Analog Devices (ADI) and its CEO Jerry Fishman are the latest from the high-tech community to settle a stock-option-backdating investigation with the Securities and Exchange Commission (SEC).

Without admitting or denying the SEC's statements, ADI and Fishman Friday agreed to settle charges against them by entering an administrative cease-and-desist order. The agreement came after the SEC charged the Norwood, Mass-based company and Fishman for reporting false compensation and related financial information to investors by backdating stock-option grants to officers, directors, and employees.

In a related civil action filed Friday in US District Court for the District of Columbia, without admitting or denying the allegations in the SEC's complaint, ADI agreed to pay a $3 million civil penalty and Fishman agreed to pay a $1 million civil penalty.

Fishman also agreed to pay disgorgement of $450,000, plus prejudgment interest of $42,110, which, according to the SEC, represents the "in-the-money" benefit that the executive gained from selling stock obtained from a 1998 backdated option grant.

"Today's enforcement action holds Analog [ADI] and its CEO accountable for misleading shareholders through the backdating of executive and employee stock option grants," Christopher Conte, associate director of the SEC's enforcement division, said in a statement Friday.

In its own short statement made Friday, ADI reminded that the SEC's investigation was concluded without the company or Fishman admitting or denying any of the allegations or findings regarding stock-option-granting practices.

SEC order

The SEC's order finds that during at least 1998 through 2002, ADI and Fishman engaged in an "improper course of conduct" involving backdating three stock-option grants that operated as a "fraud" on ADI's shareholders and resulted in Fishman and other company executives, directors, and employees receiving undisclosed compensation.

According to the order, in 1998, 1999, and 2001, Fishman caused the company to backdate stock-option grants to price them below the market price of the stock on the date they were actually approved by ADI's compensation committee and caused the company to grant options at lower exercise prices than were allowed by the company's option plan.

Specifically, the SEC said that the appropriate grant dates for three stock option grants made by ADI in 1998, 1999, and 2001 should have been September 8, 1998 (one trading day earlier) for the September 4, 1998 grant date; November 29, 1999 for the November 30, 1999 grant date; and July 26, 2001 (five trading days earlier) for the July 18, 2001 grant date.

The SEC said that these in-the-money option grants were made to ADI's officers and employees and one grant to its directors in 2001 and resulted in $30.7 million in compensation costs that the company failed to properly expense in its financial statements.

The SEC order further states that the company and Fishman failed to disclose this practice in ADI's 1999 to 2002 proxy statements and related annual reports, and instead "made false and misleading statements and omissions" concerning the option grants and the benefits they provided to top ADI officers, directors, and employees.

ADI was among the first high-tech companies to disclose an SEC's investigation into its stock-option granting practices, doing so in its 2004 Form 10-K filing. And the analog and DSP IC maker is far from alone in facing SEC consequences.

Broadcom in April agreed to pay $12 million to close its case with the SEC regarding backdating stock-option grants and in May saw its chairman resign after the SEC charged two current and two former top company officers for their alleged participation in a five-year systematic scheme to secretly backdate stock options granted to virtually all Broadcom officers and employees.

Similarly, Marvell Technology Group entered into a $10 million settlement with the SEC and saw its co-founder Weili Dai enter into a $500,000 settlement, agreeing not to serve as a director or officer of a public company for a period of five years.

The SEC's order finds that ADI violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The order also finds that Fishman violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, which does not require a showing of scienter, the intent or knowledge of wrongdoing.

By Suzanne Deffree, Managing Editor, News - Electronic News