Risk & Compliance

SEC Formalizes Cirrus Logic Scrutiny

Yet another backdating allegation gathers steam.
Stephen TaubNovember 5, 2007

Cirrus Logic is now the subject of a full-blown Securities and Exchange Commission investigation, one year after the regulator began an informal inquiry into the company’s historical stock option practices.

Under a formal probe, the SEC has subpoena power.

Back in March, Cirrus Logic said it expected to restate its results for fiscal years 2001 through 2006 and for the first quarter of fiscal 2007 and to record material non-cash charges for stock-based compensation totaling $22 million to $24 million.

The microchip maker also announced that CEO David French had resigned after an internal review determined he was aware that stock-option grants may have been backdated.

Cirrus Logic conceded that the accounting measurement dates for stock options granted from 1997 through 2005 differed from the recorded measurement dates previously used for the awards.

The company identified three instances in which management-level employees received new-hire option grants on dates other than their employment-commencement dates. In one such case, Cirrus Logic elaborated, “no definitive evidence has been identified to clarify this inconsistency, [but] the selected grant date was at a lower closing stock price than the price on the date of apparent board approval.”

The committee also asserted that executive officers of Cirrus Logic had knowledge of and participated in the selection of three dates for broad-based employee option grants, either with hindsight or before completing the formal approval process.

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