Maxim To Pay $173M To Settle Backdating Class Action

By Pete Brush

Law360, New York (May 06, 2010) -- Maxim Integrated Products Inc. has entered into an agreement in principle to pay $173 million to settle a putative class action accusing the semiconductor maker of illegal options backdating.

The settlement, which still requires the approval of Judge James Ware of the U.S. District Court for the Northern District of California, will cost the company $110 million after taxes, the Sunnyvale, Calif.-based Maxim said.

The settlement was announced after an April 23 jury verdict in a related case that said former Maxim Chief Financial Officer Carl Jasper was liable for claims including fraud, lying to auditors, and aiding Maxim’s failure to maintain accurate books and records.

The company's announcement said the agreement came in the form of a memorandum of understanding with the lead plaintiffs — the Cobb County Government Employees’ Pension Plan, the DeKalb County Pension Plan and the Mississippi Public Employees Retirement System — that contemplates the execution of a settlement.

The agreement came as the parties were briefing the court on the plaintiffs' class certification bid and, according to Maxim, the settlement also is subject to notice to the putative class.

"As the third-largest stock options backdating settlement, and the largest in the Ninth Circuit, this is an exceptional recovery for shareholders and reflects the significant impact that institutional investors can have by taking the lead in securities class actions," attorney Blair Nicholas of Bernstein Litowitz Berger & Grossmann LLP, who represents the lead plaintiffs, said on Thursday.

According to the lead plaintiffs' motion for class certification, lodged in December, the class consists of thousands of investors.

The lawsuit claims the company routinely backdated options over many years to the tune of tens of millions of dollars and that the practice led to a significant restatement of the company's finances, damaging shareholders who bought company stock between April 2003 and January 2008.

After the backdating came to light, Maxim had to restate its financial results for fiscal years 1997 through 2005 and for the quarter ended March 25, 2006, according to case filings.

The company's restatement admitted that Jasper and other company principals had knowledge of, and participated in, the selection of grant dates for director, nonemployee and employee options grants.

By the time the magnitude of the fraud was completely disclosed, Maxim’s share price had plummeted from a class period high of $55.99 per share to $19.33, falling almost 12 percent on one day in January 2008 alone, according to the plaintiffs' lawsuit.

The company had previously settled a backdating lawsuit brought by the U.S. Securities and Exchange Commission.

The lead plaintiffs are represented in the newly settled lawsuit by Bernstein Litowitz Berger & Grossmann LLP and Chitwood Harley Harnes LLP.

Maxim is represented by Weil Gotshal & Manges LLP.

Jasper is represented by Latham & Watkins LLP.

The case against the company is In re Maxim Integrated Products Securities Litigation, case number 08-cv-00832, in the U.S. District Court for the Northern District of California.

--Additional reporting by Shannon Henson