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Securities and Exchange Commission v. Nancy R. Heinen

SEC Litigation Release No. 20683 (2008)

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Securities and Exchange Commission v. Nancy R. Heinen

U.S. Securities and Exchange Commission

SEC Litigation Release No. 20683 (2008)

Facts

The Securities and Exchange Commission (SEC) charged Apple, Inc.’s former general counsel Nancy R. Heinen with backdating two large stock option grants to avoid reporting a total of nearly $40 million worth of executive compensation expenses. First, in February 2001, Apple granted six executives (including Heinen) 4.8 million in-the-money stock options, meaning options that could be exercised to purchase shares at less than market price. Because the options could be exercised at less than market value, profiting the recipients the difference, federal securities law required Apple to report the options as executive compensation expenses in publicly filed financial statements. Heinen allegedly caused Apple to backdate the options to January 17, 2001, when Apple’s share price was substantially lower, to avoid reporting approximately $18.9 million in compensation expenses. Second, in December 2001, Apple granted CEO Steve Jobs 7.5 million in-the-money options. Heinen allegedly backdated that grant to October 19, 2001, again when Apple’s share price was lower, to avoid reporting another $20.3 million in compensation expenses. Heinen also allegedly signed fictitious board minutes representing that the board had approved the grant in a special meeting, which never actually occurred. Without admitting or denying the charges against her, Heinen agreed to a settlement with the SEC in 2008.

Rule of Law

Issue

Holding and Reasoning

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