Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, September 3, 2009

SEC & Hain Celestial Group Settle Backdating Charges

The SEC settles another backdating case, this one involving The Hain Celestial Group, Inc. ("Hain"), a Melville, New York natural foods company.  The SEC's complaint, filed in federal court in Brooklyn, New York, alleges that from at least 1998 to 2002, Hain fraudulently backdated stock options granted to Company officers, directors, and employees.  After media inquiries and analyst reports regarding its stock option practices in mid-2006, Hain's current CFO conducted a limited internal review of selected grants. At the time, Hain did not retain outside counsel to review its historical option practices and did not conduct a forensic review of e-mails or accounting records. Subsequently, Hain's current CFO and the company made statements during September and November 2006 that the company had carefully reviewed its historical stock option grants and found nothing improper.

After being contacted by the SEC staff in mid-2007, Hain formed a group of independent directors and retained outside counsel and other experts to conduct a detailed review of its stock options practices. In January 2008, Hain restated its historical financial statements as a result of this review. Hain re-measured 48 grants and recorded $20.5 million of compensation expense. Twenty-one of the 48 re-measured grants, representing approximately 3.7 million options and $13.2 million of compensation expense, were issued between 1998 and 2002.

Without admitting or denying the SEC's allegations, Hain consented to a permanent injunction against violations of Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 14a-9 thereunder. The settlement is subject to court approval. The Commission took into account the cooperation that Hain provided the Commission staff during its investigation.

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