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Broadcom Faces More Accounting Questions

Chip-making giant Broadcom may face probes by the U.S. Department of Justice and Securities and Exchange Commission as part of a widening investigation into accounting discrepancies surrounding stock options handed out to employees.

Broadcom itself initiated the investigation into its equity-award practices more than three months ago with help from its internal auditor, Ernst & Young.

Reports Friday indicated that the company now expects to record a $1.5 billion compensation expense based on the discrepancies it has found so far, and it plans to restate financial results from 2000-05 and the first quarter of 2006, as well as those for 1998 and 1999.

The issues all revolve around options Broadcom distributed from June 1998-May 2003 totaling some 238 million shares of common stock, with 95% going to nonexecutive employees. In July, Broadcom reported initial results of its investigation, concluding that for some option grants awarded from 2000-02, “The allocations to individual recipients and/or formal corporate approvals had not been completed as of the original accounting measurement dates.”

The initial report also predicted that the company would have to take a compensation-expense hit of $750 million. But it found that there was no evidence of issues surrounding equity awards handed out to the company’s cofounders, CEOs or any members of the company board.

Since then, the SEC and DOJ have asked for documents from the internal review, although neither has announced a formal investigation yet. The U.S. Attorney’s Office in California also contacted the chip-maker.

Based in Irvine, Calif., Broadcom is a major suppler of the silicon that powers cable-network and customer-premise gear, including cable modems and digital set-top boxes.