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Univ. of Toledo College of Law

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Tuesday, December 4, 2007

SEC Files Backdating Charges Against Maxim, CFO and CEO

The SEC filed civil charges against Maxim Integrated Products, Inc., a Silicon Valley semiconductor company, and the company's former CEO and CFO, alleging that they reported false financial information to investors by improperly backdating stock option grants to Maxim employees and directors.  The SEC alleges that former CFO Carl W. Jasper helped the company fraudulently conceal tens of millions of dollars in compensation expenses through the use of backdated, "in-the-money" option grants. In a separate action, former President, CEO, and Chairman of the Board John F. Gifford agreed to pay more than $800,000 in disgorgement, interest, and penalties to settle charges relating to his role in the options backdating. Maxim similarly has agreed to settle the Commission's charges against it.

The Commission's complaints, filed in federal district court in San Jose, allege that Maxim routinely provided potentially lucrative in-the-money options to employees and backdated the paperwork to make it appear that the options had been granted on an earlier date. As a result, the company overstated its net income by more than 10% for its fiscal years 2003 through 2005.

The Commission's complaints also allege that former CFO Jasper was aware of the improper backdating practices, drafted backdated grant approval documents for Maxim's CEO to sign, and disregarded instructions from CEO Gifford to record an expense in connection with certain backdated options. According to the Commission, Gifford should have known that the company was not reporting expenses for those in-the-money stock options and instead was falsely reporting that they were granted at fair market value.

Maxim, without admitting or denying the Commission's allegations, consented to a permanent injunction against violations of the antifraud and other provisions of the federal securities laws. Gifford, also without admitting or denying the allegations, agreed to a permanent injunction against further violations of certain provisions of the federal securities laws and also agreed to disgorge a portion of his bonuses (totaling $652,681 with prejudgment interest) and pay a $150,000 civil penalty.

http://lawprofessors.typepad.com/securities/2007/12/sec-files-backd.html

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