Broadcom Corp. SEC 2008

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Company Name(s): 
Broadcom
Case Name: 
Broadcom Corp. Case 04/22/2008
Case Status: 
Lawsuit Filed
Case Status: 
Settlement Proposed
Case Status: 
Settlement Approved
Affected Securities
NASDAQ: BRCM
Lawsuit Overview
Type of Lawsuit: 
SEC Action
Court of Filing: 
United States District Court for the Central District of California
Summary: 

On Tuesday The Irvine-Calif.-based semiconductor company Broadcom Corp. has agreed to settle charges the U.S. Securities and Exchange Commission had filed for violations connected to backdating stock options over a five-year period and will pay a $12 million penalty.
 
According to the SEC in a complaint filed in the Central District of California, the SEC alleged that from June 1998 to May 2003, Broadcom, acting through its top officers, backdated the dates on which stock options were granted to executives and employees. Broadcom’s Chairman and Chief Technology Officer and its former CEO sat on the two-member option committee that had authority to approve options to employees and all but the most senior executives, whose grants were to be decided by two independent directors comprising Broadcom’s compensation committee.
 
According to the SEC the SEC alleged that the option committee approved as many as 88 grants during the relevant period, but for many of these grants there was no meeting or decision made by the committee on the dates the grants were supposedly approved. Instead, Broadcom’s former CFO allegedly selected many of the grant dates retroactively based on a comparison of Broadcom’s historical stock prices, and the two option committee members allegedly concealed the backdating by signing false committee written consents stating that the grant had been approved “as of” the retroactive date. Through backdating, Broadcom made it appear that the options were granted at times corresponding to low points of the closing price of Broadcom’s stock — despite the fact that the purported grant date bore no relation to when the grant was actually approved. This resulted in artificially and fraudulently low exercise prices for those options. In addition, the complaint alleges that the top officers — not the compensation committee — decided on option grants to Broadcom’s executives and used hindsight to select the dates for them. According to the complaint, Broadcom’s general counsel directed the preparation of false board and compensation committee consents to conceal some of these grants.
 
According to the SEC the SEC further alleged that, as a result of the backdating scheme, Broadcom avoided reporting $2.22 billion in compensation expenses during the relevant period and thus overstated its income from between 15% to 422% and understated its loss from between 16% to 38%. 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.