Semiconductor maker Marvell Technology Group Ltd. on Thursday agreed to pay a $10 million civil fine to settle regulators' allegations of improper backdating of stock options.
The Securities and Exchange Commission announced the settlement with the Silicon Valley company for allegedly failing to publicly disclose the employee stock-option awards as expenses and backdating the options to dates with lower stock prices. Santa Clara, Calif.-based Marvell neither admitted nor denied wrongdoing under the accord but did agree to refrain from future violations of the securities laws.
The backdating scheme allowed the company to overstate its profit by $362 million from fiscal years 2000 through 2006, the SEC alleged in its civil lawsuit filed in federal court in San Jose, Calif.
In addition, Marvell co-founder and former chief operating officer Weili Dai, accused of falsifying minutes of phantom meetings, agreed to pay a $500,000 civil fine and to be barred for five years from serving as an officer or director of any public company. She also neither admitted nor denied the SEC's allegations.
Stock options give employees the right to buy shares of stock at a predetermined time. Especially popular in Silicon Valley during the high-tech boom, they're a coveted incentive to lure and keep talent, particularly when granted by newly public companies with the opportunity for rapid growth.
Backdating options make the rewards even more lucrative by retroactively setting the exercise price to a low point in the stock's value. Usually, a stock option's exercise price coincides with the market value at the time of a grant to give the recipient an incentive to drive the price higher.
If companies backdate options without properly disclosing and accounting for the move, it can cause profits to be overstated and taxes to be underpaid.
Suspect timing of stock option awards to executives and employees became corporate America's biggest scandal in 2006, when it was discovered that numerous public companies around the country _ especially in Silicon Valley and the tech corridors of New England and the Eastern seaboard _ were manipulating the awards and failing to take appropriate charges against profits.
The SEC has reached settlements with seven companies and at least 30 former executives over improper backdating since late 2006. At one point, the SEC was investigating more than 100 companies.
In addition, federal prosecutors have investigated scores of companies for options backdating, and at least 18 executives have been hit with criminal charges. Nine have pleaded guilty.
The SEC said that Dai, acting as Marvell's "Stock Option Committee," regularly reviewed lists of the company's historical stock prices and chose the date with the lowest, or one of the lowest, prices since the previous grant date. The chosen date then would be given to company employees as the date on which the committee had met and authorized the option grant, the SEC said.
"Marvell's long-running backdating scheme involved a senior executive who regularly signed minutes of meetings that never occurred," SEC Enforcement Director Linda Thomsen said in a statement. "Today's action confirms that the (SEC) continues to take allegations of misconduct by public company officers seriously."
Shares of Marvell gained 12 cents to $13.30.
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