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Another GC in Trouble, This Time at Apple

Just when it seemed like the spate of stories on embattled in-house counsel had finally died down, yet another surfaces. This time, the subject is Nancy Heinlin, Apple's former GC, whom the SEC plans to sue over her role in backdating 2001 Apple stock options, according to this AP story (4/24/07) and this coverage at the WSJ Law Blog.

The AP article reports that Heinlin intends to fight backdating charges, according to her attorney Cristina Arguedas. Arguedas argues that the options at issue were not backdated, but that the grant dates were moved to later dates and higher prices because of delays in reaching a final deal with Steve Jobs. But Arguedas contends that issuances at later dates and higher prices complied with Apple's accounting policies.

Unfortunately for Heinlin, that's not the extent of the story. As this San Jose news story explains, the option grant was "documented through false minutes of a board meeting that didn't occur."

Elizabeth Nowicki of Truth on the Market harbors concerns about the fictious meeting as well. She writes:

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).

But Nowicki also has a "huge, huge" problem with the directors, who willingly signed on to documents with dates that differed from the actual date of signature. She writes:

TWhen 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.)

For now, however, it appears that Steve Jobs will remain above the fray in the Apple backdating scandal. And to me, that's a fair result when corporate counsel aren't doing their job. 

Posted by Carolyn Elefant on April 24, 2007 at 07:47 PM | Permalink | Comments (0)

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