Washington, D.C., July 1, 2008 – The Securities and Exchange Commission has charged Microtune, Inc. and two former senior officers for perpetrating a fraudulent and deceptive stock option backdating scheme that awarded themselves and other employees millions of dollars in undisclosed compensation. The backdating scheme caused the Plano, Texas-based technology company to file false and misleading financial statements.
The SEC’s complaint, filed June 30 in the federal district court for the Northern District of Texas, alleges that former Microtune Chairman and CEO Douglas J. Bartek, with assistance from former Chief Financial Officer and General Counsel Nancy Richardson, routinely misrepresented the date on which he granted stock options to senior executives and other employees. To conceal the alleged scheme, Bartek directed others to backdate employment records, including offer letters, to establish falsified start dates and grant dates that preceded the actual dates when the new hires began working for Microtune.
Microtune has agreed to settle the SEC’s charges. The SEC’s case against Bartek and Richardson continues, with the Commission seeking financial penalties and other relief under the “clawback” provision (Section 304) of the Sarbanes-Oxley Act to deprive corporate executives of money that they wrongfully earned while their companies were misleading investors.
“This action reaffirms our commitment to pursue those who perpetrate financial fraud and the corporate gatekeepers who allow it to happen on their watch,” said Rose Romero, Director of the SEC’s Fort Worth Regional Office. “The alleged array of fraudulent conduct by Microtune’s former officers, including the backdating of nearly every new-hire stock option grant, and backdating of large block grants, deprived the market of accurate information regarding executive compensation and the company’s accounting for stock options.”
According to the SEC’s complaint, the undisclosed backdating scheme ensured that the options falsely appeared to have been granted on dates in the past corresponding to low stock prices, thus resulting in potentially lucrative “in-the-money” options granted at below fair market value. The SEC alleges that rather than report compensation expense to shareholders, as required at the time by U.S. Generally Accepted Accounting Principles, Bartek and Richardson falsified or directed others to falsify stock option records to make it appear that the backdated options were granted as of the backdated date, and therefore “at-the-money.”
The SEC’s complaint further alleges that Bartek and Richardson caused Microtune to grant backdated options, cancelling those options after the company’s stock price dropped precipitously, and subsequently re-granting the same options at a substantially lower exercise price. According to the SEC’s complaint, the re-grants were not, as required, accounted for using variable accounting, in part because Richardson and Bartek allegedly concealed the nature of the re-grants from Microtune’s outside auditors and others.
Microtune, without admitting or denying the allegations in the SEC’s complaint, has agreed to settle the matter by consenting to a permanent injunction against violations of the antifraud, financial reporting, books and records, internal controls and proxy provisions of the federal securities laws. The SEC’s settlement with Microtune was based in part on Microtune’s swift and extraordinary cooperation in the SEC’s investigation.
The SEC’s complaint alleges that Bartek and Richardson violated or aided and abetted violations of the antifraud, financial reporting, books and records, internal controls, lying to auditors, and proxy provisions of the federal securities laws. The complaint also alleges that Bartek and Richardson violated Exchange Act Rule 13a-14 by signing certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 that were false and misleading. The Commission seeks against Bartek and Richardson injunctive relief, disgorgement of wrongful profits, civil monetary penalties, officer and director bars, and reimbursement of profits from stock sales pursuant to Section 304 of the Sarbanes-Oxley Act.