Maxim Integrated Products Faces Further Legal Problems (MXIM)

Jun. 9.06 | About: Maxim Integrated (MXIM)

Yesterday's Electronic News reported that Maxim Integrated Products Inc. now faces an SEC investigation for past options practices.

Maxim Integrated Products Inc. (NASDAQ:MXIM) today announced that it has been contacted by the U.S. Securities and Exchange Commission [SEC] regarding an informal inquiry relating to its past stock option grants and practices.

This is just the latest twist in the saga of Maxim and stock options. The company and CEO Jack Gifford were vehement opponents to the shift to explicitly charge an expense for employee stock options. Having lost that battle, Maxim now regales investors with at least three performance metrics (GAAP results, non-GAAP results and a Maxim-defined free cash flow measure.)

To their credit, one of the reasons they always gave for their opposition was the asymmetrical payout of option awards - if the stock doesn’t do well, the employees get no bonus.

Although some companies chose to accelerate option vesting before adopting the new accounting rule so past grants wouldn’t show up in current expense, Maxim said doing so would negate the long-term employee retention goal the options were supposed to provide. Taking the principled stand means Maxim will report higher costs for the next five years than its competitors who took the accelerated vesting route.

This latest news, however, is more troubling. If Maxim did indeed back-date their options, it indicates a disregard for shareholders that should not be tolerated.

MXIM 1-yr chart:

MXIM 1-yr chart