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SEC Informaling Broadcom

Networking chipmaker Broadcom Corp. (Nasdaq: BRCM) is the latest telecom sector firm to be pulled into the stock-options brouhaha now sweeping Wall Street.

The company announced today that “analyst and media” reports concerning the company’s options granting practices had attracted the attention of the Los Angeles office of the Securities and Exchange Commission (SEC) . Broadcom says it learned Friday that the agency will soon open an "informal” inquiry on the matter. (See Options Scare Hits SafeNet, Juniper.)

"We are working proactively and with the highest degree of integrity to put all questions concerning this topic behind us," said Broadcom CEO Scott McGregor in the statement.

Broadcom wasn't saying much about the issue today, but it did offer some clarification on the SEC's involvement. "It's important to note that the SEC has not commenced an 'investigation' of Broadcom," says Broadcom spokesman Bill Blanning in an email response to Light Reading Monday. "We understand that the staff of the L.A. regional office of the SEC is simply requesting information from the company, which we will provide on a voluntary basis."

Broadcom joins at least four other telecom sector companies that have drawn inquiries from the SEC about how they handled stock option grant dates. (See SafeNet Gets Subpoenaed, Vitesse Gets Subpoenaed, Comverse CEO, CFO Resign, and Feds Call on Juniper.)

Broadcom's involvement in the options scandal started with the mid-March release of a report by the Center for Financial Research and Analysis (CFRA). The report identified 17 companies as being "at risk" for having back-dated option grants during the five-year period ended in 2002.

“Back-dating” refers to the practice of retroactively altering the grant date of stock options to coincide with low-points in the company’s stock price. This maximizes the value of the stock when it trades at relatively higher prices in the future: Grant low, sell high. The CFRA studied a group of 100 companies, matching their options grant dates with stock price low points during a five-year period. Options grants occurring near the low points were considered “at risk." The report said Broadcom had at least three such grant dates in the five-year period.

Articles in The Wall Street Journal, the Los Angeles Times, and several others appeared May 18 mentioning Broadcom in connection with the CFRA study and options back-dating.

Broadcom says it opened an internal investigation on the matter the same day. The investigation, which is being conducted by its outside legal counsel, is studying all options grants dating back to the company's 1998 IPO.

If the options worries have had an impact on Broadcom’s stock price it has been a gradual one. The shares opened at $37.95 on May 18 -- the day its internal investigation began -- and the price has fallen steadily since. Broadcom shares were trading up $0.37 (1.26%) to $29.70 in midday trading on Monday.

Broadcom also reports that a shareholder filed a lawsuit May 26 in the Central District Court of California charging the company with "misconduct related to executive stock-option grants." It is unclear whether the complaint involves back-dating. Broadcom says the lawsuit has no merit and plans a "vigorous" defense. Another chipmaker, Vitesse Semiconductor Corp. (Nasdaq: VTSS) found itself embroiled in the issue last month -- and with stunning results. The firm ended up firing three of its top executives, including the CEO. (See Vitesse Execs Get the Axe.)

While Broadcom makes chips for a variety of communications applications, it's been increasingly visible in IPTV circles over the past 18 months. It is part of a small group of chipmakers supplying MPEG-4 and high-definition chipsets to IPTV set-top box makers. The wide availability of such chipsets is seen as pivotol to the rollout of commercial IPTV service, as they'll help drive down the service provider cost of deploying what many hope to be a mass-market product. (See Broadcom Compresses Video.)

— Mark Sullivan, Reporter, Light Reading

Honestly 12/5/2012 | 3:51:54 AM
re: SEC Informaling Broadcom Perhaps a few get hammered, but most all will be proven clean. Only lawyers and accountants will win and in the mean time shares get hurt for the benefit of poeple's political aspirations. SEC also needs to shop how rough it can be, even If there is not much to get rough about.
Talk about a cluster ____
qaman1 12/5/2012 | 3:51:52 AM
re: SEC Informaling Broadcom "Perhaps a few get hammered, but most all will be proven clean. Only lawyers and accountants will win and in the mean time shares get hurt for the benefit of poeple's political aspirations. SEC also needs to shop how rough it can be, even If there is not much to get rough about.
Talk about a cluster ____"

I know Im going to get hammered for this but it has to be said. When are you going to get a clue about reality? From what Im hearing, there is a growing league of investors that are realizing these "Champions of Commerce" that the SEC is "getting rough" with now and you are defending have done little more than off-shore their operations areas to make their numbers. What this means is that no sales growth (or actually sales reduction by these "leaders" the SEC is getting rough with) which is compensated by off-shoring so it appears that things are "OK"....and the "leaders" can smile (and look like the Politicians that are driving this country into the ground--- see CNN poll as of 6/8/06 that asks if people feel Bush is more concerned with commerce-selling off the security of the US than the security of the US...99% of the people said he was more concerned with selling off the security than maintaining the security of the US) to their friends on the BoD and get their "just do", as it were.

Im a throw back but what ever happened to people like Hewlett and Packard that actually invested into their companies instead of cannibalizing them when given the trust of the investors?

So the question is this Honestly, are you more concerned with your short term bonus structure or the long term stablity of the company you supposedly lead?

BTW--latest news flash (I just saw the headlines) "Global markets plunge on Fed worries"... Have a nice day...
whyiswhy 12/5/2012 | 3:51:51 AM
re: SEC Informaling Broadcom Honestly:

Does this mean that when a monster invades your home and rapes and kills your spouse and kids, you will tell the cops to save their time, since the cascaded probability they will find any clues, catch the perp, prosecute him/her and get a conviction is so low it's not worth it?

Just curious.

-Why
Honestly 12/5/2012 | 3:51:49 AM
re: SEC Informaling Broadcom When is the last time you did research, or read a 10K.? 1 Example is Sycamore Networks. It's two founders have not been granted options for 8 years thier salaries are 100K per year and all option reviews and audits are public record. I am not fronting for a company and a witch hunt is just that. Dop your homework. I suggest the SEC do it as well.
Honestly 12/5/2012 | 3:51:48 AM
re: SEC Informaling Broadcom My spouse would blow thier head off with my 12 gage double barrel shotgun which will save the cops and legal system money. I think most companies know the message laud and clear, but the SEC and the wanna be Gov of NY have an agenda and competition a goin on.
qaman1 12/5/2012 | 3:51:41 AM
re: SEC Informaling Broadcom "When is the last time you did research...It's two founders have not been granted options for 8 years thier salaries are 100K per year and all option reviews and audits are public record."

Ok, I will state right now, I have not done any research on this nor have I read the 10k. I do have one question based on experience I have had that dealt with funding start-ups. Background- I asked a person to join a start-up. He asked about money and stock. His words were (not exact but close) I dont care about the money you will give me as a paycheck. I will forgo that for all the stock I can get. Now, given the two founders had a reasonable amount of money to live on, how much stock (founders stock...percentage of the company assets) do they have? If they had a LARGE amount, they dont need options, do they???? Is this what the SEC is looking at? I could be wrong but do you know what percentage of company stock the founders of Sycamore have in their possession now?
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