Rambus (RMBS): Backdating Option Suits Courtesy Ma...

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Threejack

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Tuesday, 05/15/2007 8:58:40 AM

Tuesday, May 15, 2007 8:58:40 AM

Backdating Option Suits

Courtesy MarketWatch. Credit to jfar2001 at IV for the find.

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JOHN SHINAL'S TECH INVESTOR
'Backdating' lawsuits go nowhere, for a reason
Commentary: Novellus suit, like earlier one against Xilinx, is dismissed
By John Shinal, MarketWatch
Last Update: 6:00 AM ET May 15, 2007

SAN FRANCISCO (MarketWatch) -- The practice of pricing employee stock options after they've been granted may raise red flags among federal investigators and infuriate investors, but it has never been illegal for U.S. companies.

It's easy to forget that, given the dozens of inquiries by securities regulators and prosecutors into what has come to be known as 'options backdating.'

Yes, a growing number of executives from tech firms such as McAfee Inc. (MFE ) and Apple Inc. (AAPL) have been charged with civil or criminal wrongdoing as a result of those probes.

The granting of special pricing treatment to employees -- from executives as famous as Steve Jobs to anonymous rank and file workers -- is just another reminder that not all shareholders are created equal. But those charges stem from failures to properly account for the option grants -- or, in Apple's case, for allegedly faking a board meeting -- and not for the backdating itself.

That's why investors hoping to gain recompense through options-backdating lawsuits are going to be disappointed, as the conclusion of two such suits maker clear.

A couple of weeks ago, shareholders walked away from a class-action suit against chip-equipment maker Novellus Systems Inc. (NVLS ) with nothing. In January, a similar suit filed against chipmaker Xilinx Inc. (XLNX) ended with a judge's dismissal.

One year ago, this column reported how corporate lawyers in Silicon Valley were bracing for a flood of such suits. Read previous column from May, 2006.

That flood has now come to pass.

A recent check of legal databases and SEC filings shows that close to 100 such suits have been filed, and that the two mentioned above are among the first to be concluded.
The Novellus suit is notable because the plaintiffs were represented by the San Diego law firm Lerach Coughlin -- the 800-pound gorilla of class-action shareholder lawsuits.
But even Bill Lerach, who made his name with shareholder-lawsuit giant Milberg Weiss before breaking away to form his own firm, needs something to make these suits stick.

After an internal audit of Novellus' options practices concluded that their had been no wrongdoing, and with the SEC choosing not to investigate the company, the plaintiffs "had nothing" to build a case on, said Darryl Rains, a partner in the Silicon Valley office of the law firm Morrison & Foerster, which defended Novellus.

After the judge in the case dismissed the original complaint in March, but gave the plaintiffs the opportunity to amend it, they chose instead to walk away, Rains said. Court records show that the case was dismissed May 2.

Based on these first two cases to conclude, winning these types of suits will likely prove tough unless executives at the targeted company engaged in securities fraud, such as changing grant dates after the fact.

While most investors won't be part of such suits, the practice of backdating -- which was a widespread practice in Silicon Valley during the tech stock boom of the 1990s -- nevertheless smacks of unfairness.

The granting of special pricing treatment to employees -- from executives as famous as Steve Jobs to anonymous rank and file workers -- is just another reminder that not all shareholders are created equal.

That fact is why some shareholders of Apple, who likely feel some of that indignation, tried to reform the company's option-pricing practices at their annual meeting last Thursday.
Not surprisingly, given the boom-like performance of Apple shares during the last three years, the proposal failed.

John Shinal is the technology editor of MarketWatch in San Francisco.

http://www.marketwatch.com/news/story/why-lawsuits-over-options-backdating/story.aspx?guid=%7B7D2B9D...

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Good news for Rambus, but we need a full report on the specifics of its options backdating probe to gauge the impact of the shareholder lawsuits.

Just my opinion.

Threejack