Technology company Analog Devices Inc. on Friday agreed to pay a $3 million civil fine and its CEO is paying $1.5 million to settle regulators' allegations of improper backdating of stock options.
The Securities and Exchange Commission announced the settlement with the company and Chief Executive Jerald Fishman for allegedly failing to properly disclose $30.7 million in stock-option awards to executives, directors and employees as compensation, and backdating the options to dates with lower stock prices. The alleged violations occurred between 1998 and 2002.
Fishman and Norwood, Mass.-based Analog Devices neither admitted nor denied wrongdoing under the settlement but did agree to refrain from future violations of the securities laws.
In addition to a $1 million civil fine, Fishman also agreed to pay $450,000 in restitution plus interest of $42,110.
The company also agreed to re-price two of the three option grants awarded to Fishman that he hasn't yet exercised, to eliminate the benefit from backdating.
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 were manipulating the awards and failing to take appropriate charges against profits.
Analog Devices was the fourth company since April to enter into such a settlement with the SEC. Counting Analog Devices, the agency has reached settlements with 10 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.
__
On the Net:
Securities and Exchange Commission: http://www.sec.gov
Terms & Conditions
RSS Headlines
Fool UK