Broadcom settles SEC charges of backdating options

Federal officials charged semiconductor-maker Broadcom brcm on Tuesday with falsifying its reported income by illegally backdating stock options for five years.

The Irvine, Calif.-based company agreed to pay $12 million to settle the charges without admitting or denying the allegations, the U.S. Securities and Exchange Commission said in a statement.

The SEC said that as a result of the fraud, Broadcom restated its financial results in January 2007 and reported more than $2 billion in additional compensation expenses — the largest accounting restatement to date because of backdating.

"The backdating scheme at Broadcom went on for five years, involved dozens of option grants," Linda Chatman Thomsen, director of the SEC's enforcement division, said in a statement. "The scope and magnitude of the fraud warrants the significant penalty imposed on the company."

The agency accused Broadcom of using the backdated options to recruit and retain the most highly qualified staff without paying them higher salaries.

The agency alleges that a two-member option committee approved up to 88 grants between 1998 and 2003, in many cases without meeting on the dates the grants were supposedly approved. The committee members were co-founders Henry Samueli, Broadcom's chairman and chief technology officer, and Henry Nicholas III, then the company's chief executive.

Brian Marshall, an attorney representing Nicholas and Samueli, referred calls to Nicholas' spokesman, Mark Saylor. In an e-mailed statement, Saylor said Nicholas "at all times … believed he was complying with company rules, as well as accounting and legal requirements."

Broadcom spokesman Bill Blanning said in a statement, "This is a major step in the process of closing this chapter as we remain focused on the company's business today and for the future."

Scott McGregor, Broadcom's chief executive officer, said he was pleased to announce the settlement but did not elaborate during a conference with analysts to discuss the company's first-quarter results.

The U.S. Attorney's office has also launched a probe into stock-option backdating at Broadcom. In a court hearing in January, federal prosecutors told a judge that Nicholas and Samueli were "unindicted potential co-conspirators" in the probe.

A former human resources executive, Nancy Tullos, pleaded guilty to obstruction of justice earlier this year in the criminal probe, and settled with the SEC for $1.4 million without admitting wrongdoing. She is cooperating in the ongoing U.S. Attorney's investigation.

In the SEC case, a complaint filed in U.S. District Court alleges Broadcom's top officers misrepresented the dates on which stock options were granted to its executives and employees.

Backdating stock options involves retroactively setting the exercise price to a low point in the stock's value to increase profits for an executive or employee when shares are sold.

If companies backdate options without properly disclosing and accounting for the move, it can cause profits to be overstated and taxes to be underpaid.

Broadcom also reported after markets closed that its first-quarter profit rose 21.8% to $74.3 million, or 14 cents a share, from $60.9 million, or 10 cents a share, during the same period of 2007.

Revenue rose 14.5% to $1.03 billion from $901.5 million in last year's first quarter. That's well above an average estimate of $992.3 million among analysts polled by Thomson Financial.

Broadcom's shares slid 1.1%, or 27 cents, to $23.55 during regular trading, then surged $2.11 to $25.66 after hours.

Contributing: Elliot Spagat in San Diego

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