Securities Law Prof Blog

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

Friday, May 30, 2008

SEC Charges Analog and CEO with Backdating Options

The SEC charged Massachusetts high tech company Analog Devices, Inc. and its CEO Jerald Fishman with reporting false compensation and related financial information to investors by backdating stock option grants to officers, directors and employees. Without admitting or denying the allegations in the SEC's complaint filed today in U.S. District Court for the District of Columbia, Analog and Fishman agreed to settle charges against them by consenting to the entry of final judgments against them that orders Analog to pay a $3 million civil penalty and orders Fishman to pay a $1 million civil penalty. Fishman also consented to pay disgorgement of $450,000, plus prejudgment interest of $42,110, which represents the in-the-money benefit that Fishman obtained from selling stock obtained from the exercise of the 1998 backdated option grant that he exercised.

According to the complaint, in 1998, 1999 and 2001, Fishman caused the company to backdate stock option grants to price them below the market price of the stock on the date they were actually approved by Analog's Compensation Committee and caused the company to grant options at lower exercise prices than were allowed by the company's option plan. The complaint alleges that these in-the-money option grants were made to Analog's officers and employees (and one grant to its directors in 2001) and resulted in $30.7 million in compensation costs ($21.8 million net of tax) that the company failed to properly expense in its financial statements.

In related administrative proceedings, without admitting or denying the SEC's findings, Analog and Fishman consented to the entry of an administrative cease-and-desist order. The SEC's order finds that Analog violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The order also finds that Fishman violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, which does not require a showing of scienter. Analog and Fishman agreed to cease and desist from committing or causing the violations. Analog also agreed to re-price two of the three option grants awarded to Fishman that he has not yet exercised in order to eliminate the benefit of the lower exercise prices that resulted from backdating the options.

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