Human Capital & Careers

“In the Money” or “at the Money”?

A tech company and its former COO settle charges that they falsely represented the grant dates of employee stock option.
Stephen TaubMay 8, 2008

The Securities and Exchange Commission and Marvell Technology Group and its co-founder settled SEC charges that the company and the executive had reported false financial information to investors via backdating employee stock-option grants.

Without admitting or denying the allegations, Marvell agreed to pay a $10 million penalty, while former chief operating officer and current marketing director Weili Dai agreed to pay $500,000.

The SEC charged that Marvell provided potentially lucrative “in-the-money” options—granted at below-market prices—to employees. Rather than report compensation expenses to shareholders, as was required at the time for such options, the company backdated them to dates with lower stock prices, and falsely represented that the options had been granted “at-the-money” (at market price) on earlier dates, according to the complaint.

The scheme enabled Marvell to overstate its income by $362 million from its fiscal years 2000 through 2006, according to the commission. The SEC charged that Dai, acting as Marvell’s “Stock Option Committee,” routinely reviewed lists of Marvell’s historical stock prices and picked the date with the lowest, or one of the lowest, stock prices since the previous grant date. That date would then be communicated to Marvell employees as the date on which the stock option committee had met and authorized the option grant.

To make it seem that Marvell had actually granted the options on that date, Dai signed falsified minutes attesting to a meeting of the committee on that earlier date, according to the Commission. “Marvell’s long-running backdating scheme involved a senior executive who regularly signed minutes of meetings that never occurred,” said Linda Chatman Thomsen, Director of the SEC’s enforcement division.

Besides the fines, Marvell consented to a permanent injunction against violations of the antifraud and other provisions of the federal securities laws, and Dai agreed to an order barring her from serving as an officer or director of a public company for five years.

Dai co-founded Marvell in 1995 along with her husband, current chief executive officer and chairman, Sehat Sutardja, and Pantas Sutardja, Dai’s brother-in-law. Dai served on Marvell’s board from 1995 through May 2007, as secretary and executive vice President from 1999 to April 2006, and, beginning in 2006, as COO.

In January 2007, Marvell announced that Dai, Sutardja, Sutardja, and CFO George Hervey agreed to amend their agreements to reconcile a difference between the recorded grant dates and the actual measurement dates of certain previously awarded stock options.

In May 2007, Dai was asked to resign from the Board and from her senior executive positions. She then became Marvell’s director of strategic marketing and business Development and remains in that post now.