Heinen, Anderson Likely Targets for SEC Charges
Heinen, Anderson Likely Targets for SEC Charges
by , 11:45 AM EDT, April 23rd, 2007
Apple's former General Counsel Nancy Heinen and former CFO Fred Anderson are the most likely targets for criminal charges in the SEC backdating probe into the Mac and iPod maker's stock option grants. Criminal charges could be filed against the former Apple executives as early as this week, according to the San Jose Mercury News.
Ms. Heinen was investigated for her alleged role in orchestrating stock option grants that were backdated to favorable dates for the recipients, and for approving falsified documents related to option grants . She may also have benefited from backdated grants herself.
Miles Ehrlich, Ms.Heinen's lawyer, said that she is being used as a scapegoat because Apple is a high profile company. "It's simply unfair to single out Nancy Heinen for enforcement action from among the thousands of executives in hundreds of companies all over this country who've been swept up in these stock options cases," he said.
Unnamed sources close to the investigation also claimed that former CFO Fred Anderson may be targeted with criminal charges. His legal team was not available for comment, and the SEC has not confirmed or denied the claim.
Apple launched its own independent investigation into possible backdated option grant irregularities last year. In June 2006, the company announced that it had found evidence of improperly backdated grants, and then turned the information over to the SEC. The investigation raised concerns about the involvement of former Apple executives, presumably Ms. Heinen and Mr. Anderson, but cleared CEO Steve Jobs.
The SEC conducted its own investigation, and later the U.S Attorney's office launched a criminal investigation as well. That investigation seemed to be focused on former Apple attorney Wendy Howell and her involvement in an option grant awarded to Mr. Jobs. Ms. Howell claimed that she was working under instructions from Ms. Heinen.
Should Ms. Heinen's legal team state that they will fight any charges brought against her. Mr. Ehrlich commented "Nancy didn't backdate stock options, and she didn't deceive anyone."
Observer Comments
Tue Apr 24, 2007 2:12 am Subject: I'm not sure I understand....
Was backdating "illegal" when this was done? It seems to me, that if this was such a common practice, that there's something fishy about prosecuting it. I know tax laws are often created such that they reach into the past, and tax income/items from before the tax law was in place, but prosecuting crimes that weren't crimes when they were committed sounds like a farce, and I thought that was what was happening here... Can somebody clarify?
-Jon
Tue Apr 24, 2007 2:45 am Subject: Re: I'm not sure I understand....
Jon, Backdating per se is not illegal now nor was it illegal in the past. What is illegal is not accounting for the shares according to Generally Accepted Accounting Standards (GAAP). Currently, GAAP does not require options to be expensed, but this options scandal is likely to change GAAP toward that.
What Uncle Fred is accused of here with regard to an options grant given to Steve Jobs apparently is picking a date when AAPL was at a short/medium term low and granting Jobs' stock options at that price. This lets Jobs maximize profit when he exercises the options in the future. The accounting problem is that Apple actually has to acquire this stock into its option pool in order to grant it to Jobs later. So if Apple acquires it on Day D at $X/share, but Apple backdates the option to day D-100 at $X-15/share, then Apple is giving Jobs $15/share but not accounting for that gift.
People are pissed off and the regulators are on companies' backs because this was a widespread management abuse of trust. It is mostly a senior management issue. CEO pay is under scrutiny from all sorts of people, not just left wing nuts. Read John C. Bogle's books. He founded the Vanguard funds, which were the first index mutual funds.
Tue Apr 24, 2007 3:04 am Subject: Re: I'm not sure I understand....
QuoteBosco wrote:
Jon, Backdating per se is not illegal now nor was it illegal in the past. What is illegal is not accounting for the shares according to Generally Accepted Accounting Standards (GAAP). Currently, GAAP does not require options to be expensed, but this options scandal is likely to change GAAP toward that.
Thanks for that succinct information.
-Jon
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