Backdating Claims Still Stick to Tech Executives

     (CN) – A jury should determine whether Silicon Valley executives practiced insider trading and backdating to manipulate option grants, a federal judge ruled.



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     U.S. District Judge Ronald Whyte in San Jose, Calif., dismissed claims against four current and former officers of Finisar, but he denied an identical motion made by officers Jerry Rawls, Frank Levinson, Michael Child, Roger Ferguson and Stephen Workman.
     Rawls serves as CEO and executive chairman of the company’s board of directors.
     The company claims to be the “world’s largest supplier of optical communication components and subsystems.”
     Led by the Worchester Retirement System, a group of shareholders claimed in a federal derivative complaint that Finisar violated federal securities and state laws by backdated option grants and made false statements in public statements and filings with the Securities and Exchange Commission.
     “Plaintiffs also allege that defendants engaged in illegal insider trading, ‘pocketing hundreds of millions of dollars in excessive compensation’ and causing financial and reputational harm to the company,” according to the court’s summary of the case.
     Amid public outrage over the backdating, Finisar launched an internal investigation that found evidence of using “incorrect measurement dates when accounting for stock option grants,” according to the report quoted in the supplemental second amended complaint.
     Its report also acknowledged that the date for two of the grants “was ‘selected retrospectively to capture a more favorable price.’ In total, the report found that measurement dates for ‘105, of 70 percent, of the 151 granting actions during the review period,’ would need to be restated to record charges for compensation expenses relating to such option grants. The restatement yielded approximately $112 million in additional compensation expenses between fiscal years 2000 and 2006.”
     Despite these findings, however, the report did not find any evidence of wrongdoing on the part of company personnel involved in choosing and approving grant dates or administrating the granting process, investors said.
     But Rawls made approximately $2.5 million in “suspicious” options in the form of a 1 million-share grant and a 200,000-share grant, which “preceded ‘sharp’ increases in the stock price,” according to the complaint.
     Other officers allegedly received similar grants.
     Finisar announced more than $1 billion in revenue for its third quarter on March 8, 2011, but also disclosed that it expected to adjust earnings for the three months ending April 30, 2011.
     The announcement caused stock prices to fall from $40.04 per share on March 8, 2011, to $24.61 on March 9, 2011, and bottoming out at $12.59 per share, , shareholders said.
     Finisar officers face charges under the Securities Exchange Act, as well as claims of breach of fiduciary duty, insider trading, breach on contract, corporate waste and unjust enrichment.

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