Founders & Gen'l Counsel Sued By SEC in Broadcom Options Backdating Case
Broadcom Corp.’s two founders, its general counsel and a former chief financial officer were all named as defendants today in a civil complaint filed over options backdating by the U.S. Securities and Exchange Commission in federal court in California.
The four “perpetrated a scheme from 1998 to 2003 to fraudulently backdate stock option grants, failing to record billions of dollars of compensation expenses and falsifying documents to further the fraud,” the SEC contends in a press release about the case. “As a result of the scheme, Broadcom restated its financial results in January 2007 and reported more than $2 billion in additional compensation expenses.”
The case essentially claims that the four defendants put their own interests and those of any other employees granted stock options over those of outside shareholders by backdating their stock purchase options to days when share prices were particularly low. As a result, the shares cost the option holders less, and stockholders more, explains the Los Angeles Times. Plus, by failing to provide accurate financial information about the stock options to shareholders, the four violated securities law about information disclosure to investors, the SEC contends.
It comes against a sweeping backdrop of other such stock options backdating cases, which have been ongoing for several years.
The SEC is seeking permanent injunctive relief, monetary penalties, and officer-and-director bans against all four Broadcom defendants in today’s lawsuit. It also seeks disgorgement with prejudgement interest from general counsel David Dull and William Ruehle, Broadcom’s former chief financial officer, as well as reimbursement of bonuses and profits from stock sales from former chief executive officer Henry Nicholas and Ruehle.
Nicholas, along with co-defendant Henry Samueli, Broadcom’s chairman and chief technology officer, co-founded the company, which makes computer chips.
The company itself agreed to pay $12 million to settle another options backdating suit that the SEC filed in April against Broadcom, the Los Angeles Times notes.
A lawyer for Samueli contends that a Broadcom board investigation “fully exonerated” his client in 2006, reports Bloomberg.
Ruehle also denies the SEC allegations, according to his lawyer. Dull’s attorney said the SEC settlement with Broadcom precludes him from “denying” the agency’s allegations because he still works at the company. Counsel for Nicholas couldn’t immediately be reached, the news agency says.
Additional and related coverage:
Associated Press: “SEC charges Broadcom co-founders in stock options probe”
Business Week: ” Backdated Options, Future Rules?”
University of Iowa (Eric Lie): “Backdating of Executive Stock Option (ESO) Grants”
The CPA Journal: “Backdating Employee Stock Options: Accounting and Legal Implications”
Updated at 10:03 p.m. to include comment from Dull’s attorney.
