U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20381 / December 4, 2007
Securities and Exchange Commission v. Maxim Integrated Products, Inc. and John F. Gifford, Case No. C-07-6121 RMW (N.D. Cal. Dec. 4, 2007)
Securities and Exchange Commission v. Carl W. Jasper, Case No. C-07-6122 HRL (N.D. Cal. Dec. 4, 2007)
SEC Sues Maxim Integrated Products and Former Senior Officers in Stock Option Backdating Scheme
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.
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 Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 14a-9 thereunder. Gifford, also without admitting or denying the allegations, agreed to a permanent injunction against violations of Section 17(a)(3) of the Securities Act, 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-13, and 14a-9 thereunder. Gifford 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 Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5), and 14(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13a-14, 13b2-1, 13b2-2, and 14a-9 thereunder. 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.