Earlier this week , the investigation into the drill of backdate stock options at Apple result in the U.S. Securities and Exchange Commission filing charges against one former Apple executive while reaching a small town with another . Here ’s a summary of what ’s happened in the investigating so far and what could potentially happen in the wake of this week ’s effect .
What is stock - choice backdating , and why is Apple under scrutiny for it ?
We offer a more thorough account of backdating here , but as a quick refresher course , backdating is a dead effectual praxis in which a company backdate the bang price of an option to a more favorable date , so that the employee ’s option becomes more worthful . Again , this is all above board ; it only becomes an issue when companies fail to send word shareowner and regulator that it ’s involve place so that everyone has the complete picture of the ship’s company ’s fiscal dealings .
That ’s why Apple — like hundred of other fellowship — finds its practice under scrutiny . The party has acknowledged irregularities in some of the bloodline option Grant it issued between 1997 and 2001 . More distressing from the position of governor is that some of the option in enquiry were allegedly approved by Apple ’s circuit card of director at meetings that never take place .
What , specifically , has hap so far ?
After announcing in June 2006 that its internal investigation had found irregularities in strain option grants — including one issued to CEO Steve Jobs — Apple conducted an internal investigation , restate its quarterly earnings from 1997 to 2005 , and cleared current executives of any misconduct . In October 2006 , as Apple announced the results of a three - month probe into stock option practices , Fred Anderson , Apple ’s CFO from 1996 to 2004 , free from his ass on the companionship ’s plank of directors . His difference follow that of Apple counselor Nancy Heinen , who leave the company last May .
The exits of Heinen and Anderson , twin with Apple elucidate current employee of any unseasonable - doing , seemed to paint a picture that the two ex - Apple executive would be the focus of the government ’s probe . And that speculation proved right this calendar week , when the SEC announced its plans to quest for a charge against Heinen while settling with Anderson .
What are the charge against Heinen ?
The SEC alleges that Heinen helped backdate options give to top Apple executives , causing the society to under - report its disbursal by $ 40 million . Specifically , the SEC claims that Heinen backdated a February 2001 Cary Grant of 4.8 million options to January 17 , allegedly telling her faculty to prepare false documents depict that the board of directors had acted on that day . A December 2001 Ulysses S. Grant of 7.5 million options to Jobs was attributed to a non - existent instrument panel meeting on October 19 . The SEC is seeking a penalization payment and refund of profits from Heinen , as well as an order barring her from serve as an officer or manager of any other public company .
Heinen ’s lawyer has refute the SEC ’s allegement suppose , “ Nancy Heinen ’s integrity is inculpable . ”
What are the terms of Fred Anderson ’s colony with the SEC ?
Anderson will return $ 3.5 million in what the SEC termed “ badly - gotten gains and prejudgement interest , ” plus a $ 150,000 fine . “ [ Heinen and Anderson ] failed in their duty as gatekeepers and cause Apple to hold in 1000000 of dollar sign in stock option expenses , ” said Marc Fagel , associate regional manager of the SEC ’s San Francisco office .
So that settles the matter ?
Possibly . In harbinger the action against Heinen and the liquidation with Anderson , the SEC state it would not make for any enforcement activeness against Apple , bring up the troupe ’s “ swift , extensive , and extraordinary cooperation in the Commission ’s investigating . ” When Apple was make for comment byMacworldthis week , it specifically cite the SEC ’s command on its cooperation and reiterated that no current employee has been lodge with any wrong - doing .
“ Wall Street views this as an all - clear for [ Steve Jobs ] , ” said Piper Jaffray analyst Gene Munster .
However , in a research government note to clients , Lehman Brothers older frailty president Harry Blount noted that the SEC ’s press release made no reference of Jobs , specifically , or whether the investigating was completed . “ We unsuccessfully seek to get an answer to both head , ” Blount wrote .
That ’s a potentially pregnant point , in Inner Light of a program line released by Anderson , blaming the backdating incident on Jobs .
What did Fred Anderson say about Jobs ?
According to a statement free through Anderson ’s lawyer Tuesday , the one - time chief financial officer was told by Jobs in tardy January 2001 that he had an agreement with the dining table of theater director to grant blood choice on Jan. 2 . Anderson said he “ cautioned ” job that the grant for executives would have to be priced base on the day of the month of the card concord “ or there could be an account statement charge , ” and also told Jobs the board would have to support it had give prior approval for the grant date “ in a legally satisfactory method acting . “ concord to Anderson , Jobs secure him that the board had give blessing and Anderson “ relied on these statements by Mr. Jobs and from them concluded the grant was being properly handled . ”
For its part , Apple necessitate the strange step of issuinga statement from six members of the board of directorsdismissing Anderson ’s claim and backing Jobs . “ We have sodding confidence in the conclusions of Apple ’s independent investigation , and in Steve ’s wholeness and his ability to lead Apple , ” the command learn .
Why did Anderson make his statement ? “ The public statement might have been part of the negotiate village , ” said Andrew Heath , a conformation expert with BusinessEdge solutions . Previous deal between the SEC and targets of backdating probes have prompted similar public statement , he added .
And that financial statement could be part of a scheme for a subsequent wave of legal action against either Apple or Jobs . “ I … opine that Mr. Anderson himself , in connective with his SEC village , probably concord to provide testimony that [ may ] mean extra actions against Apple executive director , perhaps even Jobs , ” said Robert Brighton , drumhead of the security measure law of nature practice group with the natural law firm Ruden McClosky .
Others have been more dismissive of Anderson ’s statement . “ This is a self - serving pressing release for Anderson , ” Piper Jaffray ’s Munster said . “ Everything he said [ Tuesday ] is what he said to the SEC over the last nine calendar month . ”
Are there likely to be more shareowner case ?
A shareholder case filed in December 2006 charged that Apple ’s wrong options timing gave Apple executives a windfall at the expense of shareholders . However , it ’s not clear whether or not more shareholder suits are pending in the backwash of the SEC ’s moves .
BusinessEdge Solutions ’ Heath enunciate that shareholder lawsuits tend to be relate to investors losing a large amount of money . Although Apple ’s ingeminate remuneration pared net by $ 84 million from 1997 to 2005 , Heath show out that an norm of $ 3 million per quarter may not be considered expectant enough money to recoup via a suit .
“ form actions are kind of a nuisance , and nobody wants to face one , ” Heath said . “ It ’s a fate of money for a police firm to put up [ before the suit is resolved ] . ”
Brighton notes that another shareholder suit might have a hard time gaining grip in royal court . “ The courts … have been influenced by a rebound against suit by plaintiff ’ attorneys target well - known companies and executives , at least in cases where stockholders have not suffered a declension in the value of their parcel , ” he said . Since Apple ’s parcel did n’t turn a loss substantial economic value from 1997 to 2002 , it would be an uphill battle .
“ If there are n’t any [ subsequent ] lawsuits , that ’s a telling statement from the investiture community that they do n’t feel [ the backdating ] is a significant issue , ” Heath said .
Ben Ames , Robert Mullins , and Nancy Weil of IDG News Service lend to this report card .
