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Stock Option Awards Scandals: Class Action Defense Issues

California Semiconductor Company In The News

By now, the accounting scandals that have torn apart Wall Street are well known. The litigation fallout has pitted company against accounting firm against law firm, in a never-ending circle of passing the blame. California companies have not been immune; on the contrary, several California companies have been in the throes of such litigation.

Eric Dash of the New York Times reported today on the continuing fight between Micrel Inc., a San Jose, California, company, and its former accounting firm, Deloitte & Touche. According to the article, in 1996 Micrel asked Deloitte & Touche for an opinion on a stock option award plan that would be more fair to new hires – a critical need at a time when high-tech firms were growing by leaps and bounds. Micrel claims that Deloitte approved the program.

Five years later, however, “Deloitte reversed its opinion and urged Micrel to restate its financial reports.” Today, Micrel and Deloitte are still battling in court. Mr. Dash insightfully observes, “The Micrel case and others raise troubling questions about how companies that were pushing the envelope of accounting and tax practice were able to get the blessings of auditors and lawyers. And the widening scandal reveals the extent to which boards of directors, especially the compensation committees that approve option grants, may have failed to do their jobs.”

The legacy of the accounting scandals will consume judicial resources for many years to come. The Micrel program, its well-intended origins and its nascent problems are discussed in Mr. Dash’s article, “Gilded Paychecks: Dating Games Inquiry Into Stock Option Pricing Casts A Wide Net,” printed June 19, 2006, in the New York Times.