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Emcore investigation reveals no sign of fraud

Although some Emcore employee stock options appear to have been exercised with the benefit of hindsight, the company says that there is no evidence of any intent to defraud.

A voluntary review of stock options awarded by Emcore has revealed no intent to profit from false pricing, says the company.

"There is no evidence that senior management in any way tampered with or fabricated documents or took other actions with an intent to defraud," Emcore said.

"Senior management did not seek to profit from the issuance of the option grants at the expense of [Emcore] or its shareholders."

However, the company has admitted that because of "inadequate" financial controls, there were some instances where the exercise prices of granted stock options, usually those awarded to new employees, appeared to have been selected with the benefit of hindsight.

In other words, some employees have been able to make money from back-dated stock options priced below their true market value at the time of issue.

Following Emcore s review of the situation, which was conducted with independent legal counsel and external accountants, the company's CEO and chief legal officer have made voluntary payments of $147,775 and $97,000 respectively.

These payments are said to represent the entire benefit each received under grants that were exercised with an incorrect date.

Although there is no evidence of any wrong-doing, Emcore will have to register the effect of the mistimed options on its balance sheet.

Non-cash financial charges relating to this will amount to approximately $24 million, and affect fiscal years 2000-2003, when the company still owned both the electronic materials division specializing in epiwafers, and the Turbodisc MOCVD equipment operation. Both divisions have since been sold.

Following its investigation, new recruits at Emcore will now be issued with stock options with an exercise price of "not less than the fair market value of the stock on the employee s hire date".

Emcore is just one of a number of companies in the compound semiconductor field to have had its accounts scrutinized for stock option backdating.

The issue first arose at Vitesse Semiconductor, where three senior managers, including CEO Lou Tomasetta, were fired following an investigation into stock option backdating (see related story).

Epiwafer specialist Kopin is also reviewing its finances, and the resulting delay in filing its latest quarterly results has already prompted a threat from the NASDAQ Global Market for the company to be de-listed from the exchange.

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