Ninth Circuit Affirms Jury Verdict in Options Backdating Enforcement Action

by Katten Muchin Rosenman LLP
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The U.S. Court of Appeals for the Ninth Circuit affirmed a jury verdict against Carl Jasper, the chief financial officer of Maxim Integrated Products, Inc., that held him liable for the violations of several securities laws stemming from the improper accounting of backdated options.

Jasper challenged the jury verdict on several evidentiary grounds, including that Maxim’s 2006 Annual Report on Form 10-K was erroneously admitted as a business record. The Ninth Circuit found, however, that the district court did not abuse its discretion in admitting the Form 10-K because the Form 10-K is a “business record of the accounting review itself, not of the misconduct that gave rise to the need for the restatement,” and therefore does not impermissibly implicate the makers’ state of mind. In addition, the Form 10-K was not created in anticipation of litigation because the filing of a Form 10-K is a legal requirement for a public company like Maxim.

The Ninth Circuit also affirmed the district court’s decision to require Jasper to reimburse Maxim $1.8 million in bonuses and profits from the sale of Maxim stock that Jasper received during the time he certified false financial statements, pursuant to Section 304 the Sarbanes-Oxley Act of 2002. Jasper argued that the jury verdict was not factually specific enough to support such a penalty but the Ninth Circuit found that the reimbursement penalty was an equitable remedy, not a legal remedy, and therefore the district court could impose the penalty without having a jury find all of the facts necessary to support it.

SEC v. Jasper, No. 10-17064 (9th Cir. May 15, 2012).

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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