Opinion ID: 214714
Heading Depth: 1
Heading Rank: 5

Heading: Allegations Against EY

Text: Plaintiffs' allegations that EY had the required scienter for a fraud claim, namely that EY knew, or was deliberately reckless in not knowing, about the fraudulent option backdating, are as follows:  EY knew the material consequences of a May 2000 backdated option grant that would have resulted in a $700 million charge to Broadcom's financial results but, despite violations of GAAS, signed off on the grant without obtaining documentation;  EY knew that several significant option grants were approved on dates when Broadcom's compensation committee was not legally constituted due to the death of one of the two committee members;  EY presided over corrective reforms in 2003 to prevent and detect any future instances of improper stock option awards without questioning the integrity of Broadcom's accounting for options granted prior to the corrective reforms;  EY knew that there was insufficient documentation for nearly half of the $2.2 billion in backdated option grants in violation of GAAS;  EY knew that Broadcom's internal controls were weak and failed to expand the scope of its audit procedures as required under GAAS; and  EY was deliberately reckless in ignoring a number of red flags that should have alerted them to the potential for material misstatements related to stock-based compensation. The Complaint includes additional details with respect to each of the above allegations, and Plaintiffs argue that these detailed allegations, both individually and collectively, support a strong inference that EY had the necessary scienter to survive a Motion to Dismiss.