U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21593 / July 16, 2010
Accounting and Auditing Enforcement Release No. 3154 / July 16, 2010
SEC v. Trident Microsystems, Inc., Frank C. Lin, and Peter Y. Jen, Civil Action No. 1:10-CV-01202 (JDB)(D.D.C.)
SEC CHARGES TRIDENT MICROSYSTEMS, INC. AND ITS FORMER CEO AND FORMER CAO WITH STOCK OPTIONS BACKDATING
The Securities and Exchange Commission today filed a civil action against Trident Microsystems, Inc., a Santa Clara, California-based provider of integrated circuits, Trident's founder and former Chief Executive Officer, Frank C. Lin, and Trident's former Chief Accounting Officer, Peter Jen, alleging violations related to stock option backdating.
The Commission's complaint, filed in the United States District Court for the District of Columbia, alleges that from at least 1993 to May 2006, Trident, through the conduct of Lin and Jen, engaged in a fraudulent and deceptive scheme to provide undisclosed compensation to executives and other employees, concealing millions of dollars in expenses from the Company's shareholders. According to the complaint, Lin used, and directed others to use, hindsight to select for stock option grants dates that coincided with the dates of low closing prices for the Company's stock. Lin backdated stock option documentation to make it appear as if options had been granted on earlier dates, resulting in disguised "in-the-money" option grants to Company employees, officers, and on at least one occasion to directors. Among the alleged backdating practices, Trident backdated offer letters to newly hired employees and "parked" low-priced options under the names of certain employees which were later allocated to different employees in subsequent months when Trident's stock price increased. The complaint alleges that Jen was aware of some of the backdating practices during at least 1998 to 2006 and that he approved backdated grants to certain employees.
The complaint alleges that Lin and Jen signed and/or approved of the filing of annual and quarterly reports with the Commission that they knew, or were reckless in not knowing, failed to include compensation expenses associated with the "in-the-money" portions of the backdated grants. The reports falsely stated that Trident complied with stock option accounting rules and, in certain cases, stated that Trident granted options at the fair market value of the Company's stock on the date of grant. Lin and Jen also signed registration statements filed with the Commission that incorporated by reference these false and misleading periodic reports. The complaint also alleges that Lin and Jen reviewed and/or prepared proxy statements provided to shareholders that falsely reported stock option grant dates for executives and falsely stated that those stock options were granted at the market value of the Company's stock on the date of grant. Lin and Jen also filed beneficial ownership forms (Forms 4) with the Commission misrepresenting the purported grant dates of backdated stock options that they each received.
According to the complaint, in August 2007, Trident filed a restatement to record approximately $37 million of compensation expenses that the Company had failed to record over a thirteen-year period. As a result of Trident's failure to properly account for its stock option grants, Trident materially overstated its pre-tax income or understated its pre-tax losses, by as much as 113%, in each of the Company's fiscal years from 1993 through 2005, and through the third quarter of its 2006 fiscal year, according to the complaint.
Trident, Lin, and Jen agreed to settle the matter without admitting or denying the allegations of the Commission's complaint.
Trident consented to the entry of an order permanently enjoining it from violating Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b), 13(a), 13(b)(2)(A), 13 (b)(2)(B) and 14 (a) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13 and 14a-9.
Lin consented to an order permanently enjoining him from violating Section 17(a) of the Securities Act, Sections 10(b), 13(b)(5), 14(a), and 16(a) of the Exchange Act, and Exchange Act Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-9, and 16a-3; and from aiding and abetting violations of the Exchange Act's reporting, books and records, and internal controls provisions. Lin agreed to pay a $350,000 penalty and to be barred for five years from serving as an officer or director of any issuer that has a class of securities registered with the Commission or that is required to file reports with the Commission. Lin also agreed to disgorge the "in-the-money" benefit he received upon his exercise of backdated option grants, plus pre-judgment interest thereon, for total disgorgement of $817,509, which the Commission will deem satisfied upon Lin's payment of this amount to Trident.
Jen consented to an order permanently enjoining him from violating Section 17(a) of the Securities Act, Sections 10(b), 13(b)(5), and 16(a) of the Exchange Act, and Exchange Act Rules 10b-5, 13a-14, 13b2-1, 13b2-2, and 16a-3; and from aiding and abetting violations of Exchange Act's reporting, books and records, internal controls, and proxy solicitation provisions. Jen agreed to pay a $50,000 penalty and to be barred for five years from serving as an officer or director of a public company. Jen also agreed to disgorge the "in-the-money" benefit he received upon his exercise of backdated option grants, plus pre-judgment interest thereon, totaling $359,819. The Commission deems Jen's disgorgement satisfied based on Jen's prior payment of this amount to Trident.
These settlements are subject to the approval of the United States District Court for the District of Columbia.
See Also: SEC Complaint