Human Capital & Careers

Marvell to Restate Over Options Probe

Tech company says financials, since going public, may be tainted by options restatement. In related news, Sonsini is named in another board options...
Stephen TaubOctober 3, 2006

Marvell Technology Group announced it will need to restate prior financial statements to record additional non-cash charges for stock-based compensation expense related to certain past option grants.

The chipmaker also said that at this point, it is still unable to determine the amount of the charges, the resulting tax and accounting impact of these actions, or which specific reporting periods require restatement. As a result, Marvell warned that all of its financial statements and earnings press releases going back to its June 2000 initial public offering should no longer be relied upon.

The company saw its $11 billion market capitalization cut by a double-digit percentage when its stock opened on Tuesday, although this was also probably due in part to a simultaneous announcement that third-quarter revenue will come in below expectations.

In other options-related news, The Recorder, a Northern California daily legal newspaper, reported that a review of SEC documents filed by Novell found that Larry Sonsini—chairman of the law firm Wilson Sonsini Goodrich & Rosati who left Novell’s board in 2002ᰬand the rest of the company’s board deviated from their normal compensation plan by awarding themselves 50,000 options apiece. The paper added that this grant came on October 26, 1999, when the stock was priced at a 17-month low. Within two months, the stock doubled, providing more than a $1 million paper gain, it added.

According to the paper, governance experts are wondering whether the options were actually awarded on the day the company claims they were. That’s because, the overall blow-up in the technology sector sent the stock plummeting, and the options became worthless before they vested. Nevertheless, Boalt Hall School of Law professor Jesse Fried told the paper: “It doesn’t smell good. This was at the annual low and was an off-cycle grant, and it’s highly likely that this was spring-loaded.”

So far, the paper identified six companies that granted “suspiciously dated” options while Sonsini sat on their boards. Novell, Pixar, Brocade, LSI Logic, Lattice Semiconductor, and Echelon. Pixar and Novell have announced internal investigations related to options granting practices, while former executives of Brocade were indicted on charges of improper options backdating.

The paper added that Sonsini and the law firm would not comment.

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