Human Capital & Careers

Two New Options Suits Announced

Rambus and Activision are the latest companies to be hit with lawsuits tied to stock-option accounting problems
Stephen TaubJuly 19, 2006

On Wednesday, memory-chip designer Rambus announced that it would have to restate prior results because of errors related to its stock-based compensation expensing. Meanwhile, while software game maker Activision is being sued by a shareholder as a result of the ever-widening options pricing scandal.

Rambus officials said the company expects to restate financial statements for the fiscal years 2003, 2004, 2005, and the quarterly reports filed during each of these fiscal years, as well as for the first quarter of fiscal 2006. The high-tech company also said the restatement will affect financial statements for prior fiscal years.

The company’s audit committee, which has been reviewing historical stock option grant practices and related accounting, concluded that the actual measurement dates for certain stock option grants differ from the recorded grant dates for the awards. However, the committee has not completed its work, nor reached final conclusions, and is continuing its investigation into the circumstances that led to the differences, according to a company statement.

As a result, the audit committee has not determined the total amount of additional non-cash stock-based compensation expenses, or the amount of expenses to be recorded in any specific prior or future period.

Additionally, although the chip designer has not yet completed its analysis it claims that it is “highly likely that Rambus had a material weakness in internal control over financial reporting as of December 31, 2005,” noted company officials in press statement.

As a result of the new findings, the law firm Stull, Stull and Brody has filed a suit against Rambus on behalf of investors who bought shares of the company’s stock from December 12, 2001 through June 27, 2006. The lawsuit alleges that Rambus, and certain officers and directors, made false and misleading statements and omissions “concerning Rambus’ improper and undisclosed practice of backdating options.” The suit further asserts that the improper backdating “masked the virtually instant profits” the option recipients obtained, according to a press release.

In an unrelated case, Activision announced in a regulatory filing that an individual claiming to be a shareholder has filed a derivative lawsuit in Los Angeles Superior Court, purportedly on behalf of the company, against certain current and former members of the company’s board, as well as several current and former officers. The complaint, filed on July 12, alleges, among other things, improprieties in the company’s issuance of stock options, said the filing.

Activision officials said they were reviewing the allegations in the complaint and will respond appropriately. They added that they expect the defense expenses associated with the matter will be covered by its directors and officers insurance, subject to the terms and conditions of the applicable policies.