SEC Sues Maxim Integrated Products and Former Senior Officers in Stock Option Backdating Scheme
Former CEO Agrees to Pay $800,000
FOR IMMEDIATE RELEASE
Washington, D.C., Dec. 4, 2007 - The Securities and Exchange Commission today filed civil charges against Maxim Integrated Products, Inc., a Silicon Valley semiconductor company, and the company's former CEO and CFO, alleging that they reported false financial information to investors by improperly backdating stock option grants to Maxim employees and directors.
Linda Chatman Thomsen, the SEC's Director of Enforcement, stated, "Maxim's seeming ability to pick favorable grant dates for its employees was too good to be true — in ten consecutive quarters, Maxim granted options on the date with the lowest stock price of the quarter. In reality, Maxim selected these supposed grant dates with the benefit of hindsight, allowing it to hide millions of dollars in expenses from shareholders."
Marc J. Fagel, Co-Acting Regional Director of the SEC's San Francisco Regional Office, added, "Of particular concern here was the CFO's abandoning his role as corporate gatekeeper and instead facilitating Maxim's misrepresentations about its stock option program and financial condition."
The Commission alleges that former CFO Carl W. Jasper, of San Jose, Calif., helped the company fraudulently conceal tens of millions of dollars in compensation expenses through the use of backdated, "in-the-money" option grants. In a separate action, former President, CEO, and Chairman of the Board John F. Gifford, of Menlo Park, Calif., agreed to pay more than $800,000 in disgorgement, interest, and penalties to settle charges relating to his role in the options backdating. Maxim similarly has agreed to settle the Commission's charges against it.
The Commission's complaints, filed in federal district court in San Jose, allege that Maxim routinely provided potentially lucrative in-the-money options (i.e., options granted at below market prices) to employees. Under well-settled accounting principles, granting in-the-money options obligated the company to report compensation expenses to shareholders. The Commission alleges that Maxim avoided reporting these expenses by backdating paperwork to make it appear that the options had been granted on an earlier date. As a result, the company overstated its net income by more than 10% for its fiscal years 2003 through 2005.
The Commission's complaints also allege that former CFO Jasper was aware of the improper backdating practices, drafted backdated grant approval documents for Maxim's CEO to sign, and disregarded instructions from CEO Gifford to record an expense in connection with certain backdated options. According to the Commission, Gifford should have known that the company was not reporting expenses for those in-the-money stock options and instead was falsely reporting that they were granted at fair market value.
Maxim, without admitting or denying the Commission's allegations, consented to a permanent injunction against violations of the antifraud and other provisions of the federal securities laws. Gifford, also without admitting or denying the allegations, agreed to a permanent injunction against further violations of certain provisions of the federal securities laws and also agreed to disgorge a portion of his bonuses (totaling $652,681 with prejudgment interest) and pay a $150,000 civil penalty.
The Commission's litigated action against Jasper charges him with violating the antifraud and other provisions of the federal securities laws. The Commission seeks injunctive relief, disgorgement of wrongful profits, a civil penalty, and an order barring him from acting as an officer or director of a public company.
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For more information, contact:
Marc J. Fagel
Co-Acting Regional Director
Cary S. Robnett
Assistant Regional Director
United States Securities and Exchange Commission
San Francisco Regional Office
Additional materials: Litigation Release No. 20381