U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20927 / March 5, 2009
Accounting and Auditing Release No. 2943 / March 5, 2009
Securities and Exchange Commission v. Pediatrix Medical Group, Inc., Case No. 09-80366-CIV-RYSKAMP (S.D. Fla.)
Pediatrix Medical Group Settles Charges of Stock Option Backdating
The Securities and Exchange Commission today charged Pediatrix Medical Group, Inc. (now known as Mednax Services, Inc.) with backdating stock options grants to executives and employees and with reporting false financial information to shareholders. Pediatrix Medical Group, Inc. ("Pediatrix"), is a physician services provider headquartered in Sunrise, Florida. The Commission's complaint alleges that from approximately 1997 through 2000, Pediatrix, by the actions of a now-deceased former senior financial officer, granted options at below-market prices ("in-the-money" options). Pediatrix has agreed to settle the Commission's charges without admitting or denying the allegations.
The Commission's complaint, filed in federal court in Miami, alleges that on numerous occasions, Pediatrix used hindsight to select favorable exercise prices for employee and officer stock option grants without accurately reporting the financial impact of the grants to investors. According to well-established accounting standards, Pediatrix was required to record an expense for in-the-money options. Pediatrix allegedly avoided those expenses by retrospectively picking dates on which Pediatrix's stock was trading at lower prices and dating and pricing grants of stock options as if they had been granted on those earlier dates.
According to the Commission's complaint, Pediatrix's intentional backdating of stock option grants resulted in material misstatements and omissions in certain of the Forms 10-Q, 10-K, registration statements, and proxy statements that the company filed with the Commission. More specifically, the complaint alleges that Pediatrix failed to recognize a total of $8.8 million in compensation expense for the in-the-money value of the backdated stock options, resulting in an overstatement of Pediatrix's pretax income by approximately 6.74 percent in the relevant time period. Moreover, the complaint alleges that Pediatrix's filings contained material misstatements with respect to how it priced and accounted for its stock options.
Without admitting or denying the Commission's allegations, Pediatrix consented to be enjoined from violating Section 17(a) of the Securities Act, 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 took into account the cooperation that Pediatrix provided Commission staff during its investigation.