For the last few months, the San Francisco U.S. attorney’s office has been investigating whether Apple � like so many other Silicon Valley companies � changed the dates on stock option grants to employees in order to maximize executive payouts, according to lawyers familiar with the case.
That investigation has chugged along quietly, even as Apple has twice made public admissions that it has backdating problems.
But behind the scenes, Apple � and some of its current and former executives � are seeking counsel.
Nancy Heinen � Apple’s longtime general counsel who left the company earlier this year � has hired East Bay defense lawyers Cristina Arguedas and Miles Ehrlich to represent her in connection with the government probe.
Arguedas, a partner at Arguedas, Cassman & Headley, has represented a string of high-profile targets, including an Enron defendant and athletes tied up in the Balco steroids case.
Ehrlich is the former head of the San Francisco U.S. attorney’s office’s white-collar section, a job he left last year to start the firm Ramsey & Ehrlich.
Arguedas and Ehrlich had little to say Tuesday. “We’re working together on many cases, and we’re working together on this case,” Ehrlich said.
Reached in her car Tuesday afternoon, Heinen declined to talk. “I’m driving,” she said.
With prosecutors poking around the company, Apple has hired George Riley, a partner with O’Melveny & Myers, to represent it before the government. He didn’t return calls seeking comment.
An Apple board committee has turned to John Potter, a partner at Quinn, Emanuel, Urquhart, Oliver & Hedges, to conduct an internal investigation. Potter likewise declined to comment on the internal investigation, as did a spokesperson for the U.S. attorney’s office.
As Apple announced last week, its investigation has so far turned up enough evidence of backdating that Apple expects to have to restate profits.
Yet unlike many of the dozens of companies to make such admissions since the Wall Street Journal began reporting on backdating issues last spring, little has been divulged about the Apple investigation: no subpoenas from the Securities and Exchange Commission or the Department of Justice, and no open talk of government action.
There’s been little public information from Apple on who received problematic options, other than an admission that Jobs received one backdated grant that he did not cash in, and was later cancelled.
Some companies with options problems have pushed out top executives, but that’s not likely to happen at Apple. Jobs is credited with rescuing the company in the late 1990s, and Apple’s fortunes are seen as being tightly tied to him. He would make a difficult sacrificial offering, the attorneys added, and could complicate Apple’s efforts to resolve its situation.
Prosecutors have made it clear that removing executives believed to be responsible for backdating can help a company avoid criminal charges.
Brocade got rid of three high-level executives last year, long before the company’s former CEO and human resources manager last month became the first to receive criminal backdating charges.
Comverse similarly jettisoned top management around the time it turned an internal investigation on backdating over to Brooklyn federal prosecutors, who are close to bringing indictments against the company’s former executives.
As for Apple, deeper trouble could be signified by its use of the term “irregularities” to describe what initial inquiries into grant practices had found. That term was used again in the announcement earlier this month indicating that options problems were bad enough to require a restatement of past earnings.
Several Silicon Valley defense lawyers � all of whom spoke on condition of anonymity because they have ties either to Apple or to other backdating cases � said that in accounting parlance, “irregularities” generally indicates a problem that’s not accidental.