SEC files charges in Apple back-dating case

The US Securities and Exchange Commission (SEC) has formally filed charges in its investigation of stock-option grants at Apple Inc. 

Former Apple chief financial officer Fred Anderson and former general council Nancy Heinen were both charged.

No charges have been filed against the company itself, chief executive Steve Jobs or any other current employee or board member.

The SEC said that it would not pursue further charges against the company owing to the swiftness with which Apple launched an internal investigation and reported the findings to the SEC.

However. SEC associate regional director Marc Fagel told VNU that he could not disclose whether the SEC is intending to take further action.

The charges stem from two grants given in 2001 to Jobs and Apple's executive team.

The SEC alleges that the options were back-dated in order to provide the executives with a more favourable purchase price, and that documents were then falsified in order to hide the practice from shareholders.

The SEC said that Anderson has already agreed to a settlement in which he will pay back US$3.5m received from the grants plus interest, along with US$150,000 in penalties. Anderson will not need to admit to any wrongdoing in the case.

The SEC's legal filing against Heinen alleges that the former general council "caused the options to be back-dated and altered company records to conceal the fraud".

It is also alleged that Heinen falsified records of a board meeting which did not take place.

The SEC is seeking monetary penalties from Heinen as well as an order barring the former Apple general counsel from serving as an officer or director for a public company.

Anderson claimed that he acted with the direct approval of Jobs. In a written statement, Anderson's attorney said that the former CFO tried to warn Jobs of the implications of back-dating stock options and was told that the grants were legal.

Apple had no comment on the report other than pointing out that the company will face no SEC action and that no current employee has been charged.

A 2006 internal audit found no wrongdoing by Jobs or any other current employee or board member.

Martin Schainbaum, a former assistant US Attorney and expert in tax law and white collar crime, said that the burden facing the SEC will be to prove that Apple executives knowingly back-dated the options. 

The SEC will need to prove that the options were subject to the criminal act of back-dating and not the result of a commonly misunderstood practice known as "memorialising" in which a stock option is agreed and awarded on a certain day, but is not processed until a later date.

"Where the problem happens is people signing off at the earlier date," explained Schainbaum. "Then it becomes a question of evidence."

A key piece of evidence for the prosecution in the case, according to the lawyer, will be the alleged falsified documents created by Heinen that indicate when Apple's board approved the stock options.

"Usually the defence is 'it did happen,' " said Schainbaum. "If it never happened and someone went ahead and created documentation that did not occur, that is going to be a problem."

Schainbaum added that it is hard to tell whether Jobs could still be a target of the investigation or a witness for the prosecution.

"The process may be in progress. After all, Jobs is the major player in Apple, and they have to be careful dotting the Is and crossing the Ts before they want to pursue any kind of case," he said.

"The other [possibility] is they may have decided to give [Jobs] some form of immunity in exchange for his testimony. If I was one of the prosecutors, I would consider competent witnesses to make the case."

Schainbaum suggested that Anderson's already agreeing to a deal with the SEC could harm his credibility as a witness and may leave the SEC wanting further witnesses to testify against Heinen.

"A skilled attorney representing anyone who gets charged is going to jump on the fact that he made a sweetheart deal," said Schainbaum.

"In order to make these cases you need a witness. In this case maybe there is some understanding between Jobs, his attorneys and the SEC."

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