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Broadcom Pays $12M To Settle SEC Backdating Case

4/23/2008 7:37 AM Eastern

Chip supplier Broadcom agreed to pay $12 million to settle Securities and Exchange Commission charges that it falsified reported income by backdating stock option grants over a five-year period, the regulatory agency announced Tuesday.

In January 2007, Broadcom restated financial results and reported more than $2 billion in additional compensation expenses. In a statement, Broadcom said it was “pleased that the SEC’s investigation of our historical stock option grant and accounting practices has concluded as to the company.”

Irvine, Calif.-based Broadcom is a major suppler of chips that power cable modems and digital set-top boxes.

The settlement caps an investigation that began in June 2006, when Broadcom said it received an SEC request regarding its stock-option grants. The probe later widened to include 238 million shares of common stock, 95% of which was granted to nonexecutive employees.  

Broadcom, without admitting or denying the SEC's allegations, agreed to settle the charges by consenting to a permanent injunction against further violations of the federal securities laws and paying the $12 million penalty. The settlement is subject to approval by the U.S. District Court for the Central District of California.

"The backdating scheme at Broadcom went on for five years, involved dozens of option grants, and resulted in the largest accounting restatement to date arising from stock option backdating," SEC enforcement division director Linda Chatman Thomsen said in a statement. "The scope and magnitude of the fraud warrants the significant penalty imposed on the company."

In its civil suit, the SEC alleged that from June 1998 to May 2003, Broadcom’s top officers misrepresented the dates on which as many as 88 stock options were granted to executives and employees. Through backdating, according to the suit, Broadcom made it appear that the options were granted at times corresponding to low points of the closing price of its stock, resulting in artificially low exercise prices for those options.

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