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Feds investigate Apple's grant to Jobs

updated 01:20 pm EST, Fri January 12, 2007

SEC investigates Jobs

Federal officials are actively investigating a backdated stock option grant that carried a false October 2001 date which was awarded to Apple CEO Steve Jobs, according to the Wall Street Journal. Investigators are focusing on the grant to Jobs for 7.5 million options which finalized in December of 2001, which resulted in a retroactive $20 million charge to Apple's earnings due to false dating that increased the value of the options. The false documentation was created by former Apple attorney Wendy Howell, who the company quietly dismissed last month, according to the report. Howell claims that Apple's former general counsel and head legal official Nancy Heinen, who left the company in early May of 2006 and later sought legal counsel, instructed her to create the false documentation. Howell's attorney, Thomas Carlucci, said that "Ms. Howell acted as instructed by Apple management and with the company's best interest being paramount" while working for the Cupertino-based company.

Christina C. Arguedas -- Heinen's attorney -- claims she did not knowingly engage in any wrongdoing, and aptly denies that Heinen instructed Howell to falsify the documentation. "Each of the option grants involving Ms. Heinen was authorized and approved by her superiors," Arguedas said.

SEC investigators are working with federal prosecutors in an effort to question Howell and Heinen, both of whom have refused questioning thus far. Investigators also wish to speak with former Apple CFO Fred Anderson, who resigned from Apple's board of directors in October after an Apple-ordered independent investigation "raised serioius concerns" regarding the actions of two former officers in connection with the accounting.

An attorney representing Anderson said that "As CFO, Fred did not play any day-to-day role in the granting, reporting and accounting of stock options and he was not involved in any knowing manipulation of the process."

While a decision on whether investigators will bring criminal charges in Apple's case isn't expected for some months, the ongoing stock options scandal has directly affected the company's share price as new reports surface, bringing additional details to light regarding current as well as former management. Shareholders worry that any implication of company CEO Steve Jobs -- who is held in high regard and is largely credited for the firm's explosive success since his return to the company in 1997 -- could force the executive to step down, ultimately likely resulting in a major deflation of Apple's share price. Apple, however, contests that its independent investigation cleared all current management of any wrongdoing.

The company hired an independent counsel headed by a formal federal prosecutor shortly after it discovered "irregularities" in past stock option grants during a management review. The report resulting from that investigation -- which looked at the better part of a million documents over a period of several months -- found no misconduct by current management.

Despite such findings, Jobs elected to hire outside legal help late last year, leading many industry analysts to wonder why Apple's chief waited so long to seek legal help, considering the executive's stature and position at the company. Apple's stock fell following the initial report from The Recorder revealing Jobs' decision to seek legal aid, but promptly rebounded after several industry analysts reassured investors that the CEO is very likely not at risk of implication from the stock options investigation.

by MacNN Staff





  1. testudo

    Joined: Dec 1969


    I tell you

    Don't these people know Jobs did nothing wrong. Why don't these leave this poor guy alone, and go after some of the bigger fish, like that Fred Anderson guy. Now there's someone who looks shifty...

  1. bobolicious

    Joined: Dec 1969


    'poor guy'...

    ... ironic choice of words ...

    Snappy™ maybe...? :)

  1. SolarMedia

    Joined: Dec 1969


    How do you know that?

    The assumption that Jobs is always right is absurd. Mac faithful are loyal that if Steve told them they had gold in their hand, it would be gold, even though it was coal.

    I am not by any way saying Jobs is guilty, but I am saying that he should be looked at.

    I wonder if Tyco and Enron faithful were as devoted as Mac users.

  1. nativeNYer

    Joined: Dec 1969


    missing the point

    I think the 2 posts above this were missing the irony in testudo's post. Read it again, and read between his lines.

    Ii seems Apple is doing whatever it can to protect Steve. Of course, I can't realy blame them, since he is so much of what makes Apple, Apple. No Steve makes for an unhappy Apple, Inc. But I have no doubt he knew what was up with these stock options, even if he didn't personally authorize this. He's no dummy, so to claim he didn't know the implications is crazy. I just don't understand why they had to do something stupid like this. Hasn't anyone at Apple read the news and seen how companies are being taken down by the Feds for illegal practices. Why were they so greedy and stupid? Honestly, at times I really think Jobs feels he's above the law. Look at the iPhone name scandal. Willfully calling the product a name that had been registered by another company for years? What kind of c*** ethics is that?

    Apple, don't disappoint us and become another Microsoft.

  1. climacs

    Joined: Dec 1969


    everyone else was doing

    I don't think any of the commenters on this thread up to this point, really have the slightest clue how Silicon Valley or the hi-tech biz works.

  1. PBG4 User

    Joined: Dec 1969


    Re: everyone else was

    Just because everyone else was doing the options backdating dance doesn't make it right. The SEC has been going after multiple corps. this year for doing this same thing.

  1. elroth

    Joined: Dec 1969



    The reason Steve gets somewhat more of a pass than most other CEOs is that it's pretty obvious he is not solely motivated by money. He is much more motivated by the success of Apple, He didn't let his company go down the toilet while he got rich. These other guys were (most of them) solely interested in enriching themselves, while s******* everyone else (like that one CEO who skipped out to Asia to avoid scrutiny of his backdating his own options).

    The price of the entire 'scandal' to Apple shareholders is pretty small compared to the size of the company. And the amount Jobs benefitted from the altered date on his own options (when he traded them in for real stock) is also small, compared to the total compensation he got at that time.

    Now if Jobs had anything to do with making up a phony Board of Directors meeting, that's more serious. Other than that, a fine (of whatever size) from the SEC is probably the right punishment.

    You can always bring up Tyco and Enron, but this is in another universe from that.

  1. Terrin

    Joined: Dec 1969


    Well said

    Well stated, Elroth. Jobs made a fortune selling Next to Apple. He had no obligation to come back to the company. At least one member of Apple's Board at the time thought Apple was going bankrupt. That same board member said Jobs had to be talked into coming back. When he did come back, Jobs did not take any compensation because he wanted Apple employees to know he was not motivated by the money.

    Finally, Jobs always involves others in Apple's finacials because the guy is 1) not an accountant, and 2) that stuff probably does not interest him.

    He always let Fred handle the Wall Street stuff. Jobs never handled the financial meetings.

    Check out this interview:

    I suspect the people who Apple thinks is responsible will try to point their fingers at Jobs. What else are they going to do when faced with the possibility of jail.

  1. climacs

    Joined: Dec 1969


    re: everyone else

    what I was trying to say was:

    1) calling Apple 'stupid' for being 'so greedy' in 2001 is just dumb, dumb, dumb. There are a lot of things that a lot of people might not have done 5 years ago if they had known they would be prosecuted for it down the line. Apple in 2001 could not have known what would happen to Apple in 2006. Back then, there were lots of shady accounting practices going on and if you weren't pushing the boundaries yourself, you were going to get fired in favor of someone else who would, plus Wall Street would punish your company for not keeping up with your competitors (which meant doing the same shady acct'g practices in order to pump up your numbers).

    Does it make it right? No. Does it make Apple 'stupid' (because they did not have a crystal ball)? No.

    2) Comparing this options backdating case to Tyco and Enron? Puh-leeez. Get real.

    3) By definition, anything Testudo posts is stupid.

  1. noitabrutsam

    Joined: Dec 1969


    re: why

    Of course Jobs isn't really motivated by for money for his own self since he has enough of it. But he was motivated to make sure his NeXT buddies like Tevanian and Rubenstein as well as other high ranking executives and managers whom he liked would be able to make out (and boy did they if you look back at when these folks exercised their favorable back dated options). I've met Fred Anderson at shareholders meetings in the past while he was still CFO and the guy is a straightshooter. I would be surprised if they found any wrong doing on his part though I can see why the ones inside of Apple wanting to protect Jobs at all cost would prefer to make Anderson the fall guy since he was after all, the finance guy.

    Heinen unlike Anderson (who was hired by Amelio and one of the only execs from that period Jobs kept) also came from NeXT. I wouldn't be surprised if she signed off on some of the documents in question out of loyalty. The way she pretty much just disappeared from the company (which seems to be rather common at Apple where managers and execs just don't bother showing up for work; the enterprise sales VP pretty much did the same thing in early 2004) one day sort of raises a red flag.

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