Apple CEO Steve Jobs will have to appear before federal investigators as part of the Securities and Exchange Commission's lawsuit against Nancy Heinen, Apple's former head lawyer, Bloomberg reported Thursday.
In April, the SEC filed suit against Heinen and Fred Anderson, Apple's former CFO, charging them with orchestrating the backdating of stock options at the company. Anderson agreed to settle his suit with the SEC at the time it was filed, but the proceedings are under way against Heinen. Bloomberg's report said that the SEC is not opening an investigation of Jobs with this move, but that it wants his testimony in connection with the ongoing suit. An Apple representative declined to comment.
Apple admitted last year that stock option backdating--the practice of selecting a favorable date for a stock option award--occurred at the company, and it took an $84 million charge to set the ledger straight. Jobs has never been charged with any wrongdoing in connection with the backdating, which is illegal if it's not properly recorded as an expense.
Apple conducted its own investigation into the matter and cleared Jobs, even though it also said he was aware of the backdating and actually recommended some of the dates. An independent investigator hired by the company said Jobs did not benefit from the backdating (he never exercised the options, although he traded them for a restricted stock award), and that he was unaware of the accounting implications of backdating.
The SEC's case has focused on Heinen's role in creating the minutes of an October 2001 meeting of Apple's board of directors that never actually happened. In the fall of 2001, Jobs and Apple's board haggled over the terms of an option grant to the CEO, specifically over the vesting terms of the agreement. According to the SEC's complaint against Heinen, the board approved a grant of 7.5 million options in late August, but Jobs' objections to the vesting terms of that grant delayed the final approval until December 18.
Apple had missed a November deadline to report the terms of the August grant to the SEC, and it had entered a new fiscal year in October, so in December Heinen recommended an October grant date for this options package and had minutes created of a board meeting dated October 19 to finalize the grant. Of course, that grant wasn't finalized that day, and Apple's full board never met that day; the fake minutes weren't even created until 2002. The SEC has charged that Heinen was the mastermind behind the fake minutes, and falsified other meeting documents to cover the trail.
So what does the SEC want from Jobs? It's important to note that he still hasn't been charged with anything. But he's going to have to testify under oath about the depth of his involvement in the entire stock option mess at Apple. That might finally clear his name of any suspicion, but it could also create serious problems for the company if anything surfaces that's contrary to Apple's public statements about his involvement.
So far, Apple has been able to isolate its iconic CEO against fallout from the backdating mess. Executives at other companies have had to walk the plank even though the SEC didn't take any action against their companies, simply to limit damage to the company. Apple's board has said several times that it's confident Jobs did nothing improper, and given Jobs' importance to Apple it would be almost impossible for board members to ask him to leave and instantly crater the company's stock unless he's shown to have participated in anything untoward.
This could have something to do with Fred Anderson's statements after he settled his suit with the SEC. Anderson has said that he did inform Jobs of the accounting implications of backdating in January 2001, around the time the first of the backdated grants awarded to Apple executives was approved. He said that Jobs had told him the board of directors had approved a grant date for an options package that actually wasn't formally approved until about a month later, and that he warned Jobs Apple would have to record an expense to account for the difference in the company's stock price between the two days.
At the time Anderson released his statement Apple took great care to note that the SEC decided to file suit against just Anderson and Heinen, not Jobs. The SEC cleared Apple as a corporation, and didn't file suit against Jobs or any other member of Apple's executive team in April, but they didn't say they never would, either.
If the report is correct, this isn't over for Apple.