Posted on 05/31/2006 11:25:37 AM PDT by nickcarraway
GENERAL COUNSEL SWEPT UP IN WIDENING PROBE OF BACKDATING
The stock options scandal in Silicon Valley widened Tuesday as software maker McAfee said it fired its general counsel during an internal review of options-granting practices.
Separately, chip design company Rambus said it has launched an internal investigation into how the company doled out options in 2003 and before.
McAfee, the Santa Clara-based maker of anti-virus software, fired general counsel Kent Roberts during an internal review of how the company gave out stock options to executives and employees during the late 1990s and early 2000s.
The dismissal of Roberts, who had been with the company since 1998, is the latest executive resignation in Silicon Valley amid a widening national furor over options grants. So far, at least 26 companies nationwide are being investigated by the Securities and Exchange Commission or the U.S. Justice Department. Of the 26 under investigation, at least eight are valley companies.
The McAfee case illustrates how events are unfolding quickly at individual companies as executives try to figure out whether there have been potential problems in how options are doled out and who is responsible.
The investigations over stock-option granting has led to accusations of executives self-dealing and defrauding investors.
Regulators are looking to determine whether companies broke securities and tax laws by backdating stock-option grants to coincide with the lowest possible market price. The practice of backdating is drawing scrutiny because it maximizes the amount of money option holders can make in exercising options.
On Thursday, McAfee, with 3,290 employees worldwide, said it was in informal discussions with the SEC and the Justice Department about the company's options-granting practices. The company also announced that the audit committee of its board is conducting an internal probe with the help of outside independent counsel.
`Improper' incident
On Tuesday, McAfee announced it had discovered an ``improper'' incident in 2000 involving Roberts, who was also an executive vice president at the company.
It is unclear whether Roberts was fired in connection with his own options or for overseeing the stock option program. Siobhan MacDermott, a company spokeswoman, Tuesday declined to elaborate about the episode, the internal investigation as well as discussions with the SEC and the Justice Department.
The fact that the incident allegedly happened in 2000 evokes an earlier, darker chapter in McAfee's history. In January 2006, McAfee, formerly known as Network Associates, agreed to pay a $50 million fine as part of an SEC investigation into allegations that executives inflated revenues and pumped up the company's stock price from early 1998 through 2000. Three executives were indicted for securities fraud. The company's former chief executive and chairman Bill Larson resigned amid the investigation.
Separately, Rambus, which licenses technology to computer chip makers, said Tuesday that it had launched an internal investigation into how company officials doled out stock options in 2003 and before.
Los Altos-based Rambus said its investigation would be assisted by outside legal and accounting experts.
Rambus has not been contacted by any federal investigators, said Linda Ashmore, a company spokeswoman.
``The audit committee of board of directors has decided to do the prudent thing and review the stock option granting process given the attention this is receiving,'' said Ashmore.
On Tuesday, the Nasdaq announced it had sent delisting notices to some companies, Altera and Vitesse Semiconductor, after they missed a deadline for filing a revised financial statement. Both companies had earlier disclosed they're being investigated over options granting practices.
`Whose fingerprints?'
Altera announced Tuesday that it would put aside several million dollars in the second quarter resulting from its review of options granting practices and related accounting.
As companies conduct their own investigations, they are under pressure to figure out what happened and who is at fault.
``If there was actual backdating and it wasn't an act of God, then the question is whose fingerprints are on it,'' said Graef ``Bud'' Crystal, a Bloomberg columnist and a compensation expert. ``The board is going to protect itself.
``They would try to plead ignorance. For the CEO and the chain underneath them, that's going to be a difficult defense. It's going to be hard to believe that the general counsel backdated options and no one else noticed.''
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