Broadcom Corp. has discovered that a number of executives and employees deliberately backdated stock option grants over a period of four and a half years, the company announced Monday.
The company also said it will cancel some $37 million worth of outstanding unexercised options held by three of those people.
Broadcom’s audit committee has been investigating the possibility of backdating since May. Three months ago, Broadcom announced that CFO William Ruehle was accelerating his retirement “as a result of Broadcom’s previously-announced equity award review.” At the time, however, the company gave few additional details about the audit committee’s investigation.
On Monday, however, Broadcom confirmed that its audit committee had found that — particularly with respect to several companywide option grants — allocations of grants to some employees occurred after the grant dates for the total shares awarded had been established. The semiconductor maker also said the Securities and Exchange Commission has upped its previously announced informal probe to a formal investigation.
The company said that all of the people responsible for backdating grants have either previously left the company for reasons unrelated to the options investigation, or have recently departed as a result.
The company stressed that all options and other equity awards granted to the company’s founders and all current and former members of the board of directors were properly granted. Its audit committee says that Broadcom’s current equity award processes and procedures are appropriate and provide effective controls.
Broadcom also emphasized that chairman and chief technical officer Henry Samueli and all outside directors “reasonably relied upon management and professionals regarding the correct option accounting treatment and grant approval process,” and that Broadcom’s audit committee “reaffirmed its full faith and confidence in the integrity” of president and CEO Scott McGregor and acting CFO Bruce Kiddoo. “The committee further concluded that both Mr. McGregor and Mr. Kiddoo can appropriately serve as officers certifying Broadcom’s financial statements,” it added.
Kiddo, the company’s former controller, has held the CFO slot on an interim basis since taking over for Ruehle in September.
In September, Broadcom said it had identified additional stock-option grants whose measurement dates differed from those originally used to record them. The company warned that the differences would cause additional noncash, stock-based compensation expenses to be “at least twice the amount” previously estimated and could be substantially more, depending on how it would resolve certain accounting issues. Broadcom officials also said the company would restate financial results for more than six years, and take a $750 million charge to correct improperly recorded stock options.
Broadcom’s audit committee determined that during that time period, Broadcom’s informal option grant procedures and processes lacked adequate controls and its documentation and recordkeeping were insufficient in verifying many of the original measurement dates.