Risk & Compliance

SEC Charges Microtune’s Ex-CEO, Ex-CFO

Backdating case, settled with the company, targets the two top executives for alleged fraud.
Roy Harris and Stephen TaubJuly 2, 2008

The former chairman and CEO of Microtune Inc., along with its former CFO and general counsel, were charged by the Securities and Exchange Commission in the same stock-option backdating case that Microtune itself settled this week.

Charged with civil fraud counts were Nancy Richardson, the ex-CFO, and Douglas J. Bartek, the ex-chairman and CEO, whom the SEC alleged had helped perpetrate a fraudulent and deceptive backdating scheme that awarded themselves and other employees millions of dollars in undisclosed compensation.

The complaint alleges that Bartek, with assistance from Richardson, routinely backdated the date on which he granted stock options to senior executives and other employees. To conceal the scheme, Bartek directed others to backdate employment records, including offer letters, to establish falsified start dates and grant dates that preceded the actual dates the new hires began working for Microtune, according to the SEC.

The SEC’s complaint further alleges that Bartek and Richardson caused Microtune to grant backdated options, cancel those options after a precipitous stock-price drop, and subsequently re-grant the same options at a substantially lower exercise price. According to the SEC’s complaint, the re-grants were not, as required, accounted for using variable accounting, in part because, as alleged, Richardson and Bartek concealed the nature of the re-grants from Microtune’s outside auditors and others.

The Commission is seeking injunctive relief, disgorgement of wrongful profits, civil monetary penalties, officer and director bars, and reimbursement of profits from stock sales under Section 304 of the Sarbanes-Oxley Act.

An attorney for Richardson, Susan Resley of the firm of Orrick, Herrington & Sutcliffe LLP, told CFO.com that “we believe the SEC charges are based on conclusions and assumptions,” adding that “we intend to fight them in court.” In an E-mail response, Resley added: “Ms. Richardson had no reason to believe that Microtune’s options granting practices were improper or illegal when she joined Microtune. The SEC must have believed the same thing since they overlooked that issue when questions concerning the options practices were raised during a prior revenue recognition investigation of Microtune in 2003 and 2004. It is hypocritical and baseless for the SEC. to hold Ms. Richardson to a standard of knowledge and understanding that the SEC failed to meet.”

An attorney for Bartek, David Fielder of the firm of Haynes and Boone, told CFO.com, “We are disappointed in the commission’s action. The main reason we’re disappointed is that it’s undisputed that Mr. Bartek did not profit from the alleged grants himself. It is clear that he relied on the approval of others in the company, who were more experienced in stock options than he.” Asked about the SEC allegation that Bartek had awarded himself undisclosed compensation, Fielder said the agency’s language was “a little cleverly misleading. He did receive some of the grants, but the grants to him had to be authorized by the compensation committee. Further, he never exercised any options under any grants the SEC takes issue with. To imply that he profited is flat wrong.”

A Mictrotune company spokesman did not immediately return a phone call seeking comment on the charges against its two former officials.

In the SEC settlement signed by Microtune and announced Tuesday, the designer and marketer of radio-frequency products did not admit to or deny allegations that the company joined with the two then-officials in perpetrating the alleged fraudulent backdating scheme. It consented to a permanent injunction against future violations of the federal securities laws, noting that no civil penalty or other money damages were assessed as part of the settlement.

“Microtune self-initiated an audit committee investigation into these matters, reported its findings to the SEC, and cooperated fully with the SEC as it conducted its own investigation. We are extremely pleased to resolve this matter with the SEC,” James A. Fontaine, president and CEO, said in a company press release.