The Securities and Exchange Commission filed civil charges Tuesday against two former Apple Inc. officers over their alleged roles in backdating stock options. One of them immediately settled the case and cast some blame on Apple’s CEO Steve Jobs.
Former Chief Financial Officer Fred Anderson, 62, has agreed to pay about $3.5 million in fines and penalties to settle, the SEC said.
The case against former general counsel Nancy Heinen, 50, will proceed. Her attorneys have vowed to fight the charges.
The commission 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.
Anderson’s attorney, Jerome Roth, issued a statement Tuesday saying the former CFO had warned Jobs of the implications of backdating the executive team’s grant. Roth said Anderson was reassured by Jobs that the board of directors had given the necessary approvals, and thus proceeded with the conclusion that the grant was being properly handled.
The SEC concluded the grant was fraudulently accounted for and that Anderson should have noticed Heinen’s efforts to backdate the executive team’s grant. He failed to take steps to ensure that Apple’s financial statements were correct, the SEC said.
Apple’s 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.
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.
Under Anderson’s settlement, the former CFO did not admit any wrongdoing.
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.
The SEC said it will not pursue any further action against Apple itself, partly because of its “swift” and “extraordinary” cooperation with the probe. The Cupertino-based company has also implemented new controls to prevent a recurrence of fraudulent conduct,” the SEC said.
But the agency stopped short of saying its investigation was closed. Fagel declined to comment on whether further charges against Jobs or other company officials were possible.
The U.S. Attorney’s Office, which is also investigating Apple’s accounting shenanigans, declined to comment Tuesday on the status of its case.
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.