Wednesday, August 29, 2007

SEC Charges GC for Options Backdating at Two Companies

The SEC filed civil securities fraud charges against the former general counsel for two high tech companies, KLA-Tencor and Juniper Networks.  The complaint (here) asserts that the GC touted her experience in securities administration when she switched from KLA-Tencor to Juniper.  According the the SEC Litigation Release (here), the complaint

alleges that she routinely used hindsight to identify dates with historically low stock prices, facilitating the backdating of option grants by KLA's stock option committee. According to the Commission, Berry then moved to Juniper shortly before its 1999 IPO, touting her experience in stock administration. The complaint alleges that Berry established a similar backdating process at Juniper, creating minutes of fictitious stock option committee meetings to document false grant dates — at times affixing the names of other committee members with a signature stamp.

According to the Commission's complaint, the backdated grants resulted in materially misleading disclosures, with KLA overstating its net income in fiscal years 1998 through 1999 by as much as 47 percent and Juniper overstating its 2003 net income by nearly 22 percent. In 2007, both KLA and Juniper restated their financial statements, with Juniper recording nearly $900 million in previously unreported compensation expenses.

Juniper settled a separate SEC complaint and agreed to an injunction, but there was no civil money penalty assessed against it.  KLA-Tencor reached a similar settlement in July that also did not involve any payment, a reflection of the Commission's new policy on not imposing fines when companies are the victims of the securities fraud.  KLA-Tencor's former CEO has also been charged with securities fraud related to his role in the backdating, and the question is whether there will be any criminal charges in light of the recent conviction of former Brocade CEO Gregory Reyes for his role in backdating options grants. (ph)

Civil Enforcement, Fraud, Securities | Permalink

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