Before emerging from one of the most high-profile options backdating cases with little more than a slap on the wrist, former Apple (AAPL) executive Fred Anderson landed some parting shots of his own.
The Securities & Exchange Commission brought an apparent end to its investigation of the handling of stock options at Apple by charging two former executives, Chief Counsel Nancy Heinen and Chief Financial Officer and Director Anderson, for their roles in improperly issuing two large options grants in 2001. Except for a shareholder suit, Apple is likely out of the woods on the legal front. The SEC said it won't bring enforcement actions against the company, citing Apple's "swift, extensive and extraordinary cooperation in the Commission's investigation." And having received a pass from the SEC, it is unlikely Apple will face any criminal charges from the Justice Dept., legal experts and financial analysts say. "Most investors think this is an all-clear," says Piper Jaffrey analyst Gene Munster.
All in the Timing
But longtime CFO Anderson, known for his even-tempered, behind-the-scenes persona, did not go quietly. He has largely bucked any serious personal legal damage, settling charges against him and agreeing to pay a $150,000 fine and repay $3.5 million in windfalls from backdated options. He didn't admit or deny guilt—though his lawyer issued a statement that points a finger at Apple Chief Executive Steve Jobs for his role in the scandal and calls into question a statement issued by Apple in December that exculpated Jobs for his role.
At issue is precisely when Apple's board gave approval for option grants for Jobs and others to purchase shares, and the role company officials played in misrepresenting grant dates so recipients got a bigger payout than they were due. More than 200 companies have admitted to government or internal investigations into the handling of stock options.
For one, Anderson says the board of directors signed off on one options grant later than Jobs said it did. Anderson says Jobs told him in late January, 2001, that he'd obtained the board's approval for a grant to top Apple executives (including Anderson, who was then CFO) on Jan. 2. Only later, he claims in the letter, did Anderson learn that directors did not actually O.K. the grant until around the time they signed the actual paperwork in early February. The suggestion is that had he known, Anderson would not have allowed Apple to issue the options without properly disclosing the details.
That wasn't Anderson's only shot. His lawyer, Jerome Roth, also says Anderson warned Jobs at the time that Apple would likely need to take an accounting charge if it issued options on any day other than Jan. 2. In fact, the company ultimately claimed they were granted on Jan. 17.
In an interview, Roth says his client is not accusing Jobs of lying. "We just want our view of what occurred to be known, so that it would not be speculated that he had done something that he hadn't done," says Roth. But Anderson's narrative flies in the face of the position taken by Apple last December, when its board admitted to frequent backdating but exonerated Jobs—in part because Jobs "did not appreciate the accounting implications" of backdating.
Apple spokespeople did not respond to Anderson's charges. But sources say that Anderson, who helped stave off bankruptcy around the time Jobs returned to the helm in 1997, has been irked by his treatment at the hands of his former employer in recent months. Having been asked to join Apple's board when he left the CFO post in 2004 to become a tech financier, sources say Anderson resigned his directorship last September upon learning he would likely be implicated in the company's exhaustive investigation of the backdating.
On Sept. 30, Anderson e-mailed his resignation from Apple's board to fellow directors. In the letter, which has been seen by BusinessWeek, Anderson said he was leaving to "avoid even the appearance of any conflict of interest arising from my continued service as a director." When Apple announced his departure a few days later, it made no mention of Anderson's explanation.
Instead, Apple coupled the announcement with the news that "two former officials," widely thought to be Anderson and Heinen, were probably responsible for Apple's backdating miscues. His concern was that Apple's handling of the announcement made it seem as though Anderson was not disputing talk that he was one of the wrongdoers.
As talk of government charges intensified in the months that followed, people close to Anderson came to his defense, including Bono, the U2 front man who is also one of Anderson's partners at Elevation Partners, a Silicon Valley private equity firm. On Jan. 3, the rocker issued this statement to BusinessWeek through a public-relations firm working for Anderson: "Fred Anderson is a man of the utmost integrity. He is a man to whom you would give the keys to your life and know it would be calmer, tidier and better organized every day he was in it."
Anderson is now free to get back to his former life. Having been charged only with not noticing backdating by others—rather than instigating it himself—the SEC did not ban him from having a role with publicly traded companies.
The same cannot be said for Heinen. The SEC complaint alleges that on both of the grants in question, the 50-year-old former chief counsel knowingly backdated and then doctored internal documents to conceal the fact from auditors, investors, and the government. These include the grant to Apple executives in February, 2001 (including herself and Anderson), and a second instance on Oct. 19 of that year, when she's accused of making up board minutes for a meeting that didn't occur in order to push through a huge 7.5-million-option grant to Jobs that was actually made two months later. The government says these grants improperly boosted the payday for the executives, and allowed Apple to avoid incurring nearly $40 million in expenses required when granting such "in-the-money" options.
Heinen's lawyer, Cris Arguedas, says her client is innocent. Regarding the grant to Apple executives, Arguedas claims Heinen wasn't backdating the grant from Feb. 2 to Jan. 17, as the complaint alleges. Rather, she says Heinen believed the options had been granted in late 2000; she was only pushing back the grant date, which Arguedas argues was legal according to the accounting rules at the time. "You can move a grant date forward in time, so long as it goes upward in price," says Arguedas.
Far from trying to bilk investors, Heinen was trying to help the company by avoiding charges that it had "spring-loaded" options grants just before Jobs gave a stock-lifting keynote at the Macworld trade show on Jan. 9, the attorney says. "She didn't do anything wrong." And yet she's being charged with 11 counts, ranging from fraud to false statements to auditors.
As for the grant to Jobs, the SEC complaint hints that Heinen believed the proper grant date was Aug. 29, when Apple's board first approved the mega-grant, one of the largest ever. But then Jobs began to complain about the vesting schedule; a source tells BusinessWeek. Jobs wanted a portion of the options to be "pre-vested" so that he would not have to wait to exercise them.
Given Apple's fiscal yearend of Sept. 30, and with a November deadline for reporting the grant to the SEC looming, Heinen "became increasingly concerned about the delay," the complaint says. When those dates came and went, the SEC complaint suggests, she began looking for a date on which to grant the shares at a price similar to the $17.83 price on Aug. 29. On Dec. 17, she recommended that the compensation committee choose the date of Oct. 19—when the price of Apple shares was at $18.30. Still, this was lower than the $21.01 price on the day they were actually granted, Dec. 18, creating a windfall for Jobs.
However close the stock price, Heinen was in the wrong, says Michael Dicke, assistant regional director for the SEC's San Francisco office. If Heinen wanted to avoid the appearance of spring-loading before Macworld, why not just say so in the documents and take any charges associated with changing the date? "It's indicative of an intent to deceive," Dicke says. "The general counsel's job is to make sure the company complies with all the legal requirements. Creating phony minutes doesn't fall within that job description."
Given Jobs' role, many experts and Silicon Valley insiders have wondered whether the government would go after him—or give him a pass, given his critical importance to the company and its shareholders. Dicke denies the suggestion. "Did Jobs' prominence affect the investigation? Absolutely not. Any decision that the SEC makes about whether to bring an enforcement action is based on the strength of the evidence or lack thereof."