SEC takes a bite of the Apple

Elizabeth Nowicki —  24 April 2007

Today, the SEC filed securities fraud charges against two former Apple senior executives for matters pertaining to Apple’s backdating scandal.  The SEC settled its claims against former Apple CFO Fred Anderson at the same time it filed suit.  Anderson will pay about $3.5 million in disgorgement and penalties.  Former Apple General Counsel Nancy Heinen did not settle with the SEC.  Hmmm.

A few comments:

1.  Heinen did not settle.  Why?  If she was given the option to settle, and she did not take it, she was, in my view, foolish.  I wonder, however, if she was not even given the option b/c the SEC wanted to make an example of her.  The SEC is not big on wasting resources on litigation when a settlement is possible, but….

2.  Anderson apparently did not have to agree to an O&D bar (a bar from serving as an officer or director in the future) in order to reach a settlement with the SEC.  I find that scandalous.  As a general matter, an O&D bar is a standard feature (it seems) in the smaller SEC fraud enforcement actions.  Why not here?  I cannot say that I *want* Mr. Anderson to continue being an officer and/or a director of a publicly traded issuer.  (He currently is chairman of the audit committee of eBay.  Scary, that.)

3.  Some academics have questioned whether backdating constitutes fraud.  The SEC’s complaint lays out the facts responsive to that query very well.  Essentially, the SEC says that Heinen knew she was acting for purposes of deceiving others when she drafted board minutes for meetings that never took place and when she omitted information from other board minutes to avoid the auditors figuring out that the options were backdated.  Heinen did something deceitful that materially impacted Apple’s financial statements (by understating expenses dramatically).

4.  The SEC’s complaint indicates that the board members *knew* they were backdating.  That is a huge, huge problem for me.  When Heinen faxed to her directors resolutions that were dated six months prior, surely the directors asked questions.  If someone asked me to sign a document today that was dated January 1, 2007, I would ask why the date does not match today’s.  Yet the directors signed off of the backdated resolutions like a pack of lemmings.  That slays me.  (Actually, what slays me is that the Apple directors, who facilitated Heinen’s fraud, are not front and center in the SEC’s enforcement actions.  Heinen papered the backdating; without the board sign-off, Heinen could not have consummated the fraud.)

5.  Where does this leave Steve Jobs?  Will the SEC circle back around and come after him?