U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20633 / July 1, 2008
Securities and Exchange Commission v. Microtune, Inc., Douglas Bartek, and Nancy Richardson, Case No. 3:08cv1105-B (N.D. Tex., filed June 30, 2008)
SEC Settles With Microtune Inc. and Sues Former Microtune Officers In Stock Option Backdating Scheme
The Securities and Exchange Commission filed civil fraud charges against Plano, Texas-based Microtune, Inc. and two former senior officers—former Chairman and Chief Executive Officer Douglas J. Bartek and former Chief Financial Officer and General Counsel Nancy Richardson. The SEC alleges that Bartek and Richardson perpetrated 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 company to file materially false and misleading financial statements with the Commission.
The Commission's complaint, filed in the federal district court for the Northern District of Texas alleges that Bartek, with assistance from Richardson, routinely backdated the date on which he granted stock options to senior executives and other employees. To conceal the scheme, as alleged, Bartek directed others to backdate employment records, including offer letters, to establish falsified start dates and grant dates that preceded the actual dates the new hires began working for Microtune.
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. As alleged, rather than report compensation expense 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, cancel those options after the company's stock price dropped precipitously, and subsequently re-grant 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, as alleged, Richardson and Bartek concealed the nature of the re-grants from Microtune's outside auditors and others.
Without admitting or denying the SEC's allegations, Microtune agreed to an injunction that permanently enjoins it from violating Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Securities Exchange Act of 1934, and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13, and 14a-9.
The Commission's litigated action alleges that Bartek and Richardson violated Section 17(a) of the Securities Act and Sections 10(b), 13(b)(5), and 14(a) of the Exchange Act and Rules 10b-5, 13a-14, 13b2-1, 13b2-2, and 14a-9 thereunder, and aided and abetted Microtune's violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 14a-9 thereunder. The Commission seeks 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 of 2002.