Former Apple General Counsel Settles Backdating Charges

[IJ Reilly]

WASHINGTON (Reuters) - Former Apple Inc (NasdaqGS:AAPL - News) general counsel Nancy Heinen has agreed to pay $2.2 million to settle options backdating charges, the U.S. Securities and Exchange Commission said on Thursday.

Heinen also agreed to be barred from serving as an officer or director of a public company for five years. She settled the case without admitting or denying the charges, the SEC said.

The charges relate to two large options grants to senior executives of Apple, including a grant to Chief Executive Steve Jobs of 7.5 million options in December 2001.

Apple, the fast-growing consumer electronics company, was also investigated for irregularities over its accounting for stock options awarded to employees.

The SEC later cleared the company after it cooperated with the investigation, but sued former Apple Chief Financial Officer Fred Anderson and Heinen.

...


http://biz.yahoo.com/rb/080814/apple_backdating.html

[skunk]

I presume this is good news of a sort for SJ.

[IJ Reilly]

The SEC never seemed to be particularly interested in Jobs beyond questioning him. The focus of the investigation always appeared to be on Heinen and Anderson.

[MacRumors]

http://www.macrumors.com/images/macrumorsthreadlogo.gif (http://www.macrumors.com)

SetteB.IT (http://translate.google.com/translate?u=http%3A%2F%2Fwww.setteb.it%2Fcontent%2Fview%2F4535&sl=it&tl=en&hl=it&ie=UTF-8) and BusinessWeek (http://www.businessweek.com/technology/ByteOfTheApple/blog/archives/2008/08/nancy_heinen_fo.html?campaign_id=rss_blog_byteoftheapple) report on Nancy Heinen's settlement with the Security and Exchange Commission (SEC) on the backdating (http://www.macrumors.com/2006/12/27/apple-stock-options-fallout-continues/) investigation. The SEC said that company records pertaining to a grant of 4.8 million options to Apple’s senior executive team in February of 2001, and a grant of 7.5 million shares made to CEO Steve Jobs in December of 2001 had been altered to conceal what it called a fraud. The result was that Apple underreported its stock-related expenses by nearly $40 million.The SEC had previously settled (http://www.macrumors.com/2007/04/24/sec-settles-with-anderson-pursuing-heinen/) with Apple CFO Fred Anderson and had cleared Steve Jobs of any wrongdoing in the matter.

The settlement terms included a payment of $2.2 million in repayment, interest and penalties and she is barred from service as an officer in a public company for five years. She did not admit or deny any wrongdoing in the matter. This should draw the a close to investigations surrounding Apple's backdating controversy.

Article Link (http://www.macrumors.com/2008/08/14/former-apple-general-counsel-settles-backdating-charges/)

[Sirobin]

I hope this is the end of it.

[Cherimoya]

This was displayed on the news ticker in the square at Canary Wharf in London tonight so I guess it must be big news in the Finance industry.

[theheadguy]

But why would they settle if they didn't do anything wrong? Won't someone stand up and protect the innocent? </sarcasm>

[OutThere]

Really smart move, backdating those options. Greed does wonderful things. :rolleyes:

[megfilmworks]

Really smart move, backdating those options. Greed does wonderful things. :rolleyes:
Greed?
I doubt it.
You think Apple did this on purpose?
I call it cumbersome and confusing SEC regs. Just like the IRS.

[theheadguy]

Greed?
I doubt it.
You think Apple did this on purpose?
Of course not! The myriad of tax attorneys and accounts that they have-- well they just don't know any more than us commoners. When confused-- don't ask questions, just backdate it! :D

[IJ Reilly]

No, it's greed alright. Backdating options is a way of putting cash in pockets without having to report it to the stockholders.

[chas0001]

Its amazing what money can buy you!

[SFgadgetman]

Now we can get back to the business of waiting for the next iPhone rumor!!!!!

[booksacool1]

No, it's greed alright. Backdating options is a way of putting cash in pockets without having to report it to the stockholders.

What exactly is backdating options, and why is/was apple in trouble for it?

[IJ Reilly]

What exactly is backdating options, and why is/was apple in trouble for it?

It means that the options were recorded as being granted to the recipients on a date before they were actually given. Often this builds in an instant profit for the grantee. Companies can do this if they like, but they have to report the difference as an expense.

[twoodcc]

glad to hear that this is settled

[rlmccormick]

Greed?
I doubt it.
You think Apple did this on purpose?
I call it cumbersome and confusing SEC regs. Just like the IRS.

Not a chance. The "regs" may be confusing to you and me but the people at the top are well versed. They took a chance and got caught. Simple as that.

[Sabenth]

am i to understand that what has happend or happend was a gamble it didnt work they lost and people made a fuss over it .

[seedster2]

Greed?
I doubt it.
You think Apple did this on purpose?
I call it cumbersome and confusing SEC regs. Just like the IRS.

Yes I think this was done on purpose.

It's their job to understand complex SEC regulations. Stop being ridiculous

[thederby]

it's not illegal to backdate options, you just have to account for them properly when you do your reporting.

[PlaceofDis]

hmmm now can we move on from this already?

[SeaFox]

This should draw the a close to investigations surrounding Apple's backdating controversy.

Article Link (http://www.macrumors.com/2008/08/14/former-apple-general-counsel-settles-backdating-charges/)
Would that be the first backdating options controversy, or the one people were crowing about last month?

[Doctor Q]

To me, agreeing not to serve as an officer in a public company for five years seems a bit like an admission of guilt, even if Nancy Heinen "did not admit any wrongdoing". But I know people often settle for ambiguous statements like that and it doesn't really prove anything.

[hulugu]

It means that the options were recorded as being granted to the recipients on a date before they were actually given. Often this builds in an instant profit for the grantee. Companies can do this if they like, but they have to report the difference as an expense.

This is a pretty succinct explanation. The failure to report was really the problem as I understand it.

Don't you always wonder how the conversation went when someone decided this was a good idea? Was it a group decision or did one person convince the others that "everyone does it?"

[ajhill]

At the 2007 shareholder's meeting there wan't a single person who was upset with the treatment of the Steve Jobs' options back dating.

For those who do not know (Apparently most people here) SJ explained that the options were dated to the date that the Board decided to issue them to SJ. The paperwork was filed sometime later (after Apple stock went higher. But hey, back then it ONLY went HIGHER [before the SEC started poking around]) and the previous date and lower cost basis was used, the date the board decided to issue the stock options.

The real issue here (and I know it gets lost in Government investigations) is wether or not any stockholders were harmed by the companies actions. Well, lets see My IRA went up 250% since the time of the questionable stock option grant. The government investigation took out a nice chunk (ironically, the Government investigation cost me money (not the stock options grant).

Incidentally a smug reporter (er "Concerned Shareholder" asked Steve Jobs if he was going to return the difference in the profit he made as a result of the difference in the issuance of the stock options. To which Steve Jobs said "No" and there was applause from the audience full of shareholders.

The fact is that Apple pays Steve Jobs only in stock options, no salary. (Although they did also give him a jet) The board decides what and when he gets paid. As a shareholder I'm okay with that. In fact I think he might be underpaid. And if I should ever disagree with the compensation, backdated or not, I will simply sell my Apple shares.

The real question is where would the stock price be right now if the Government had drop the investigation in a more timely manner. Just how much money has the Government cost shareholders?

Al:)

[winmacguy]

I have to say that as a stock holder of AAPL myself I have any issues about the backdating - or the "correct" accounting for the cost of that stock to Apple. SJ is worth every penny.:apple: As long as the stock keeps on heading past the $200 (when ever it gets there) I'll be very happy.

[bobbleheadbob]

I don't think the issue here was "greed" per se. The problem was with the accounting for the backdating. The General Counsel and CFO have the ultimate legal and financial responsibility within the organization for ensuring that the accounting was carried out correctly once the backdated options were granted. It wasn't and they were the punished by the SEC.

It's not that they personally did anything wrong themselves, other than failing to oversee the entire process of what is required when granting backdated options.

[mdriftmeyer]

At the 2007 shareholder's meeting there wan't a single person who was upset with the treatment of the Steve Jobs' options back dating.

For those who do not know (Apparently most people here) SJ explained that the options were dated to the date that the Board decided to issue them to SJ. The paperwork was filed sometime later (after Apple stock went higher. But hey, back then it ONLY went HIGHER [before the SEC started poking around]) and the previous date and lower cost basis was used, the date the board decided to issue the stock options.

The real issue here (and I know it gets lost in Government investigations) is wether or not any stockholders were harmed by the companies actions. Well, lets see My IRA went up 250% since the time of the questionable stock option grant. The government investigation took out a nice chunk (ironically, the Government investigation cost me money (not the stock options grant).

Incidentally a smug reporter (er "Concerned Shareholder" asked Steve Jobs if he was going to return the difference in the profit he made as a result of the difference in the issuance of the stock options. To which Steve Jobs said "No" and there was applause from the audience full of shareholders.

The fact is that Apple pays Steve Jobs only in stock options, no salary. (Although they did also give him a jet) The board decides what and when he gets paid. As a shareholder I'm okay with that. In fact I think he might be underpaid. And if I should ever disagree with the compensation, backdated or not, I will simply sell my Apple shares.

The real question is where would the stock price be right now if the Government had drop the investigation in a more timely manner. Just how much money has the Government cost shareholders?

Al:)

You're correct and there are many reasons--this amongst them--how come most folks such at Finance and Accounting and the accompanying Codes.

Meanwhile, the same government who let Energy futures markets and speculators rape California out of billions and Enron employees of their life pensions not only screwed up that investigation they created this one which was a joke.

[matdevdug]

I have to wonder though if Apple had someone fall on their own sword to protect SJ throughout this. I mean, as the recent discussions about his health have shown, he is the figurehead of Apple and there are serious concerns about Apple after he is gone. Just a thought.

[Bubba Satori]

I have to wonder though if Apple had someone fall on their own sword to protect SJ throughout this. I mean, as the recent discussions about his health have shown, he is the figurehead of Apple and there are serious concerns about Apple after he is gone. Just a thought.

Yep. The royal guard surrounds the king and takes the arrows so he can make his escape. Even after their fines they're all still very rich. :mad:

[IJ Reilly]

The real question is where would the stock price be right now if the Government had drop the investigation in a more timely manner. Just how much money has the Government cost shareholders?

I would estimate, net -- zero. Those who panic-sold because they'd heard that the SEC was talking to Jobs about the backdating shot themselves in the foot.

[iMacmatician]

I have to wonder though if Apple had someone fall on their own sword to protect SJ throughout this. I mean, as the recent discussions about his health have shown, he is the figurehead of Apple and there are serious concerns about Apple after he is gone. Just a thought.I've always been thinking of this ever since names other than "Steve Jobs" appeared.

[Xtoo]

You all miss the boat. Don't be naive!!!

She is OBVIOUSLY taking the fall for someone else. There's no woman executive in the business world that would take a fall like this without fighting and as you see... she is. She is getting paid under the table to clean up someone's name.

And that is the way the world of the corporate business works.

[matdevdug]

I mean I know it sounds kinda obvious, but at the same time it does make you wonder. SJ is pretty famous for claiming credit for inventions he didn't have anything to do with in terms of putting his name on the patent form. I just wonder how bad it would have been had this lawyer not taken the bullet.

[dernhelm]

It means that the options were recorded as being granted to the recipients on a date before they were actually given. Often this builds in an instant profit for the grantee. Companies can do this if they like, but they have to report the difference as an expense.

Right. Backdating wasn't the issue. Not reporting it was.

The fraud was that they backdated the stock issue and _did not report it_ as being backdated.

Remember, Apple wasn't the only company involved in this - it's a little like Steroids in Baseball. It was wrong, everyone did it, and they picked a few very big names to make examples of. Apple and Microsoft were two biggies in the tech industry, but there were several others as well.

The FCC "put this behind them" a year ago. The only people keeping it alive are the fan boys/haters of the companies they went after.

[IJ Reilly]

Right. Backdating wasn't the issue. Not reporting it was.

The fraud was that they backdated the stock issue and _did not report it_ as being backdated.

I think calling it "fraud" is exaggerating matters some. The impact was to not show the full value of the backdated options as an expense and therefore overstating profits. The amounts in the scheme of things were quite small. I believe these kinds of situations (of where there have been many far more egregious than Apple's violations) are more about greed and arrogance than an effort to cheat investors or anyone else. Corporate boards of directors look after themselves very well. This is never going to change, but the law does require that they accurately disclose just how well they take care of themselves, and what impact this has on the company's bottom line.

It's the SEC, incidentally.

[surferfromuk]

You all miss the boat. Don't be naive!!!

She is OBVIOUSLY taking the fall for someone else. There's no woman executive in the business world that would take a fall like this without fighting and as you see... she is. She is getting paid under the table to clean up someone's name.

And that is the way the world of the corporate business works.

Ridiculous nonsense.

Steve Jobs is already a billionaire and doesn't need to work for money like the rest of us. You think he's going to condone or promote petty criminal nonsense like this ?

Steve Jobs is in Apple for the love of it, certainly not money and he's not going to risk jail to get an extra few million quid when he's clearly not in a hurry to spend what he has already...

Just try reading the newspaper why don't you - everyday some low level accounts person is up on trial for embezzling. I suggest if there is criminality it was done by lower staff.