An investigation on behalf of current investors in DSP Group Inc. (NASDAQ: DSPG) securities over possible stock option backdating at DSP Group was announced.

According to the investigation by a law firm the investigation on focuses on reports of possible stock options backdating at DSP Group Inc. An examination of stock options granted to DSP executives reveals a number of questionably timed option grants from 1996 to 2003 and the stock option awards during this time appear to indicate a pattern of timed or backdated grants coinciding with low share prices, so the investigation.

A stock option is granted to employees of a company and carries the right, but not the obligation, to buy a certain amount of shares in the company after a specified amount of time at a predetermined price called the “exercise price.” Typically, the exercise price of a stock option is the same as the closing price of shares of the company’s stock on the date on which the option is granted. Accordingly, the lower the exercise price, and the higher the price of the company stock on the date on which the option is exercised, the more valuable the stock option becomes. Because the option value is higher if the exercise price is lower, executives prefer to be granted options when the stock price is at its lowest. By backdating the stock option grant dates, executives are able to choose a past date when the market price was particularly low, thereby inflating the value of the options.

DSP Group, Inc. reported in 2007 Total Revenue of $248.79million with a Net Loss of $4.75million and in 2008 Total Revenue of $305.80million with a Net Loss of $212.39million. Shares of DSP Group, Inc. (DSPG) recently traded at $7.04 per share, down from its52weekHigh of $9.41 per share, $14.00 per share in 2008, over $22 per share in 2007, and almost $30 per share in 2006.

The practice of granting an employee stock option that is retroactively dated to increase its value raises a number of legal and accounting issues. According to the investigation “the practice of backdating itself is not illegal, nor is granting of discounted stock options”, but “what is illegal is the improper disclosures in financial records and in filings with the United States Securities and Exchange Commission”. The failure to disclose a compensation expense with the retroactive option grants is a violation of U.S. accounting rules as options backdating effectively transfers wealth from existing shareholders to management, so the investigation.
DSP Group, Inc., located in San Jose, California, is a fabless semiconductor company, offering advanced chipset solutions for a range of applications. DSP Group is a player in the short-range wireless communication market, enabling home networking convergence for voice, video and data.