## Facts

- The SEC brought a civil enforcement action against Nancy R. Heinen, Apple’s former Senior Vice President, General Counsel, and Corporate Secretary, alleging stock-option backdating and related reporting and controls misconduct.
- The SEC alleged that Apple issued large option grants in 2001 using false grant dates to avoid recording compensation expense required for in-the-money options under then-applicable accounting rules.
- In February 2001, Apple granted approximately 4.8 million options to six executives; the SEC alleged the options were in-the-money when actually approved but were backdated to January 17, 2001 to appear at-the-money, avoiding about $18.9 million in compensation expense.
- In December 2001, Apple granted approximately 7.5 million options to CEO Steve Jobs; the SEC alleged the grant was in-the-money when approved but was backdated to October 19, 2001, avoiding about $20.3 million in compensation expense.
- The SEC alleged Heinen caused falsified corporate records to be created and maintained to support the backdated dates, including purported board minutes reflecting approvals on the earlier dates and a special meeting that allegedly never occurred.
- The SEC further alleged Heinen misled auditors and circumvented internal controls, and that she personally benefited through unreported compensation associated with the backdated options.
- The original complaint also named Apple’s former CFO, Fred D. Anderson; the SEC settled with Anderson at filing, and the case proceeded against Heinen.

## Issues

1. Whether alleged option backdating through false grant dates and fabricated board documentation could constitute violations of federal securities antifraud provisions.
2. Whether causing materially misstated financial statements by avoiding recognition of compensation expense could support enforcement under books-and-records and internal-controls provisions.
3. What injunctive and remedial relief (monetary relief, officer-and-director bar) was appropriate to resolve the SEC’s claims against a public-company general counsel.

## Decision

- The district court entered a consent judgment resolving the SEC’s action against Heinen without admission or denial of the allegations.
- Heinen was permanently enjoined from future violations (and, as specified, aiding and abetting violations) of identified federal securities-law provisions.
- The judgment imposed monetary relief totaling approximately $2.2 million (disgorgement, prejudgment interest, and civil penalty).
- The judgment imposed a five-year bar prohibiting Heinen from serving as an officer or director of a public company.
- Following the injunction, the SEC instituted an administrative proceeding and ordered Heinen suspended from appearing or practicing before the SEC as an attorney for three years.

## Legal Principles

- Intentional falsification of option grant dates and supporting corporate records, when used to affect reported compensation expense and financial reporting, may be pursued by the SEC as securities fraud and related reporting-and-controls violations.
- Material misstatements or omissions in issuer financial statements can arise from failing to record compensation expense required by applicable accounting rules for in-the-money stock options.
- Creating or using fabricated board minutes and other records to support false transactions can implicate books-and-records requirements and prohibitions on circumventing internal controls, including by misleading auditors.
- In SEC enforcement resolutions, courts may impose permanent injunctions, disgorgement, civil penalties, and officer-and-director bars; SEC administrative sanctions may follow based on the existence of an injunction.

## Conclusion

The action against Heinen, resolved by consent judgment, imposed a permanent injunction, approximately $2.2 million in combined monetary relief, and a five-year officer-and-director bar based on allegations that option backdating and falsified board records led to materially misstated financial reporting; an SEC administrative order then suspended her attorney practice before the Commission for three years.


Sec. & Exch. Comm’n v. Heinen, No. 07-2214 (N.D. Cal. 2008)