Broadcom Corp. acknowledged Monday that former executives picked the grant dates for stock options "after the fact" in apparent violation of accounting rules.
The Irvine semiconductor company would not name the employees or say how many were involved. The Securities and Exchange Commission also elevated its inquiry into Broadcom's stock options accounting to a formal investigation.
"The company has acknowledged wrongdoing," said analyst Rob Enderle of market research firm Enderle Group. "Now it's just a matter of determining the degree."
Enderle said findings from the company's internal review tended to fault, in part, former Chief Financial Officer William J. Ruehle. Hired in 1997 to take the company public, Ruehle moved up his retirement and left in September.
Ruehle could not be reached for comment.
His departure was seen as a defensive move that would give the company a clean slate once the internal review was completed. The company said Monday that no current employees or board members were implicated. It also said it was cooperating with the SEC investigation.
The only major difference between an investigation and an inquiry, experts said, is that an investigation carries with it the power to subpoena documents and testimony from those who are otherwise unwilling to divulge the information.
Enderle said the subpoena power was likely to be wielded against some of those who have left the company.
The SEC is investigating more than 100 public corporations, many of them technology firms, for manipulating the timing of an options grant to match a slump in the stock price to create bigger paydays for executives.
The backdating led to financial reports that didn't fully account for stock option costs. Broadcom, for instance, has said additional noncash expenses from 1998 through 2003 could amount to "substantially more" than $1.5 billion.
The company expects to file revised financial reports with the SEC next month.
In its statement Monday, Broadcom said the internal review was conducted by the board's audit committee, made up of five independent directors advised by outside attorneys.
The committee found that the company's "informal option grant procedures and processes lacked adequate controls and that the company's documentation and recordkeeping were insufficient to verify many of the original measurement dates."
Other findings included:
* Certain current employees "could have made additional inquiry or
* With "uncertainty and confusion" over accounting rules, some individuals may have taken action without understanding the rules.
Broadcom said it canceled outstanding unexercised options granted to three former employees responsible for the haphazard process. Based on Friday's closing price, the gains on those options would have amounted to $37 million.
"Most companies trying to put this behind them are saying there was no intent to defraud or backdate options," said Marc A. Siegel, research director for the Center for Financial Research and Analysis.
But Broadcom has maintained that its actions didn't involve true backdating, but rather a time lag in issuing options after the board granted them. About 95% of the options went to rank-and-file workers.
Broadcom said the audit committee found that all options and other equity awards granted to current and former directors, including co-founders Henry Samueli and Henry T. Nicholas III, were properly granted.
Broadcom shares rose 13 cents Monday to $33.72.