April 23 (Bloomberg) -- Apple Inc. former General Counsel Nancy Heinen may be sued by the Securities and Exchange Commission for backdating two stock option grants, including one made to Chief Executive Officer Steve Jobs, her lawyers said.

The securities regulator will likely sue Heinen this week for allegedly backdating an Oct. 19, 2001, stock option grant to Jobs for 7.5 million shares, and an earlier grant made to Jobs' executive team members, including Heinen, on Jan. 17, 2001, her attorney Miles Ehrlich said.

The Justice Department also is investigating stock option awards at Apple, maker of the Macintosh computer and iPod music player, though ``there would be no basis for the filing of criminal charges'' against Heinen, said another defense attorney, Cristina Arguedas, of Arguedas, Cassman & Headley in Berkeley, California.

Apple, based in Cupertino, California, would be the largest company with current or former executives sued by the SEC over claims they helped fake stock-option grant dates. The company said in December that 6,428 option grants from 1997 to 2002 were backdated, including one to Jobs marked as approved at a fictional board meeting.

Backdating Options

``There was no backdating at all,'' said Arguedas, who is working with Ehrlich. To the extent Heinen ``had anything to do with grant dates, she advocated pushing them forward in time and higher in price. Every grant was established and approved by all of the appropriate people on the board.''

Heinen, 50, resigned last May without explanation, two months before Apple disclosed an investigation into option backdating. The internal inquiry led the company to record $84 million in charges to correct its accounting.

Stock options allow holders to buy shares at a later date, usually at the market price the day they were granted. Backdating options to days with low prices inflates their value. If not properly disclosed, the practice may be illegal because it hides costs from shareholders and regulators.

Apple's internal investigation, led by board member and former U.S. Vice President Al Gore, ``raised serious concerns regarding the actions of two former officers in connection with the accounting, recording and reporting of stock option grants,'' the company said in a December SEC filing. Apple didn't name the two former officers.

SEC spokesman John Heine and Apple spokesman Steve Dowling declined to comment. The company found no misconduct by Jobs. The Apple report said he recommended ``some favorable grant dates'' other than his own.

`A Few Instances'

Jobs, Apple's cofounder in 1976, knew favorable grant dates had been selected in ``a few instances,'' the company said in the filing. He didn't receive or otherwise benefit from the grants or understand their accounting implications, according to the company.

Apple said in the December filing the 7.5 million share option grant to Jobs was first approved at a board meeting on Aug. 29, 2001, when the company's share price was $17.83.

Terms of the grant weren't completed until Dec. 18, when shares closed at $21.01, Apple said. The grant was backdated to Oct. 19, giving Jobs a lower exercise price of $18.30.

Under Apple's stock option plan and accounting rules in effect in 2001, according to Ehrlich, option grant dates could be moved forward and posed no accounting problems if the new exercise price was higher. Heinen may argue that enough details were known about the grant in August to consider it determined, and that the October date was in fact higher, Ehrlich said.

`Not an Accountant'

Heinen ``is not an accountant, but even if she had been, it was reasonable for her to understand the accounting rules and Apple's stock option plan to permit moving an approved grant to a future date with a higher price since it results in a less favorable price for the recipient,'' Ehrlich said.

The same argument applies to the Jan. 17, 2001, grant Heinen's defense attorneys said regulators have targeted, when the former general counsel and five other members of Jobs' executive team received option awards totaling 4.8 million shares, Ehrlich said.

Heinen argued against issuing the grant before the Jan. 9, 2001, MacWorld trade show in San Francisco to prevent any appearance the grant was ``spring-loaded,'' or issued just before favorable company announcements that might move shares higher, Ehrlich said. A former federal prosecutor, Ehrlich is an attorney with Berkeley, California-based Ramsey & Ehrlich.

`Attempted to Protect'

``She attempted to protect Apple executives from an accusation of spring-loading by suggesting an approved grant be moved to a date after MacWorld, a later date with a higher price,'' he said.

Shares of Apple rose 13 percent between Jan. 1 and Jan. 16, 2001. On Jan. 18, the date after the executive team grant was issued, the shares rose $1.88, or 11 percent, to $18.69 on optimism about Apple's reduced inventory and profit outlook, analysts said.

The SEC's case may also depend on evidence provided by Wendy Howell, a former Apple lawyer who worked for Heinen, according to a Jan. 12, 2007, article by the Wall Street Journal. Howell claimed Heinen instructed her to falsify documentation for the Oct. 19, 2001, grant to Jobs for 7.5 million shares, the article said, citing sources familiar with the case.

Documentation

Approval for that grant was ``improperly recorded'' as occurring at a board meeting on that date, Apple said in its filing. ``Such a special board meeting did not occur,'' the company said. No current member of management was aware of the ``irregularity,'' it said.

Howell's lawyer, Pamela Johnston, declined to discuss details of the documentation, saying Howell ``believed she was working in the best interest of the company'' and that she ``acted at the behest of her superiors.''

Heinen's lawyer, Arguedas, said her client ``did not authorize or approve of the falsification of any board minutes.''

Arguedas said that, as a result, her client wouldn't enter into a settlement agreement. Tim Crudo, an assistant U.S. attorney in San Francisco on a task force investigating stock options, didn't return a call seeking comment.

``Nancy did not participate in improper backdating, so she cannot settle the case in any way that suggests she did,'' Arguedas said.

Heinen, of Portola Valley, California, graduated from Boalt Hall School of Law at the University of California at Berkeley in 1982. She worked for law firms in San Francisco and Palo Alto, California, then for Tandem Computers Inc. from 1989 to 1994.

Next

She was general counsel at Jobs' software firm Next Inc. starting in 1994 and moved with him to Apple, where he became CEO in 1997 after the company bought Next.

Heinen has a favorable reputation among lawyers in Silicon Valley, according to attorneys including a former colleague and one who helped hire her for Apple.

``The piece of the puzzle that doesn't fit here is Nancy and the type of person she is,'' said Jim Pooley, an intellectual property lawyer and Heinen's employer in the 1980s.

Her ethics ``are completely incongruent with the idea that she was somehow involved in manipulation of stock records,'' Pooley said. ``That just doesn't compute.''

Heinen is ``an excellent lawyer'' said Rambus Inc. General Counsel Thomas Lavelle, who said he helped Jobs hire her to replace him as general counsel at Next.

``I'd be surprised if these allegations are true, if they've even reached the level of allegations,'' Lavelle said.

Apple shares rose 2.8 percent, or $2.54, to $93.51 at 4 p.m. in Nasdaq Stock Market composite trading.

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net.

Last Updated: April 23, 2007 16:21 EDT