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Broadcom Penalty is $12M
Apr 2008
WASHINGTON, D.C., April 24, 2008 — Semiconductor maker Broadcom Corp. has agreed to pay a $12 million penalty to settle charges by the Securities and Exchange Commission (SEC) that it falsified its reported income by backdating stock option grants over a five-year period.

As a result of the fraud, Irvine, Calif.-based Broadcom restated its financial results in January 2007 and reported more than $2 billion in additional compensation expenses.

"The backdating scheme at Broadcom went on for five years, involved dozens of option grants, and resulted in the largest accounting restatement to date arising from stock option backdating," said Linda Chatman Thomsen, director of the SEC's Division of Enforcement, in a statement. "The scope and magnitude of the fraud warrants the significant penalty imposed on the company."

"Today's action highlights the ways in which certain companies have abused option grants. Broadcom used lucrative in-the-money grants to recruit and retain talented employees without paying them higher cash salaries, but avoided the requirement to report the billions of dollars in compensation expenses by secretly backdating the options," said Rosalind R. Tyson, acting regional director of the SEC's Los Angeles Regional Office, in the same statement.

In a complaint filed in the US District Court for the Central District of California, the SEC alleges that from June 1998 to May 2003, Broadcom, acting through its top officers, misrepresented the dates on which as many as 88 stock options were granted to executives and employees. The SEC alleges that the grants were backdated to a time when the stock was trading at a lower price, potentially making them more valuable for the executives and others who received such options in lieu of higher base salaries.

Through the scheme, the SEC said in its complaint, Broadcom avoided reporting $2.22 billion in compensation expenses during that five-year period. Broadcom overstated its income by between 15 percent and 422 percent, and understated its loss by between 16 percent and 38 percent. The unrecorded compensation expenses and hidden backdating practices led Broadcom to provide false and misleading disclosures to its shareholders in filings with the SEC through 2005.

Without admitting or denying the SEC's allegations, Broadcom agreed to settle the charges by consenting to a permanent injunction against further violations of the antifraud, record-keeping, financial reporting, internal controls, and proxy provisions of the federal securities laws, and paying the $12 million penalty. The settlement is still subject to approval by the court, the SEC said.

On March 4 the SEC brought an enforcement action against Broadcom's former vice president of human resources, Nancy M. Tullos, for her role in the backdating scheme. Without admitting or denying the allegations, Tullos agreed to pay more than $1.3 million in disgorgement (the giving up of improperly obtained profits) and prejudgment interest, as well as a civil penalty of $100,000.

The commission said its investigation into the backdating scheme continues.

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