Risk & Compliance

SEC Clears PMC-Sierra of Backdating

The commission will take no action against the company.
Sarah JohnsonOctober 31, 2007

PMC-Sierra, one of reportedly more than 200 companies implicated in the backdating scandal, is no longer the subject of a federal probe. Last week, the Securities and Exchange Commission told the semiconductor provider that the informal investigation into the company’s stock option practices is over.

The SEC will not take enforcement action against the company, PMC-Sierra said in a regulatory filing on Tuesday.

PMC-Sierra was one of the many companies that came forward in the past year to reveal that an internal investigation had uncovered irregularities in the measurement dates for some of its stock option grants. In its case, the grants were awarded between 1998 and 2001.

Soon after PMC-Sierra announced its troubles, the company demoted CFO Alan Krock without giving a reason for the action. The company had emphasized in its earlier filing that its grant-dating errors had nothing to do with misconduct of executives, staff, or board members.

Nevertheless, the SEC had begun its investigation into the company’s option-granting practices in August 2006. The company met with the commission’s staff last December to go over its audit committee’s findings and later turned over documents to the commission.

Besides regulatory scrutiny, PMC-Sierra faced growing public doubts about its past practices. Last fall, it was one of the businesses mentioned in a Corporate Library report that tried to prove that the practice of backdating was spread by word of mouth, through the common directors of at least 27 companies. As CFO.com reported at the time, the report did not distinguish between current board members and those who served during the dates during which backdating was alleged to have happened.

The Corporate Library, a governance-research firm, named Novellus CFO William Kurtz as a possible spreader of the backdating concept since it said he sat on the boards of Novellus, PMC-Sierra, and Redback Networks, all companies that in some way had been tied to the scandal, either through an academic report, a Merrill Lynch study, or the announcement of a voluntary investigation into their own option-granting practices.

In an interview with CFO.com at the time, Novellus disputed the report, clarifying that Kurtz did not sit on the Novellus board and, as the audit committee chair of the other companies, does not influence the compensation practices of the those organizations.

“As a result of concerns expressed earlier this year by several analysts, Mr. Kurtz, as audit committee chair, led an independent investigation of stock option practices at both companies,” Novellus said in an E-mail sent to CFO.com last year. “The results of the independent investigation concluded that there was no evidence of stock option backdating at either [Redback or PMC Sierra].”

Novellus has still been dogged by association to the backdating scandal — despite the fact that it differed from the other backdating cases because it had not received federal subpoenas, fired its executives, or issued any restatements. This past May, plaintiffs in a shareholder derivative lawsuit decided to drop their case that alleged the improper dating of stock option grants.

Other companies mentioned in the Corporate Library report have also been cleared by the SEC. Last November, semiconductor maker Xilinx said the SEC staff had decided to take no action against the company. And telecommunications company Equinix made a similar announcement last December, followed by federal prosecutors withdrawing their grand jury subpoena for documents relating to the company’s stock option practices.