Stock option scandals are all the rage these days. Take-Two, Activision, and EA have all been sued by investors over allegations of backdating, and THQ is responding to Securities and Exchange Commission inquiries about its own practices of granting stock options.
Now graphics-chip maker Nvidia has brought itself into the growing scandal. The company was scheduled to release its second-quarter earnings report today but instead announced an internal investigation into its stock-option practices. While the voluntary review is ongoing, the company "has reached a preliminary conclusion that incorrect measurement dates were used for financial accounting purposes for stock-option grants in certain prior periods."
When executives are granted stock options, they're given the right to buy shares in company stock at a fixed price, with the right to exercise those options--buy the shares--over a predetermined period of time. The price is set based upon the stock's current market value at the time the options are issued. Recently, a number of corporations have come under investigation for having executives backdate their options, altering the records of when the options are issued to a low point for the company stock, thus maximizing their value.
Nvidia's inaccuracies would impact the company's reported noncash, stock-based compensation expenses, so the company is refraining from issuing its full second quarter results until the internal investigation is complete. However, the company would say that it posted record revenues for the quarter. The company took in $687.5 million for the three months ended July 30, a jump from the $574.8 million it racked up for the same period the year before.
That rosy news didn't distract investors from the news of the stock-option investigation, however. Nvidia shares were trading down more than 8 percent in after hours trading, down $1.95 to $22.21.