Washington, D.C., May 8, 2008 (Lawfuel) – The Securities and Exchange Commission today charged a Silicon Valley semiconductor company and its co-founder for reporting false financial information to investors by improperly backdating stock option grants to employees.
The SEC’s complaint against Marvell Technology Group, Ltd., and former chief operating officer Weili Dai alleges that Marvell provided potentially lucrative “in-the-money” options (granted at below-market prices) to employees. Rather than report compensation expenses to shareholders, as required at the time for these “in-the-money” options, Marvell backdated the options to dates with lower stock prices, and falsely represented that the options had been granted “at-the-money” (at market price) on earlier dates.
Marvell and Dai settled the SEC’s charges without admitting or denying the allegations and will pay financial penalties of $10 million and $500,000, respectively.
Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement, said, “Marvell’s long-running backdating scheme involved a senior executive who regularly signed minutes of meetings that never occurred. Today’s action confirms that the Commission continues to take allegations of misconduct by public company officers seriously.”
Marc J. Fagel, Co-Acting Regional Director of the SEC’s San Francisco Regional Office, said, “Despite warning signs, Marvell failed to detect or prevent the backdating. This case underscores the need for public companies to implement strong internal controls and set an appropriate ‘tone at the top.’”
According to the SEC’s complaint, filed in federal district court in San Jose, the scheme allowed Marvell to overstate its income by $362 million from its fiscal years 2000 through 2006. The SEC alleges that Dai, acting as Marvell’s “Stock Option Committee,” routinely reviewed lists of Marvell’s historical stock prices and picked the date with the lowest (or one of the lowest) stock prices since the previous grant date. This date would then be communicated to Marvell personnel as the date on which the Stock Option Committee had purportedly met and authorized the option grant. To make it appear that Marvell had actually granted the options on that date, Dai signed falsified minutes attesting to a meeting of the Committee on that earlier date.
In addition to financial penalties, Marvell consented to a permanent injunction against violations of the antifraud and other provisions of the federal securities laws. Dai, of Los Altos Hills, Calif., consented to an order barring her from serving as an officer or director of a public company for five years.