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December 18, 2006

SEC options probe into Broadcom begins

Wireless chipmaker Broadcom Corp said yesterday it is now among the scores of tech companies being formally investigated by US federal regulators for its stock option practices.

By CBR Staff Writer

Broadcom also said its own audit committee had completed a four-and-a-half month internal review and found some of its options grants between 1998 and 2003 had been improperly dated. The investigation included its independent counsel interviewing more than forty individuals, Broadcom said.

The committee also determined that between June 1998 and May 2003, its informal option grant procedures and processes lacked adequate controls, and that the company’s documentation and record keeping were insufficient to verify many of the original measurement dates, said Broadcom, in a statement.

During that time, unnamed executives and employees had selected numerous grant dates after the fact, said the company. And allocations of grants to individuals occurred after the grant dates for several company-wide option grants had been established.

The company stressed that employees who were actively responsible for choosing after-the-face grant dates had left the company. Approximately 95% of the stock options granted between June 1998 and May 2003 were awarded to employees other than executive officers, it said.

In mid-2003, the company made significant corrective changes to its option granting and documentation process and all options since May 2003 have complied with accounting rules, according to the company.

All options for current and former board members, as well as its founders, had been properly granted, the company’s audit committee had determined.

It also found that Broadcom’s chairman and chief technical officer, Henry Samueli, and all outside directors reasonably relied upon management and professionals regarding the correct option accounting treatment and grant approval process, said the company, in its statement.

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The US Securities and Exchange Commission had previously launched an informal probe into the matter. But it began its formal investigation into Broadcom on December 14, said the company. Broadcom continues to cooperate with the SEC, it said.

The Irvine, California based company said it was working to file an amended 2005 annual report and an amended report for the first quarter of 2006, which will include adjustments to previous financials.

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