NVidia May Face NASDAQ De-listing
Having failed to file its quarterly 10-Q statement for its last fiscal quarter within the designated window of time, GPU producer nVidia yesterday acknowledged it had received a letter from the NASDAQ stock exchange, probably warning the company it faced possible de-listing.
nVidia is one of many companies, including Apple and Juniper Networks, that are the subject of a sweeping US Securities and Exchange Commission probe into the practice of options backdating - issuing executives options that have immediate monetary value, by setting their exercise dates back in the past before their stock values rose.
Dell has also acknowledged it has been the target of an SEC probe for some time, possibly years, but denies that probe involves backdating. Dell stock value has consistently fallen over the last few years, lending credence to that claim.
In nVidia's case, the company has said it may have to restate its earnings as far back as 1999, going back to its initial public auction date - possibly rewriting every earnings report it has ever released to the public. The company has voluntarily established an independent audit committee, which is working with private counsel to review its statements over the past seven years.
But that process will take time, so nVidia is petitioning the NASDAQ exchange for a hearing date to plead its case. That petition alone will buy the company time, as it cannot be de-listed under exchange rules until that hearing date.
Backdating of options is not an illegal practice; it will take an act of Congress to make it so. As long as ethics reform remains held up in Congress, representatives and senators continue to face the prospects of being elected to corporate boards of directors once they leave office. Many directors aren't compensated monetarily, though are sometimes rewarded with options, and can thus themselves become the benefactors of backdating practices.
What is illegal -- and what is driving the SEC's efforts -- is the fact that public companies that do backdate options fail to report the value of their options grants on their 10-Q statements, as earnings charged against the company. As a result, executives and directors can be granted options whose values are technically worth millions on paper, but in actuality were generated out of thin air.
Of course, this practice only works when stock values rise. nVidia's IPO issue price in 1999 was about $3 per share, then peaked in January 2002 at about $36. From there, stock value plunged in the face of uncertainties about the company's competitive stance, declining to near the $4 level by September 2002.
From there, the company started its long trek back to growth. When rumors started to spread that a graphics company might be acquired by a CPU company, traders' excitement drove nVidia stock value to back around $32 in April of this year. The excitement subsided when it was learned ATI was the target, but re-ignited amid analyst speculation that ATI's pending merger with AMD might drive nVidia into, at the very least, an alliance with Intel.