You Thought Backdating Was On The Back Burner?

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I paid Linda Thomsen a compliment at the recent Capital Markets Summit.  I told her that the SEC was out of the gate early and strong on backdating and it was heartening to hear that they were still interested in it, even though the business community, maybe, thought it was old news.

She liked that, smiled and seemed a little nonplussed to be getting a compliment in that forum. 
Well, I was just sucking up…  It would be cool to “confer” with someone tall and smart next time I’m in DC so I can tell them what I know, under duress.  But I digress…  
It’s really true that the SEC has not given up on prosecuting these cases.  And firms, including the Big 4, are still getting sued over it.
As they say over at the Harvard Law School Corporate Governance Blog, “…The fact that thousands of firms continued to secretly backdate after the Sarbanes Oxley Act, in blatant violation of its reporting requirements, suggests recent reforms may have failed to adequately curb such managerial power…
Monster Exec Charged With Backdating Stock Options
James Treacy, former chief operating officer and president of online job board Monster Worldwide, has been charged with securities fraud and conspiracy in connection with the backdating of millions of dollars worth of employee stock options, the U.S. Attorney’s Office for the Southern District of New York announced Wednesday.

Google Caught in Pixar’s Backdating Fallout
There’s trouble a-brewing in Big Rock Candy Mountain View.  Google (Nasdaq: GOOG) director Ann Mather could face a lawsuit over backdated stock-option grants she approved in her time as CFO of Pixar.

The SEC has “advised” Mather that there’s a civil action coming over yonder mountain, sure as the day is bright. The problem involves option grants to Pixar staffers like Toy Story director John Lasseter, who got a million Pixar options at a favorable, three-month-old price in 2001. All of this happened way before Ms. Mather joined the Google board, while Pixar was an independent and publicly traded company under chairman and majority shareholder Steve Jobs, of Apple (Nasdaq: AAPL) fame and fortune. 

Apple, of course, has had its own run-ins with the SEC over option grants. The boards and internal investigation teams at both Pixar owner Disney (NYSE: DIS) and Apple have concluded that we shouldn’t blame The Turtlenecked One for these option-related problems — which shifts the burden to the CFOs and legal teams at the time. Hello, Ms. Mather…

Broadcom, SEC Settle Backdating Case
Broadcom Corp. agreed to pay $12 million to settle Securities and Exchange Commission charges it falsified its reported income by backdating stock-option grants over a five-year period. The company restated its financial results in January 2007 and reported more than $2 billion in additional compensation expenses, one of the largest such restatements to date arising from stock-option backdating, according to the SEC. 

Federal prosecutors in Los Angeles are weighing criminal charges against former and current company officials, people familiar with the matter said. In November, former Broadcom human-resources executive Nancy Tullos pleaded guilty to one count of obstructing justice. Earlier this year, she paid a fine to settle SEC civil charges, without admitting or denying the allegations…

From August through October 2006 several plaintiffs filed purported shareholder class actions in the United States District Court for the Central District of California against Broadcom and certain of our current or former officers and directors, entitled Bakshi v. Samueli, et al. (Case No. 06-5036 R (CWx)), Mills v. Samueli, et al. (Case No. SACV 06-9674 DOC R(CWx)), and Minnesota Bakers Union Pension Fund, et al. v. Broadcom Corp., et al. (Case No. SACV 06-970 CJC R (CWx)), the Options Class Actions. The essence of the plaintiffs’ allegations is that we improperly backdated stock options, resulting in false or misleading disclosures concerning, among other things, our business and financial condition. Plaintiffs also allege that we failed to account for and pay taxes on stock options properly, that the individual defendants sold our common stock while in possession of material nonpublic information, and that the defendants’ conduct caused artificial inflation in our stock price and damages to the putative plaintiff class. The plaintiffs assert claims under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. In November 2006 the Court consolidated the Options Class Actions and appointed the New Mexico State Investment Council as lead class plaintiff. In October 2007 the federal appeals court resolved a dispute regarding the appointment of lead class counsel. In March 2008 the district judge entered a revised order appointing lead class counsel. The lead plaintiff filed an amended consolidated class action complaint in late April 2008, naming additional defendants including certain current officers and directors of Broadcom as well as Ernst & Young LLP, our former independent registered public accounting firm (“E&Y”). We intend to defend the consolidated class action vigorously…

In April 2008 we delivered a Notice of Arbitration and Arbitration Claim to our former independent registered public accounting firm, E&Y, and certain related parties. The arbitration relates to the issues that led to the restatement of Broadcom’s financial statements for the periods from 1998 through March 31, 2006 as disclosed in an amended Annual Report on Form 10-K/A for the year ended December 31, 2005 and an amended Quarterly Report on Form 10-Q/A for the three months ended March 31, 2006, each filed with the SEC January 23, 2007
. Formal arbitration proceedings have not yet commenced.
Wilson Sonsini Named in Shareholder Suit Against Brocade
Of all the companies caught up in the backdating mess, Brocade Communications has been especially hard hit — with both its CEO and a human resources exec going down in the scandal. But now responsibility for Brocade’s stock options backdating could ripple out as far as its law firm. A shareholder derivative suit filed recently in California district court names Wilson Sonsini, accusing the law firm of malpractice for blessing backdating at Brocade…
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