The S.E.C. Catches Up With Steve Jobs

Steve Jobs may be the subject of a new fake book, but he has been issued a very real subpoena by federal investigators.

The S.E.C. wants him to cough up dirt on Nancy Heinen, Apple's former general counsel, in its ongoing investigation of stock options backdating at the tech giant. Jobs is not the target of the probe.

Throughout the Apple backdating saga, the company has appeared to be willing to throw anyone—no matter how senior—under the bus, in order to keep the scandal away from Jobs, the franchise player.

The S.E.C. sued Heinen on April 24 for allegedly backdating a 7.5 million share-option grant to Jobs and other Apple honchos in 2001. Late last year, Apple disclosed that Jobs recommended some favorable dates on options other than his own.

Back in April, the S.E.C. said that it wouldn't sue Apple over the backdated options. An internal Apple investigation found "no misconduct" by Jobs after the technology visionary asserted that he wasn't aware of the potential accounting implications of backdated options.

The feds settled their case against former Apple C.F.O. Fred Anderson, who agreed to disgorge $3.5 million in ill-gotten gains from options backdating. As part of the deal, Anderson said he warned Jobs in January 2001 that Apple could be exposed to accounting charges because of the grant-date manipulation.

Late last year, Apple took a one-time charge of $84 million to correct its books, including $20 million for Jobs's 7.5 million-share award.

Many in the financial community, including the Wall Street Journal editorial board and Portfolio.com's own ace finance blogger Felix Salmon believe that options backdating causes "very little in the way of financial harm."

Compared with Enron, WorldCom, Adelphia, and the epidemic of Wall Street-abetted mortgage hucksterism that has roiled global markets lately, options backdating may seem to some like a relatively innocuous infraction.

In prior scandals, it's been easy to point a finger at an aggrieved party and say, "Oh look, they just lost their pension/life savings/house." With options backdating, the victim is more nebulous.

When a corporate board rigs stock options grants for senior executives—as if those employees aren't already well compensated enough—it is exploiting its insider status to take advantage of shareholders and the broader investing public. The real victim in the options-backdating mess is a pillar of the market system: Investor confidence.

Investors have a right to expect that the securities market be, if not equitable, then at least fair. What has become very apparent over the last year is that corporate executives—who have been richly compensated by stock options grants—have not been honoring their side of the deal.

Sam Gustin