Experimental feature

Listen to this article

Experimental feature

Broadcom, one of the most prominent companies to become embroiled in the unfolding scandal over stock options back-dating, on Friday said it was likely to take a non-cash charge of more than $750m and restate five years of financial statements following an internal probe.

The move, which came a day after the US attorney in San Francisco announced a dramatic widening of the Federal investigation into options grants among Silicon Valley companies, could be a prelude to further restatements among the more than 60 companies that have been caught up in the widening controversy.

Broadcom, which makes computer chips for use in set-top television boxes, said a voluntary audit found that a block of options set aside on May 26 2000 had not been distributed to employees until later that summer, after an extraordinary increase in the company’s share price.

The fact that a large block of options was set aside in May, before the rise in share price, meant they had significant value by the time they were distributed to employees. However, the company did not record this as a compensation expense.

As a result of this and similar incidents, Broadcom said on Friday that it expected to restate its financial results from 2000 through the first quarter of 2006 and take a non-cash charge of “at least $750m.” It said the bulk of that expense would be recorded in the years 2000 to 2003.

Kevin Ryan, the US attorney in San Francisco, on Thursday announced that he had convened a task-force together with the Federal Bureau of Investigation to determine whether companies that engaged in options back-dating did so with “fraudulent intent to defraud the marketplace, or to hide something from the auditors or the taxman”.

Mr Ryan hinted that the widespread practice of companies in the past of not accounting for discounted options as an expense in their profit and loss account could point to evidence of an intent to deceive investors.

“We believe it violates accounting principles to hide it. If they properly disclosed it, and properly accounted for it in their statements to the market, and there’s been no evidence they tried to hide anything, then there’s not a problem.”

Since news of the scandal broke in March, about 60 companies have received subpoenas from prosecutors or requests for information from the US Securities and Exchange Commission.

Broadcom’s $750m charge represents around 16 per cent of the company’s total revenues during 2000-2003, when the bulk of the suspect options grants are thought to have taken place. The company recorded heavy losses during the period, and none of the options set aside on May 26 2000 have been exercised, according to Broadcom.

Shares in Broadcom fell 0.1 per cent by mid-day in New York.

Copyright The Financial Times Limited 2019. All rights reserved.

Comments have not been enabled for this article.

Follow the topics in this article