Roundly praising KLA for its “swift, extensive, and extraordinary cooperation,” the U.S. Securities and Exchange Commission (SEC) and the company agreed to a permanent bar against future violations of corporate recordkeeping laws, according to news reports.
KLA also won SEC kudos for its “significant remedial actions” after the results of its internal investigation were completed.
“KLA-Tencor went to great lengths to clean house after discovering the fraud, and their cooperation greatly facilitated the government’s investigation,” said Marc J. Fagel, Associate Regional Director of the SEC’s San Francisco Regional Office, in the agency’s news release about the case.
The SEC said the company vastly overstated its earnings and misled shareholders about its finances as part of its option backdating activities. According to the SEC, beginning in 1997, KLA concealed more than $200 million in stock option compensation, overstating its net income in fiscal years 1998 through 2005 by as much as 156%.
Meanwhile, former KLA chief executive Kenneth L. Schroeder was charged with violating or helping to violate antifraud, recordkeeping, financial reporting, internal controls, lying to auditors, equity transaction reporting, and proxy provisions of federal securities laws, the news reports said.
The SEC alleged that Schroeder, at several points over the years, was informed by his counsel of the accounting rules for option grants and then ignored his lawyers’ concerns about backdating.
KLA took a $370 million charge in January to account for improperly documented option grants.