Ex-Apple general counsel Heinen settles backdating case for $2.2 million

“Former Apple Inc. general counsel Nancy Heinen has agreed to pay $2.2 million to settle options backdating charges, the U.S. Securities and Exchange Commission said on Thursday,” Karey Wutkowski reports for Reuters. “Heinen also agreed to be barred from serving as an officer or director of a public company for five years. She settled the case without admitting or denying the charges, the SEC said.”

“The charges relate to two large options grants to senior executives of Apple, including a grant to Chief Executive Steve Jobs of 7.5 million options in December 2001,” Wutkowski reports.

“The SEC said Heinen caused Apple to fraudulently backdate the two large grants — a February 2001 grant of 4.8 million options to Apple’s executive team, including herself, and the December 2001 grant to Jobs,” Wutkowski reports. “She was also charged with altering company records to conceal the fraud.”

“Apple, the fast-growing consumer electronics company, was also investigated for irregularities over its accounting for stock options awarded to employees,” Wutkowski reports. “The SEC later cleared the company after it cooperated with the investigation, but sued former Apple Chief Financial Officer Fred Anderson and Heinen.”

“Jobs has not been charged in the case,” Wutkowski reports. “Apple declined to comment on Heinen’s settlement.”

Full article here.

[Thanks to MacDailyNews Reader “Lurker_PC” for the heads up.]

21 Comments

  1. “Heinen also agreed to be barred from serving as an officer or director of a public company for five years. She settled the case without admitting or denying the charges, the SEC said.”

    Hmmm, well, if you did nothing wrong, being barred from serving as an officer or director of a public company for 5 years is a hell of a way to express that. I know she may have just decided that it was better than taking the risk of jail time, but really, the case against her must have been pretty strong.

  2. One…last…time…

    You cannot “fraudulently backdate” options. There is nothing legally wrong with backdating options. It is the fraudulent REPORTING of such backdating that is a crime. The difference is that everybody involved knew there were backdated options issued, but only a few people knew that the backdating was not properly disclosed and accounted for. It’s the difference between everyone in Apple management doing something illegal and one or two people at Apple doing something illegal. The article as written portrays Apple as a criminal company instead of portraying a couple of people at Apple as having broken the law. A small difference in semantics makes a huge difference in meaning and a company’s reputation.

  3. “Hmmm, well, if you did nothing wrong, being barred from serving as an officer or director of a public company for 5 years is a hell of a way to express that.”

    Hmmmm, paying 2.2 million to avoid further investigation and agreeing not to do what no one was going to hire you to do anyway might have been the cheapest and fastest way to get this behind her. Yes, I know you’re all assuming that she is guilty. And I’m not saying that she isn’t. What I am saying is that you don’t know.

    If you were being pursued by the SEC, you might not have the time or resources to adequately defend yourself either. Continuing to contest the case might cost her millions and not allow her to be hired anywhere. Settling isn’t pleasant, but it’s the fastest way to get on with one’s lie. If the SEC truly had her dead to rights they wouldn’t have let her slip away without admitting culpability.

    This is what it says it is. A settlement without admission of guilt or denial of same.

  4. These types of cases are clearly government shakedowns and nothing more. If something criminal was done, shouldn’t the prosecutor want someone to go to jail, not write a check?

  5. “You cannot “fraudulently backdate” options. There is nothing legally wrong with backdating options. It is the fraudulent REPORTING of such backdating that is a crime.”

    Zeke boy, when people say Fraudulently Backdating Options, they mean “did not follow the proper process for issuing backdated options”

    At last I checked pretending to have held board meetings and generating fake minutes for them is not part of the proper process.

    And Steve admitted to picking the dates. So Steve knew they were backdated. I guess his position is he didn’t know that anyone was creating a false paper trail to cover it.

    And as anyone commenting on the subject should know, in the money stock options are almost never issued and properly documented in America because of the tax implications. You have to show the difference as compensation the company has paid at that point, both on the company’s filings and on individual tax returns. So while theoretically it may be possible to legally issue backdated options, in practice it never happens. Never Ever. If it’s done, it’s always done fraudulently.

    “you might not have the time or resources to adequately defend yourself “

    2.2 million and the effective end of your career. That’s a lot of resources, and subsequently a lot of time on your hands and a lot of loss of future earnings. She’s a lawyer. She knew what her chances were of winning, exactly 0%.

  6. <<Falkirk said: If you were being pursued by the SEC, you might not have the time or resources to adequately defend yourself either>>

    Uhm, she is paying $2M back, as her own ill-gotten gains, and $200k is her civil penalty. Somehow, it seems to me that she has more “resources” than the hypothetical “you”.

  7. “And as anyone commenting on the subject should know,…”

    What this phrase really means in the debating world is:

    “I really hope you’ll be bullied into accepting the following statement at face value because my argument depends on it and I have no supporting evidence to back it up…”

    “in the money stock options are almost never issued and properly documented in America because of the tax implications.”

    That is patently absurd. It’s done all the time for purposes of compensation. Both my wife and I have been issued such options (properly reported and expensed) as employee compensation and incentives. It’s common in the tech sector. Where have you been hiding?

    “So while theoretically it may be possible to legally issue backdated options, in practice it never happens. Never Ever. If it’s done, it’s always done fraudulently.”

    You might want to inform the software industry of your findings. Apparently they are living in a different universe.

  8. “That is patently absurd. It’s done all the time for purposes of compensation. Both my wife and I have been issued such options (properly reported and expensed) as employee compensation and incentives. It’s common in the tech sector. Where have you been hiding?”

    Really? Who do you work for? StupidCo? Don’t StupidCo know they can issue an in the money option on any date at any price they like without “backdating” it, provided they account for it properly?

    Sorry Zeke. No-one who knows what they’re doing and intends to account for options properly “backdates” options. The only reason to backdate is to commit fraud.

  9. For executive incentive stock options for total compensation more than a million dollars (Definitely Steve’s case) companies can deduct options issued at the money or out of the money options as a compensation expense. They can’t do that with in the money options.

    That’s part of the reason why they’re only issued fraudulently, to increase compensation while being able to take the option grant as an expense.

    Zeke do you know if you got ISOs like Steve gets or NSOs? Do you know if they were worth more than a million dollars when granted? If NSOs, did you recognise the value upon grant or upon exercise? If ISOs, were you a bit pissed that you missed out on being taxed at the capital gains rate because your company was dumb enough to issue them in the money? Were you annoyed that the taxable event occurred when the options vested not when you exercised them? Did the extra penalty tax and interest because they were issued in the money bother you?

    Just asking…

  10. really, the case against her must have been pretty strong.

    Bullshit.

    If the government decides that they’ve got to nail someone to the wall to make things look good, they have a vastly bigger litigation budget than any defendant is going to be able to muster.

    They railroaded her for something that wasn’t illegal at the time it happened. She’s a lawyer, she knows how the game is played, so she took the deal.

    -jcr

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