Reacting to a story in The Wall Street Journal, the Securities and Exchange Commission has launched an informal inquiry into the stock options practices at Jabil Circuit, Inc., the company said in a press release.
Jabil, which makes electronic devices for computer companies and cell-phone makers, said it was contacted late by Tuesday by an SEC representative who said the commission was calling in response to media reports on backdating options. The commission’s representative said the SEC will ask the company for certain documents as part of an informal inquiry. Jabil said it would cooperate fully with the regulator.
The company reported on Wednesday that it conducted an internal probe of its option-grant practices and that it “found no issues of backdating or improper actions.” A March 18, 2006 Journal story called into question option practices at Jabil and a number of other companies form 1995 to 2002.
A story in the May 4 Journal, however, cited a particularly lucky options grant to Jabil’s chief executive officer, Timothy Main, and some other Jabil executives. Dated Sept. 1, 1998, the grant’s exercise price was the previous day’s closing price for Jabil shares—the lowest closing price of the year. The paper pointed out that its own statistical analysis found that the odds that Main’s pattern of six grants from 1998 to 2001 occurring by chance were roughly one million to one. All six of his grants had exercise dates corresponding to one of the three lowest closing prices in the month in which the grants were set to be exercised.
“Why do some people play the lottery?” Main asked the paper. “We got some good dates.”
Jabil also announced that a “purported shareholder” recently filed a derivative complaint was in Pinellas County, Florida Circuit Court charging that certain executives and directors breached their fiduciary duties from 1998 to 2004 in connection with certain stock option grants. The company said that the suit “appears to be filed in reaction to the [March 18] Journal article.”
The company also said that its board named a special committee to review the derivative complaint. The move was taken before the SEC contacted the company, Jabil asserts.