Backdating

Broadcom timeline Stock options, typically used as incentive pay, allow employees to buy stock in the future at current prices. Broadcom Corp. and other companies also backdated the options to a previously lower price to give employees a little extra when they cashed in the options. Backdating was legal as long as the expense was disclosed publicly. Here are events in Broadcom's backdating case: 2006 May 18: A report by the Center for Financial Research and Analysis, representing institutional investors and others, finds Broadcom "at risk" for having backdated option grants during the five-year period that ended in 2002.

The former chairman of IndyMac Bank has alleged a key banking regulator "specifically directed" him to backdate $18 million in capital onto the Pasadena thrift's books to help prop up the company at the peak of the financial crisis. Michael W. Perry, who is battling fraud allegations connected to the thrift's failure in 2008, said that cash was added to the balance sheet during the first quarter of 2008 even though the money arrived more than a month after the quarter closed. The regulator was Darrel W. Dochow, former Western regional director for the Office of Thrift Supervision, a U.S. Treasury Department agency that "had the final say regarding IndyMac Bank's capital levels," Perry said in a statement posted online.

The Justice Department's crackdown on stock-option backdating took a thunderous hit this month when U.S. District Judge Cormac J. Carney dismissed charges against three former Broadcom executives -- only one of whom was on trial at the time. The judge was so upset with the prosecutors' behavior, he even dismissed the Securities and Exchange Commission's lawsuit against the company. Carney's accusations of witness intimidation and tampering are serious enough to warrant an internal investigation by the Justice Department, and one is underway.

Accounting firm Ernst & Young must face a class action suit over option backdating at Broadcom Corp., a federal appeals court has ruled, saying the auditors knew or should have known about the resulting misrepresentations in the Irvine tech company's financial statements. A three-judge panel of the U.S. 9th Circuit Court of Appeals in San Francisco reinstated Ernst & Young as a defendant in the investor lawsuit, overturning a 2009 decision by U.S. District Judge Manuel L. Real.

The former human resources director of Brocade Communications Systems Inc. was sentenced Thursday to four months in prison and fined $1.25 million following her conviction for backdating stock-option grants. U.S. District Judge Charles Breyer in San Francisco told Stephanie Jensen before sentencing her that he believed her remorse was genuine. "The sentence is to afford adequate deterrence to criminal conduct," Breyer said. "You have lived a very modest life. You have never used money in a flamboyant way."

Encino developer Jerry Y. Oren testified Friday that he had made a "very serious error" when he allowed an associate to backdate a letter concerning the appraisal of his Santa Monica Mountains property that he hoped would be purchased by the National Park Service. The U. S. District Court case against Oren, 51, revolves around a Sept. 13, 1984, letter that prosecutors have contended the defendant used to inflate the appraised value of his property before the sale.

The Securities and Exchange Commission on Thursday dropped a stock-options backdating lawsuit against four Broadcom Corp. figures, the latest legal victory for the Irvine chip company. SEC attorney Molly M. White said the commission chose not to pursue the litigation against Broadcom co-founders Henry Samueli and Henry T. Nicholas III and two former executives "after careful consideration" of comments that a judge made about the case at a hearing in January. The lawsuit, filed in 2008 in the Santa Ana federal courthouse, had sought civil penalties against the men for failing to disclose that they had backdated stock-option grants.

Accounting firm Ernst & Young must face a class action suit over option backdating at Broadcom Corp., a federal appeals court has ruled, saying the auditors knew or should have known about the resulting misrepresentations in the Irvine tech company's financial statements. A three-judge panel of the U.S. 9th Circuit Court of Appeals in San Francisco reinstated Ernst & Young as a defendant in the investor lawsuit, overturning a 2009 decision by U.S. District Judge Manuel L. Real.

Henry Samueli, who co-founded Broadcom Corp. in a friend's garage and helped grow it into a leading microchip designer, took the witness stand Tuesday with an equally challenging task at hand: defending the company's backdating of stock options to a federal jury in Orange County. Samueli was called as a defense witness in the trial of Broadcom's former chief financial officer, William J. Ruehle, who faces 14 counts of fraud and conspiracy related to the stock option scandal. Ruehle has pleaded not guilty.

Gregory Reyes, the former chief executive of Brocade Communications Systems Inc. who won reversal of convictions for backdating employee stock option grants, will pay $12.5 million to settle a company lawsuit over his role in the options manipulation, court documents show. Reyes breached his fiduciary duty to the company and unjustly enriched himself in the backdating scandal, Brocade claimed in the case. Prosecutors could decide to retry Reyes, who still faces a suit by securities regulators.

Philadelphia Phillies second baseman Chase Utley said Monday he was confident he won't need surgery on an injured knee that has kept him off the field all of spring training, but he wouldn't speculate on when he could return. "Right now there is no timetable," Utley said. "I think we've been pretty patient with it, and I think we're going to continue to. I think that's the smart thing to do and we're going to stay on that track. " Utley, who had remained quiet about his status since early March, said he has not returned to running but has been taking ground balls for several days.

A former KB Home executive who became a key prosecution witness in the stock-manipulation trial of the company's former chief executive was sentenced Wednesday to three years' probation. Gary A. Ray, KB's former vice president of human resources, had pleaded guilty to conspiring with former CEO Bruce Karatz to obstruct justice. U.S. District Judge Otis D. Wright II in Los Angeles also sentenced Ray to four months of home detention and 600 hours of community service and fined him $10,000.

Bruce Karatz, whose 20-year run as chief executive of home-building giant KB Home was derailed by allegations that he manipulated the value of stock options, was sentenced Wednesday to five years' probation, including eight months of house arrest. U.S. District Judge Otis D. Wright II also fined the former executive $1 million and ordered him to perform 2,000 hours of community service. Wright rejected prosecutors' request for a lengthy prison sentence, noting that there was no evidence that the crimes damaged KB Home or its shareholders.

Bruce Karatz, homeboy? The former KB Home chief executive, who is to be sentenced Wednesday on three felony convictions in a stock option manipulation case, has been volunteering his services for the last six months at the Homeboy Industries gang-intervention program in Los Angeles. Karatz has helped the financially troubled agency by "finding bold and creative ways to broaden our brand, increase the revenue in our businesses and invite more stakeholders to invest," said Father Gregory Boyle, Homeboy's founder and executive director.

Erick Aybar appears headed for the 15-day disabled list after receiving a cortisone injection Tuesday in his left knee, which the shortstop injured when Milwaukee's Casey McGehee slid into his leg while breaking up a double play on June 14. Aybar, who hasn't played since suffering cartilage damage in the knee, was examined by Dr. Lewis Yocum on Tuesday. The speedy switch-hitter, who took ground balls in Chicago over the weekend, was shut down from baseball activities for two or three days.

One day after he was convicted on felony charges related to the manipulation of stock options, former KB Home Chief Executive Bruce Karatz and his legal team shifted their focus Thursday to a new legal battle: trying to keep him out of prison. Defense attorneys have said they intend to ask U.S. District Judge Otis D. Wright II to reverse the four convictions for lack of evidence. That motion is expected to be filed next month. Barring a reversal, Karatz's defense team has indicated that it will appeal.

The stunning dismissals of criminal cases against three former Broadcom Corp. executives in the last week focused on what the judge called "shameful" misconduct by prosecutors. But at the core, he had something more telling to say: Prosecutors couldn't prove the defendants did anything wrong. The Broadcom cases, among others, illustrate the struggles the U.S. attorney's office has encountered in prosecuting corporate executives for backdating stock options, a practice that makes it appear that their companies had fewer expenses and greater income than they really had. Among the most elusive elements in such cases, lawyers said, is proof that executives intended to commit a crime by backdating the options and conceal their actions.

Federal prosecutors are defending the investigation that led to felony options-backdating charges pending against former KB Home Chief Executive Bruce Karatz. In a motion filed in federal court in Los Angeles, the prosecutors accused Karatz of making baseless allegations of prosecutorial misconduct in order to block damaging testimony against him at his trial set for next month. Two weeks ago, defense attorneys filed a motion accusing prosecutors of intimidating two former KB Home employees who now say Karatz changed the dates of stock option grants to enrich himself and others without accounting for them in regulatory filings.

For an American public seething over the housing market crash and the financial and economic crises it triggered, Bruce Karatz's conviction Wednesday may offer some small hope that justice can and will be done. Karatz, the former chief executive of Los Angeles builder KB Home, wasn't on trial for crimes related directly to the housing market bubble. Rather, he was found guilty of fraud tied to the manipulation of stock option grants beginning more than a decade ago. But so-called option-backdating abuses — which mushroomed into a national corporate scandal in 2005 and have since been uncovered at hundreds of U.S. companies — involve some of the same basic issues that would be at the heart of any government prosecution of crime related to the financial crisis: disclosure (or lack thereof)