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Affy Hit with Shareholder Suit for Backdating Stock Option Grants

NEW YORK (GenomeWeb News) – Affymetrix disclosed yesterday in a filing with the US Securities and Exchange Commission that it has been named in a shareholder derivative suit in the United States District Court for the Northern District of California.
 
The suit, filed August 30, accuses several current and former officials at Affymetrix of a “gross breach of fiduciary duties” and claims these officials “improperly backdate[d] dozens of grants of Affymetrix stock options” to Affy CEO Stephen Fodor and other executives in violation of generally accepted accounting principles.
 
The suit, filed by Affymetrix shareholder Irwin Berkowitz, also claims that Affy officials improperly took tax deductions based on the backdated stock options and disseminated “false financial statements and other SEC filings that improperly recorded and accounted for the backdated option grants and concealed the improper backdating of stock options.”
 
The suit calls for Affy officials to “disgorge to the company all of the backdated stock options they received, including the proceeds of any such options that have been exercised, sold, pledged, or otherwise monetized,” as well as an award of attorneys’ fees and costs.
 
Affymetrix disclosed in early August that it had uncovered “certain documentation lapses” in its stock-option granting practices and would need to restate its financial results dating back to 1997. It said at the time that an internal review performed under the direction of its board of directors’ audit committee had “not found any pattern or practice of inappropriately identifying grant dates with hindsight.”
 
On August 30, the company said that it had completed its financial restatement, noting that due to a “documentation lapse” in July 1999, “an option grant for an aggregate of 1.99 million shares should have been measured for accounting purposes as of a later date.” The restatement included corrections relating to certain other errors and documentation lapses in the fiscal years 1997 and 1998, Affymetrix said.
 
Affymetrix said in this week’s SEC filing that it “expects to contest vigorously the backdating allegations in the complaint.”
 
The company added that it may be subject to other lawsuits from private plaintiffs concerning this subject area, and that it does not expect to disclose any additional lawsuits that are based on similar allegations.
 
A company spokesman declined to comment further on the suit.
 

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