Apple Not Quite Off the Backdating Hook

Last Updated Jul 14, 2008 3:28 PM EDT

Stock option backdating not necessarily a closed MacBookLast week the Department of Justice ended a two year criminal probe into stock backdating at Apple. But that's not the end of legal troubles.
Civil actions are proceeding, however. The S.E.C. brought charges against [former chief counsel Nancy] Heinen and [former CFO Fred] Andersen in a civil suit in April 2007. Mr. Andersen settled with the S.E.C, without admitting wrongdoing, and agreed to pay $3.5 million in disgorgement and penalties. This left Ms. Heinen alone to go to trial next April to face allegations of backdating two large option grants and then altering company records to conceal it. Based on statements made by her lawyers, Ms. Heinen does not seem inclined to take the fall for others. Her testimony in trial could bring [Steve] Jobs, with whom she worked directly, into the courtroom.If Mr. Jobs finds himself on the witness stand, he will have a difficult time pleading ignorance. Mr. Anderson, the former chief financial officer of Apple, released a statement last year through his lawyers in which he said that in 2001, when Mr. Jobs was preparing the large options grant for the executive team that would end up being backdated, he explicitly warned Mr. Jobs that the "grant would have to be priced based on the date of the actual board agreement or there could be an accounting charge."
The S.E.C. is not obligated to drop its investigations just because the D.O.J. has, and the fact that it has not officially put Jobs or others in Apple's current management team doesn't mean that it can't or won't. Writing about corporate governance over the last couple of years, I've spoken with a number of former S.E.C. enforcement lawyers, and they say that the agency builds its cases from the bottom up. First they target people lower down and then they work their way as high into management as possible, with convictions. And even if nothing comes from that, such a statement would be welcome fodder for the shareholder suits that have been filed.

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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.