U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission


Litigation Release No. 20683 / August 14, 2008

Securities and Exchange Commission v. Nancy R. Heinen, Case No. C-07-2214 (JF) (N.D. Cal.)

SEC Settles Options Backdating Charges With Former Apple General Counsel For $2.2 Million

The Securities and Exchange Commission today announced that it has settled options backdating charges against Nancy R. Heinen, the former General Counsel of Apple, Inc. As part of the settlement Heinen, of Portola Valley, California, agreed (without admitting or denying the Commission's allegations) to pay $2.2 million in disgorgement, interest and penalties, be barred from serving as an officer or director of any public company for five years, and be suspended from appearing or practicing as an attorney before the Commission for three years.

The settlement stems from a complaint filed by the Commission in April 2007 in federal court in the Northern District of California. According to the complaint, Heinen caused Apple to fraudulently backdate two large options grants to senior executives of Apple — a February 2001 grant of 4.8 million options to Apple's Executive Team and a December 2001 grant of 7.5 million options to Apple Chief Executive Officer Steve Jobs — and altered company records to conceal the fraud. The complaint alleges that as a result of the backdating Apple underreported its expenses by nearly $40 million.

In the first instance, Apple granted 4.8 million options to six members of its Executive Team (including Heinen) in February 2001. Because the options were in-the-money when granted (i.e. could be exercised to purchase Apple shares at a below market price), Apple was required to report a compensation charge in its publicly-filed financial statements. The Commission alleges that, in order to avoid reporting this expense, Heinen caused Apple to backdate options to January 17, 2001, when Apple's share price was substantially lower. Heinen is also alleged to have directed her staff to prepare documents falsely indicating that Apple's Board had approved the Executive Team grant on January 17. As a result, Apple failed to record approximately $18.9 million in compensation expenses associated with the option grant.

The Commission's complaint also alleges improprieties in connection with a December 2001 grant of 7.5 million options to CEO Steve Jobs. Although the options were in-the-money at that time, Heinen — as with the Executive Team grant — caused Apple to backdate the grant to October 19, 2001, when Apple's share price was lower. As a result, the Commission alleges that Heinen caused Apple to improperly fail to record $20.3 million in compensation expense associated with the in-the-money options grant. The Commission further alleges that Heinen then signed fictitious Board minutes stating that Apple's Board had approved the grant to Jobs on October 19 at a "Special Meeting of the Board of Directors" — a meeting that, in fact, never occurred.

As part of the settlement, Heinen consented (without admitting or denying the allegations) to a court order that:

  • enjoins her from violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(b)(5), and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, 13b2-2, and 16a-3 thereunder, and from aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 14a-9 thereunder;
  • orders her to pay disgorgement of $1,575,000 (representing the in-the-money portion of the proceeds she received from exercising backdated options) plus $400,219.78 in interest;
  • imposes a civil penalty of $200,000; and
  • bars her from serving as an officer or director of any public company for five years.

In addition, Heinen agreed to resolve a separate administrative proceeding against her by consenting to a Commission order that suspends her from appearing or practicing before the Commission as an attorney for three years.

For further information please see:

Litigation Release No. 20086



Modified: 08/14/2008