Risk & Compliance

Ex-Maxim CFO Won’t Settle

The company and its former CEO agree to SEC penalties in an option backdating case, but the former finance chief fights on.
Stephen TaubDecember 5, 2007

The Securities and Exchange Commission has charged Maxim Integrated Products and its former CEO and CFO with reporting false financial information to investors by improperly backdating stock-option grants.

The company as well as ex-CEO John Gifford agreed to settle the charges, but the former CFO, Carl Jasper, did not.

Gifford, without admitting or denying the allegations, agreed to disgorge a portion of his bonuses (totaling $652,681 with prejudgment interest) and pay a $150,000 civil penalty. Maxim, also with no admission or denial, consented to a permanent injunction against violations of the federal securities laws.

Jasper remains charged with fraud and other securities-law violations. The SEC seeks disgorgement of wrongful profits, a civil penalty, and an order barring him from acting as an officer or director of a public company.

“Of particular concern here was the CFO’s abandoning his role as corporate gatekeeper and instead facilitating Maxim’s misrepresentations about its stock option program and financial condition,” said Marc Fagel, co-acting regional director of the SEC’s San Francisco regional office.

Maxim, which makes integrated circuits, announced early this year that it would restate its results for fiscal years 2000 through 2005 and quarterly periods through March 25, 2006. It explained at the time that the adjustments would reflect that accounting-measurement dates for stock-option grants differed from the historical grant dates.

Maxim stressed, however, that a special committee had determined that all stock-option grants were properly awarded and that no evidence indicated that any outside directors engaged in wrongdoing or malfeasance with respect to any grants.

The company also stated at the time that the committee found no evidence that any member of current or former management or the board of directors took any action involving the grant of a stock option in order to enrich themselves.

The SEC accuses Jasper of helping the company fraudulently conceal tens of millions of dollars in compensation expenses through the use of backdated, “in-the-money” option grants.

The regulator also alleges that Maxim routinely provided potentially lucrative in-the-money options, where the current market price is above the striking price of a call option. Under well-settled accounting principles, such options obligate the company to report compensation expenses to shareholders.

Jasper was aware of the improper backdating practices, drafted backdated grant approval documents for Maxim’s CEO to sign, and disregarded instructions from Gifford to record an expense in connection with backdated options, according to the SEC.