Wednesday, April 25, 2007

An Odd Twist in the Apple Options Timing Case

The SEC's filing against two former Apple executives related to options backdating had all the hallmarks of a typical civil enforcement action, with one defendant, former CFO Fred Anderson, settling the matter and another, former general counsel Nancy Heinen, stating through her lawyers that she will fight.  Anderson's settlement came with the usual caveat that he neither admitted nor denied liability, and in most such instances the defendant takes the one-day news hit and moves on.  In an interesting development, however, Anderson's attorney, Jerome Roth of Munger Tolles, released a statement regarding his client's roll in the backdating that seems to take a shot at CEO Steve Jobs' role in the transactions.  Jobs was not charged by the SEC, and appears at this point to have avoided any enforcement action even though the company disclosed his involvement in the selection of the dates for pricing the options grants.  The press release (available here) states:

Fred [Anderson] was told by Steve Jobs in late January 2001 that Mr. Jobs had the agreement of the Board of Directors for the Executive Team grant on January 2, 2001. At the time Mr. Jobs provided Fred this assurance, Fred cautioned Mr. Jobs that the Executive Team grant would have to be priced based on the date of the actual Board agreement or there could be an accounting charge.  He further advised Mr. Jobs that the Board would have to confirm its prior approval in a legally satisfactory method. He was told by Mr. Jobs that the Board had given its prior approval and the Board would verify it. Fred relied on these statements by Mr. Jobs and from them concluded the grant was being properly handled.

It's unclear what reason Anderson has for making these statements, at least if he wants to avoid having his role in the backdating dragged through the news even further.  The SEC is concerned about post-settlement statements that call into question the defendant's role in the underlying conduct, although Anderson has not done that directly.  Instead, the statement deflects attention toward Jobs as a way to show that Anderson's culpability is perhaps not quite as significant, which could draw a rebuke from the SEC.

Whether Anderson's statement is enough to lead to civil -- or even criminal -- charges against Jobs is questionable.  I have to believe the SEC knew Anderson's position on Jobs' involvement in the backdating, and chose not to go forward with a case against one of an icon CEO of the high tech industry, perhaps because there was no documentary evidence to back up the claims.  Filing civil fraud charges against Jobs would require the Commission to have a very strong case because the effect on the company, and indeed the industry, would be so significant that the government could not take a chance on a weaker case.  For those who remember the bank crisis of the 1980s, it could be an example of the "too big to fail" approach: you can't charge Steve Jobs with fraud because of the devastating consequences on shareholders and employees if he were brought down.  While no one is above the law, some may be slightly elevated.  (ph)

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Civil Enforcement, Securities, Settlement | Permalink

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