Semiconductor industry executives could use some tips on dating. Not on going out to dinner and a movie, but on when they exercise their stock options.
The widespread practice of backdating stock options, where executives and board members timed their purchases and sales of stock options to take advantage of market run-ups in a stock’s price, is under scrutiny by the SEC and federal prosecutors on both coasts. The scheme goes like this: Company insiders took note of increases in their stock’s market value, and then amended the date the options were granted to predate the run-up and made a killing on selling the shares at the higher prices. Backdating itself may not be illegal – although it’s certainly a scumbag practice – but what’s driving the outrage is the failure to disclose these underhanded moves to shareholders – you know, those chumps that actually own the company.
Chip makers and their suppliers that have been subject to internal investigations, informal inquiries by the SEC, and subpoenas by federal grand juries include Altera, Brooks Automation, KLA-Tencor, Maxim Integrated Products, Power Integrations, Rambus, Vitesse Semiconductor, and Xilinx. And news of these probes usually drives another plague of the corporate world: the shareholder derivative lawsuit, filed by opportunistic law firms with professional plaintiffs, alleging malfeasance and other words you need to look up in a dictionary.
Some board members have actually grown a backbone and taken a stand. Lou Tomasetta, the veteran CEO of Vitesse Semi, was fired by his board, along with his CFO and another high-ranking exec. At Power Integrations, resignations were accepted from the CFO and the chairman (a former CEO of the company).
Will more heads roll? Likely. It’s a good start. Now, don’t get me going about CEO pay packages…
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