Broadcom ‘at Risk’ on Stock Options
Has Irvine chip maker Broadcom Corp. back-dated stock option grants to give executives and employees bigger paydays?
That’s a question raised in a new study by a financial research firm, which examined grants at 100 large companies that used stock options as a key part of their compensation packages.
The report by the Center for Financial Research and Analysis, created for institutional investors and other clients, found that 17 of the 100 companies were “at risk” for having back-dated option grants during the five-year period ended in 2002.
“We’re trying to identify companies that may have a high-risk profile and warrant further attention,” said Marc A. Siegel, research director for the Rockville, Md., firm, which specializes in analyzing the financial data of public companies.
“We cannot conclusively say there was any back-dating. It’s very important to note that we’re not accusing anyone of back-dating grants,” Siegel said.
Broadcom, which makes communications chips for TV set-top boxes and cellphones, denied engaging in improper practices.
“Based on our initial reading [of the center’s report], we are confident in the integrity of our options granting process,” said spokesman William Blanning. He noted that “more than 95%” of options and restricted shares were granted to employees below the executive officer level.
The center’s study was strictly statistical, based on information gleaned from financial reports and other public documents. It focused on the 100 companies worth $1 billion or more that were the most aggressive issuers of stock options.
Until 2002, the Securities and Exchange Commission allowed companies to report option grants several weeks after the date of the grant. The loophole tempted companies to select the most beneficial date to maximize the value of the grants, Siegel said.
So if a company’s stock price hit a 40-day low near the time of the public filing, the company could pick that as the issue date. The low price then became the base price, giving executives even more proceeds when they sold it later at a higher price.
In 2002, after the Sarbanes-Oxley corporate reform law was passed, the reporting period for grants was reduced to two days.
In the study, the center matched grant dates with the periods around those troughs in the companies’ stock prices. Those grant dates were deemed “at risk.” The 17 high-risk companies had at least three such grant dates in the five-year period.
Although the center did not rank the companies it identified as high risk, some posed much less risk than others. Broadcom, for instance, had the minimum three at-risk dates out of nine times it granted stock options over the five years. Those three involved options on a total of 900,000 shares.
Others on the list included Juniper Networks Inc., a Sunnyvale networking equipment maker, and technology website operator CNet Networks Inc. in San Francisco.
Juniper spokeswoman Randi Feigin said the company was looking into “why the grants took place on the specific dates” that the center labeled as at-risk. CNet, which did not respond to calls for comment, told the Wall Street Journal previously that it was examining the matter.
The report comes as regulators are stepping up their inquiries into the practice. On Thursday, Camarillo-based Vitesse Semiconductor Corp., which fired three top executives this week, including co-founder and Chief Executive Louis R. Tomasetta, said it received a subpoena from the U.S. attorney’s office in Manhattan. A federal grand jury there has begun a criminal probe of the practices involved in granting options.
At least two other companies, Minnesota healthcare giant UnitedHealth Group Inc. and drug benefits manager Caremark Rx Inc., said they received subpoenas Thursday for records related to their stock option grants.
