U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20604 / May 30, 2008
SEC v. Analog Devices, Inc. and Jerald Fishman, Civ. Action No. 1:08-cv-00920 (RBW) (D.D.C. filed May 30, 2008)
Analog Devices and Its CEO Settle Stock Option Backdating Charges
On May 30, 2008, the Securities and Exchange Commission charged Massachusetts high tech company Analog Devices, Inc. and its CEO Jerald Fishman for reporting false compensation and related financial information to investors by backdating stock option grants to officers, directors and employees. Without admitting or denying the allegations in the SEC's complaint filed today in U.S. District Court for the District of Columbia, Analog and Fishman agreed to settle charges against them by consenting to the entry of final judgments against them that orders Analog to pay a $3 million civil penalty and orders Fishman to pay a $1 million civil penalty. Fishman also consented to pay disgorgement of $450,000, plus prejudgment interest of $42,110, which represents the in-the-money benefit that Fishman obtained from selling stock obtained from the exercise of the 1998 backdated option grant that he exercised.
The SEC's complaint alleges that during at least 1998 through 2002, Analog and CEO Fishman engaged in an improper course of conduct involving backdating three stock option grants that operated as a fraud on Analog's shareholders and resulted in Fishman and other executives, directors and employees of Analog receiving undisclosed compensation.
According to the complaint, in 1998, 1999 and 2001, Fishman caused the company to backdate stock option grants to price them below the market price of the stock on the date they were actually approved by Analog's Compensation Committee and caused the company to grant options at lower exercise prices than were allowed by the company's option plan.
The complaint alleges that these in-the-money option grants were made to Analog's officers and employees (and one grant to its directors in 2001) and resulted in $30.7 million in compensation costs ($21.8 million net of tax) that the company failed to properly expense in its financial statements. The complaint also alleges that the company and Fishman failed to disclose this practice in Analog's 1999–2002 proxy statements and related annual reports, and instead made false and misleading statements and omissions concerning the option grants and the benefits they provided to Analog's top officers, directors and employees.
The SEC's complaint also describes Analog's and Fishman's undisclosed practice of granting executive and employee stock options in advance of the announcement of favorable nonpublic financial information about the company. As stated in the complaint, this practice was not a basis for the charges alleged in the complaint. The complaint states that this non-disclosure predated the changes to the Commission's proxy disclosure rules, adopted in 2006, that expressly require disclosure concerning an issuer's practice of timing option grants in coordination with the public release of material nonpublic information.
In related administrative proceedings, without admitting or denying the SEC's findings, Analog and Fishman consented to the entry of an administrative cease-and-desist order. The SEC's order finds that Analog violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The order also finds that Fishman violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, which does not require a showing of scienter. Analog and Fishman agreed to cease and desist from committing or causing the violations. Analog also agreed to re-price two of the three option grants awarded to Fishman that he has not yet exercised in order to eliminate the benefit of the lower exercise prices that resulted from backdating the options. See Administrative Proceeding No. 3-13050 / Release No. 33-8923 (May 30, 2008)