IBM to Pay $20M to Settle Shareholder Suit over Options Expensing

June 4, 2008

Armonk, New York-based IBM Corp. has agreed to pay $20 million to settle a lawsuit by shareholders who claimed the technology company misled the public about employee stock-option expenses in 2005.

The settlement, disclosed Monday by lawyers for the plaintiffs, comes a year after the Securities and Exchange Commission determined that IBM’s conduct had violated federal law. However, the SEC stopped short of finding that fraud had been committed, and it imposed no fine on IBM.

The shareholder lawsuit and the SEC investigation examined whether IBM manipulated expectations for its first-quarter earnings announcement in 2005.

Nine days before the company made the announcement, Chief Financial Officer Mark Loughridge indicated to analysts that accounting for stock options would cost 14 cents per share.

The cost turned out to be 10 cents per share, and some analysts complained that IBM originally gave the higher figure in order to artificially lower expectations for the quarter and cushion disappointing business results.

The lawsuit contended IBM knew the true figure when Loughridge provided the 14-cent estimate.

IBM spokesman Fred McNeese confirmed the settlement but said his company maintains that it did not misrepresent information to investors.