M-Systems Flash Disk Pioneers Ltd. (Nasdaq: FLSH) yesterday filed with the US Securities and Exchange Commission (SEC) its Form F-20 annual report, which included the conclusions of the review by the company’s internal special committee of stock option grants to employees and managers.
The committee found “deficiencies and irregularities” in the granting of stock options but no apparent criminal fraud. M-Systems said, “The impact of these charges reduced the company's previously reported net income for the entire period between 1999 and 2005 by an aggregate of $18.8 million. The impact of these charges on net income for the full year of 2006 is estimated to be less than $2 million, of which approximately $1.4 million relates to the first quarter of 2006.”
The special committee recommended “separating the positions of president and CEO and the position of chairman so that they are held by two separate persons.” Dov Moran currently holds all these positions. The committee also recommended “recruiting a CFO with a formal accounting background and accounting experience suitable to the current and anticipated size, scope and complexity of the company's business.” When the CFO is hired, the committee recommended that current CFO Ronit Maor “assume the role of COO”.
“Globes”: Did you blunder?
Dov Moran: “No. There was no blunder. I do not wish to comment on the committee’s decisions. I respect the decisions and will of course adopt them, but I cannot criticize them.”
The committee recommended that you cannot simultaneously serve as chairman and CEO. Which will you give up?
“I’ll stay on as CEO and look for a chairman for the company.”
Even if the problem is settled by writing off $18.8 million from M-Systems’ accumulated profit, there remains a large stain on the company and its policies for stock option grants.
“True. On one hand, there is a good feeling because we can now move forward and do business. We did no backdating or anything criminal. On the other hand, this unpleasant situation leaves a bitter taste.”
You’ve revised your financial reports. What about a possible SEC investigation?
“At this stage, it was explicitly stated that there were irregularities in the matter of stock option grants, and that we did not follow procedures before the end of 2003. We initiated this investigation, the SEC is naturally in the picture, in the context of an informal inquiry. This is done almost automatically; when a company announces such an internal investigation, it must send forms. I hope this won’t happen, but the SEC might also decide to investigate the matter.”
What about the criminal level?
“The committee found no embezzlement by managers. We had no intention of forging or making personal gains. The committee expressed its support for the honesty and integrity of the company and its managers. There was no corruption, fraud, or willful criminal activity.”
In short, both you and Ronit Maor were punished, even if it wasn’t for something criminal.
“I wouldn’t describe it as punishment. It is explicitly written that the board of directors supports management and trusts it. Among the committee’s recommendations, which the board approved, was to separate my positions, transfer Ronit, and proposals to improve mechanisms.”
So you have no intention of resigning.
“First of all, if you examine the committee’s conclusions, you’ll see that it proposes no sanctions, but ways to improve processes and procedures. I make mistakes all the time, including more serious and bigger ones in the past, which affected shareholders more severely. If they had recommended that I resign for those errors then, I’d have been replaced every two weeks. If you don’t act, you don’t make mistakes, and there were no criminal acts here.”
Published by Globes [online], Israel business news - www.globes.co.il - on July 18, 2006
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006