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The Securities and Exchange Commission came down hard on Marvell Technology Group on Thursday for stock option backdating and for being unusually slow to cooperate and reluctant to clean up the problem. Marvell agreed to pay a $10 million fine to settle charges that the company regularly backdated options from 2001 to 2004. Weili Dai, co-founder and chief operating officer, agreed to pay $500,000 to settle charges that she picked the dates in hindsight and signed faked meeting minutes to cover her tracks. Dai also will be barred from serving as a director or an officer for five years. The backdating settlement for the company was unusually pricey – and part of that was because of what the Santa Clara semiconductor company did after it found out about the options problem, the SEC said. Marvell’s special internal investigation committee waited 10 months to interview the only two members of the stock option committee – Dai and Marvell co-founder Sehat Sutardja, her husband – the SEC complaint alleges. After the investigation, the special committee recommended firing Dai and replacing Sutardja as chairman of the board. The board did neither. As result, the SEC did not give Marvell the credit granted other companies in the options scandal for cooperating or cleaning up, said Marc Fagel, co-acting regional director of the SEC’s San Francisco office. In addition to the nature of the wrongdoing, how high up the ranks it went, and other factors, SEC enforcement decisions take into account how a company deals with the problem, Fagel said. “In this particular case, we did not believe that the cooperation and remediation necessarily merited a whole lot of credit in terms of giving them a break in terms of penalties,” Fagel said. “It was not at the same level as other companies in terms of the sort of information they were sharing and the decisions they were making to deal with it.” Other companies with similar backdating problems paid much less than Marvell, which overstated its income by $362 million as a result of the options problems, the SEC says. KLA-Tencor Corp., which took a $370 million charge, settled last July without paying a fine. At the time, Fagel praised KLA – which dismissed former CEO Kenneth Schroeder – for its cooperation and cleanup. Only two other companies, Mercury Interactive and Broadcom Corp., have paid higher fines: $28 million and $12 million, respectively. Louise Kehoe, a Marvell spokeswoman, said that with regard to the remediation issue, the company has “in fact, made several changes.” She added that “Marvell is pleased that this chapter is closed.” Dai’s lawyer, Theodore Wells Jr. of Paul, Weiss, Rifkind, Wharton & Garrison, declined through a secretary to comment. Lawyers from Wilson Sonsini Goodrich & Rosati representing the company also declined to comment. Marvell’s internal investigation, which began in May 2006, was one of the most tortured. Marvell Director Arturo Krueger headed the probe until the company’s former general counsel, Matthew Gloss, raised allegations in February 2007 that Krueger’s investigation was not independent. That prompted the company to fire Gloss and also to hire Abraham Sofaer, a former federal judge now at Stanford’s Hoover Institution, to investigate the internal investigation. (Sofaer said that it was fine, but recommended that Krueger step aside from the probe.) It was that same month that Dai and Sutardja were finally interviewed by the committee, according to the SEC. Though the committee concluded that Dai picked option grant dates after the fact and should be fired, she was only demoted from COO to director of strategic marketing and business development. Her replacement was her brother-in-law, Pantas Sutardja. White-collar and securities lawyers say its rare to find a board that didn’t follow the recommendations of the committee it assigned to investigate backdating problems. The company spokeswoman said Dai will continue to work at the company and will “absolutely not” be fired. “Weili Dai has contributed a great deal to Marvell’s success,” Kehoe said. “She is a co-founder of the company and the board is looking at ways in which it can create a role for Weili that will basically take advantage of her many talents.” Dai’s husband, Sutardja, is still chairman of the board, in spite of the committee’s recommendation that a new chairman be sought. Kehoe said a search is pending for new outside directors to serve on the board and that once it’s completed a new chairman will be chosen. Although Sutardja was on the stock option committee, he was not charged by the SEC because he wasn’t directly involved, SEC lawyers said. His lawyer, Quinn Emmanuel Urquhart Oliver & Hedges’ John Potter, did not return a phone call seeking comment. Gloss, Marvell’s former GC, also was not charged. The company had pointed the finger at Gloss in public filings for allegedly failing to advise executives properly on options granting, misleading the compensation committee by creating false minutes, and even adding a grant date after the fact. But the SEC found that although Gloss prepared the minutes, he was not a “participant” in the backdating scheme, said Catherine Whiting, a staff attorney investigating the case. Gloss’ lawyer, Miles Ehrlich of Ramsey & Ehrlich, declined to comment publicly. Throughout Marvell’s internal investigation, many of the parties repeatedly changed lawyers. The company switched from Pillsbury Winthrop Shaw Pittman to Wilson Sonsini. Dai switched from Cristina Arguedas of Arguedas, Cassman & Headley to Orrick Herrington & Sutcliffe’s Walter Brown Jr. to Quinn Emanuel’s Potter, who also was representing her husband. Finally, Dai turned to Wells, a nationally known white-collar lawyer who recently defended I. Lewis “Scooter” Libby in his perjury trial. Kehoe, the Marvell spokeswoman, said that while the company received a subpoena from the San Francisco U.S. attorney’s office regarding backdating early on, Marvell hasn’t heard from the office lately.

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