SEC Charges Heinen in Apple Backdating Scheme

A news release from the securities regulator said former General Counsel Nancy R. Heinen was involved in the fraudulent backdating of options that caused the company to underreport its expenses by nearly $40 million.

Heinen, of Portola Valley, California, caused Apple to backdate two large options grants to senior executives of Apple – 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 Apple Chief Executive Officer Steve Jobs – and altered company records to conceal the fraud, according to the charges.

As earlier reported in the Wall Street Journal, the commission also filed, and settled, charges against former Apple Chief Financial Officer Fred D. Anderson, of Atherton, California, alleging that Anderson should have noticed Heinen’s efforts to backdate the executive team grant but failed to take steps to ensure that Apple’s financial statements were correct.

also will pay back approximately $3.49 million from the options and pay a civil penalty of $150,000, the SEC said.

Details of the Scheme

According to the complaint, filed in the Northern District of California, Apple granted 4.8 million options to six members of its executive team (including Heinen and Anderson) in February 2001. Because the options were in-the-money when granted, Apple was required to report a compensation charge in its publicly filed financial statements.

The commission alleges that, in order to avoid reporting this expense, Heinen caused Apple to backdate options to January 17, 2001, when Apple’s share price was substantially lower. Heinen is also alleged to have directed her staff to prepare documents falsely indicating that Apple’s Board had approved the executive team grant on January 17.

The commission’s complaint also alleges improprieties in connection with a December 2001 grant of 7.5 million options to CEO Steve Jobs. Although the options were in-the-money at that time, Heinen caused Apple to backdate the grant to October 19, 2001, when Apple’s share price was lower. As a result, the commission alleges that Heinen caused Apple to improperly fail to record $20.3 million in compensation expense associated with the in-the-money options grant.

The commission further alleges that Heinen then signed fictitious Board minutes stating that the Board had approved the grant to Jobs on October 19 at a “Special Meeting of the Board of Directors” – a meeting that, in fact, never occurred.

Apple’s Cooperation

The commission also announced Tuesday that it would not bring any enforcement action against Apple based in part on its swift, extensive, and extraordinary cooperation in the commission’s investigation. Apple’s cooperation consisted of, among other things, prompt self-reporting, an independent internal investigation, the sharing of the results of that investigation with the government and the implementation of new controls designed to prevent the recurrence of fraudulent conduct

More information is  here .