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Apple CFO Warned Jobs on Option Dates

Statement by former finance chief Fred Anderson raises questions about the company's claim that its CEO did not ''appreciate the accounting implications'' of options backdating.
Roy Harris, CFO.com | US
April 25, 2007

If Apple CEO Steve Jobs took comfort last December in the support of a special board committee studying alleged stock-option backdating, he may have reason to be concerned with what former CFO Fred Anderson is saying now.

A 10-paragraph statement from Anderson's attorney, Jerome Roth, maintains that Anderson explained to Jobs various accounting consequences if certain dates were selected for the pricing of stock options in early 2001.

Yesterday, Anderson agreed to pay more than $3.6 million to settle charges with the Securities and Exchange Commission. The SEC also filed civil charges against former Apple general counsel Nancy Heinen; her attorneys denied that she backdated options and said she would contest the charges.

Apple, in explaining Jobs's role in any options-related decision-making, has maintained that the CEO did recommend "favorable" dates for some option awards, but did not "appreciate the accounting implications" of date selection. The board committee, chaired by former Vice President Al Gore, expressed "complete confidence in Steve Jobs."

However, according to the statement from Roth — an attorney with Munger, Tolles & Olson in San Francisco — when Anderson was told by Jobs in late January 2001 that the CEO had board agreement for an executive-team grant dated January 2, the finance chief cautioned 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. He further advised Mr. Jobs that the board would have to confirm its prior approval in a legally satisfactory method."

Jobs told Anderson that the board had given prior approval, and would verify it, the statement continued. "Fred relied on these statements by Mr. Jobs and from them concluded the grant was being properly handled," it added.

According to the account from Anderson's attorney, there apparently had been other discussions about using a date 15 days later than January 2 for the grant, under provisions of the Apple stock option plan that allowed forward dating for certain reasons. Anderson had "understood that the date of grant was to be moved forward…from January 2 to January 17 to avoid any appearance of impropriety that might arise from a grant awarded just prior to the stock price rise that resulted from the 2001 MacWorld exhibition and Mr. Jobs's keynote speech at the exhibition on January 9," the statement said. Anderson further understood that the Apple board, "which consisted of sophisticated corporate executives of national statue, including the former chief financial officer of IBM, verified the January 17 date by signing in early February 2001 a Unanimous Written Consent (UWC) with an effective date of January 17," the statement said. (Former IBM CFO Jerome York remains one of the seven members on Apple's board, and chairs the audit committee.)

"It now appears the board may not have given the necessary prior approval to the grants, contrary to what Mr. Anderson understood from Mr. Jobs and from the board's signing of the UWC with an effective date of January 17," the statement said.

According to press accounts of the SEC complaint against Anderson and Heinen, on January 30 Jobs was provided with a list of closing share prices for Apple stock during the month, and there were discussions about the choice of a date to be used as the grant date. The complaint focused on two instances of 2001 backdating at Apple, including the executive-team grant of 4.8 million shares completed in early February, when Apple shares traded at $21 (there later was a stock split.) On January 17, the share price was $16.81.

Without admitting or denying the allegations, Anderson agreed to a permanent injunction barring him from further violations of the relevant securities laws. He will disgorge about $3.49 million in gains and prejudgment interest, representing the in-the-money portion of the executive team options grant that he exercised, and pay a civil penalty of $150,000.

The statement from his attorney also noted that the settlement terms "permit Fred to continue to act as an officer or director of public companies and do not bar him from practicing before the SEC." It added: "The claims against him also do not include fraud under the two antifraud provisions of the securities laws requiring proof of knowing misconduct."

Anderson, who is a founder and managing director of Elevation Partners, a private equity concern, is also a director of eBay; according to The Wall Street Journal, eBay CEO Meg Whitman has said Anderson "absolutely" would remain in that position.

Jerome Roth, Anderson's attorney, did not immediately return a phone call seeking further comment.

Public relations representatives at Apple also didn't immediately return a call.




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