating.

Also, rather than repeating its earlier statement that he had not been “aware” of the accounting issues involved, it said instead that he had failed to “appreciate” them.

These periodic official filings and subtle changes of wording, along with the company’s refusal to give more details about its CEO’s involvement, have assured Mr Jobs of a continuing role in the broader backdating scandals.

While other CEOs who approved backdating have resigned, Apple has stood resolutely behind Mr Jobs, in part because he did not personally benefit from the practice.

The SEC’s announcement on Tuesday that it did not intend to pursue enforcement action against Apple over the matter was the first indication that it was not at this stage targeting Mr Jobs.

“This is going to dog him in the sense that he’s still a material witness and he’s still going to sit for depositions, but for all intents and purposes I read this as the Commission has [decided not to go after him],” says Michael Piazza, a former SEC lawyer and a partner in the white collar practice at Dorsey & Whitney.

Tuesday’s assertions by Fred Anderson, Apple’s former chief financial officer, may have caused some discomfort but they appear to have done little damage to Mr Jobs in the eyes of SEC investigators.

One shadow that remains is the risk of any future testimony by Nancy Heinen, Apple’s former general counsel, who has vowed to fight the fraud charges levelled at her on Tuesday.

Mr Anderson indicated that Mr Jobs and Ms Heinen selected the date for a January 2001 options grant that was ultimately found to have been backdated.

Ms Heinen’s lawyers have vowed to mount a vigorous defence in court.

Any eventual trial is likely to include a discovery process that may result in a string of new diclosures about the events that led up to improper backdating at the company.

“When this goes into discovery there are going to be some interesting depositions taken,” says Mr Piazza.

That could result in more questions for Mr Jobs, whose exposure over stock options backdating shows few signs of abating.

SEC to pursue Apple on options
By Kevin Allison in San Francisco and BrookeMasters in New York
Copyright The Financial Times Limited 2007
Published: April 24 2007 03:00 | Last updated: April 24 2007 03:00

The Securities and Exchange Commission is this week expected to file civil fraud charges against Apple's former top lawyer about stock options backdating. The decision would be the first legal action in a case that raises questions about the role played in improper options granting practices by Steve Jobs, Apple's co-founder and chief executive.

The SEC is expected to claim that Nancy Heinen, who resigned as Apple's general counsel last year, engaged in a scheme to defraud investors by changing grant dates of stock options to inflate value, people familiar with the matter said yesterday.

Lawyers for Ms Heinen said she would fight any charges against her.

"Nancy did not participate in moving grant dates back in time or to a lower price," said Cristina Arguedas, one of Ms Heinen's attorneys. "We think we have a very strong defence and we are fighting the case."

Apple is the highest-profile company to have become caught up in the scandal about options backdating: a practice in which the grant dates of stock options are changed using hindsight in order to inflate their value. More than 200 companies have come under scrutiny in regard to the practice. Dozens of top executives have been forced to resign. Several have faced civil or criminal charges. The SEC is locked in an internal debate about whether to charge companies over the practice.

Questions about Mr Jobs' role in backdating at Apple have been posed since June, when Apple declared it had found "irregularities" in timing of options grants, including one grant to Mr Jobs.

In October, Apple said an investigation had cleared Mr Jobs of any wrongdoing. The investigation uncovered "serious concerns regarding two former officers in connection with the accounting, recording and reporting of stock option grants". Those officers are believed to be Ms Heinen and Fred Anderson, Apple's former chief financial officer. Mr Anderson could not be reached for comment.

It emerged in December Mr Jobs had personally recommended some instances of backdating at the company. Apple said although Mr Jobs had recommended favourable grant dates, he did not benefit from them and was unaware of the accounting implications.

The case against Ms Heinen is expected to concern a grant of 7.5m options to Mr Jobs in December 2001 and a January 2001 grant to several Apple executives. The second grant, approved by Mr Jobs, resulted in 400,000 stock options being awarded to Ms Heinen, a person familiar with the matter said.


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