(CN) - The former chief financial officer of Maxim Integrated Products Inc. must pay a $360,000 civil penalty for backdating futures options and reimburse the company for $1.8 million in stock sales, the 9th Circuit ruled.
In April 2010 a jury in San Jose, Calif. found that Carl W. Jasper approved plans to illegally back-date stock options for himself and other Maxim executives allowing them buy stock at historically low prices.
In addition to enriching the executives, the practice allowed Maxim to avoid reporting the cost of the difference between the backdated option and the current market price of the stock as an expense.
The district court enjoined Jasper from future violations of securities laws, barred him from serving as an officer or director of a publicly traded company for two years, imposed a civil fine and, under Section 304 of the Sarbanes Oxley Act, ordered him to reimburse the company for stock he sold when he certified Maxim's financial statements.
Jasper appealed to the 9th Circuit alleging evidentiary errors, misconduct by Securities and Exchange Commission lawyers and that the Section 304 reimbursement order violated his Seventh Amendment right to a jury trial in civil cases.
Leading Jasper's evidentiary objections was the district court's admission of his 150 invocations of his Fifth Amendment right against self-incrimination during a video-taped deposition and in written responses to discovery questions.
While the district court did instruct the jury that they were not required to infer that the withheld information would have been unfavorable to Jasper, he maintained that the court should have considered each of the 150 instances separately.
Writing for the panel, Judge Carlos Bea said the district court did not abuse its discretion by giving the negative inference instruction just twice because in effect the jury only saw two pieces of evidence where Jasper invoked the Fifth; the video-tape and the written responses.
Since both the SEC and Jasper treated the evidence containing the invocations as "a whole instance with inferences to be permitted as a whole based on the nature of the questions to which the privilege was invoked," Jasper could not now object to the generality of the admissions Bea said.
Bea dismissed Jasper's claim that three misstatements by SEC attorneys during closing arguments warranted a new trial because he didn't try to meet the evidentiary requirement that pervasive misconduct permeated the whole trial.
Under the Sarbanes-Oxley act, corporate officers who sign off on financial statements that a company is later required to restate may be liable to reimburse the company for any gains received while the original information was before the public.
Jasper also claimed that district court could not impose the Section 304 disgorgement because the jury never found that Maxim was "required" to restate its earnings.
Bea disagreed, noting that circuit precedent held that the reimbursement provision was "an equitable disgorgement remedy and not a legal penalty."
As a result, it was sufficient for the district court to require Maxim to restate financial statements, prepared by Jasper, for material noncompliance with SEC regulations to invoke the reimbursement provision.
"Thus," Bea concluded, "Jasper is not entitled to have a jury find all of the facts necessary to support the reimbursement."