The Securities and Exchange Commission has filed a civil action against chip maker Trident Microsystems and its former CEO and chief accounting officer, charging them with violations related to stock options backdating.
The Santa Clara, Calif.-based provider of integrated circuits, along with former CEO Frank C. Lin and former CAO Peter Jen, agreed to settle the matter without admitting or denying the SECs complaint.
The Commission's complaint, filed in the U.S. District Court for the District of Columbia, alleges that from at least 1993 to May 2006, Trident, Lin and Jen provided 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 or approved of the filing of annual and quarterly reports with the SEC 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 SEC that incorporated by reference these false and misleading periodic reports. The complaint also alleges that Lin and Jen reviewed or prepared proxy statements 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 with the SEC 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 compant 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 percent, 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.
In settling the SECs complaint, Trident, Lin and Jen consented to the entry of an order permanently enjoining them from violating securities laws. Lin also agreed to pay a $350,000 penalty, disgorge $817,509 in benefits from the stock option grants, and be barred for five years from serving as an officer or director of a public company. Jen agreed to pay a $50,000 penalty, disgorge $359,819, and be barred for five years from serving as an officer or director of a public company.
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