Analog Devices (NYSE: ADI), an American multinational producer of semiconductor devices, will have to pay a $4 million fine for illegal stock-options backdating.
The company decided to settle the case without admitting or denying the claims and agreed to cease and desist from such practices in the future.
Securities and Exchange Commission raised claims of backdating options (the practice was registered in 1998, 1999 and 2001) asking the company for compensation of $3 million and exclusively its CEO, Jerald Fishman, for a $1 million fine.
In addition, Mr. Fishman will return $450,000 of gains from exercising a 1998 backdated option grant, along with $42,110 in interest, and Analog will reprice two option grants that Mr. Fishman hadn't yet exercised in order to eliminate any benefit from the backdating.
SEC regulators blamed Analog for picking days prior to the grant date when the stock price was lower, potentially increasing the option's value. Thus the company failed to properly expense the cost of nearly $31 million of compensation costs and misled investors.
SEC didn’t fine Analog for granting executive and employee stock options in advance of announcing positive financial results.
Options are financial instruments that convey the right, but not the obligation, to engage in a future transaction on some underlying security, or in a futures contract. In other words, the holder does not have to exercise this right, unlike a forward or future. For example, buying a call option provides the right to buy a specified quantity of a security at a set strike price at some time on or before expiration, while buying a put option provides the right to sell. Upon the option holder's choice to exercise the option, the party who sold, or wrote, the option must fulfill the terms of the contract.