Morgan Stanley's Take On Marvell's Legal Issues

Morgan Stanley's Joseph Moore maintained an Equal-weight for Marvell Technology Group Ltd. MRVL, with a price target of $10.50. He said that although Marvell’s audit committee had not found any fraudulent activities, there are hurdles related to the SEC inquiry and delisting risk.

Marvell announced that the audit committee of had completed its independent investigation of accounting and internal control affairs and identified no fraudulent activities. The revenue pull-in transactions as a result of the investigation may impact revenue attribution for FY4Q15, FY1Q16 and FY2Q16; however, there is no change in cumulative revenue for the quarters.

Moreover, the Final Level Cache [FLC] technology would be assigned to the company for future use without any royalties or payment due to the patent holder.

Analyst Joseph Moore said, however, that Marvell was still facing an SEC inquiry with regards to the audit committee investigations. He added, “There remains risk that the SEC may view the revenue pull-in and internal control matters with greater severity than the audit committee, and may review prior years' financials as well.”

Moore mentioned that the company was yet to file its Form 10-Q for FY2Q ending July 2015. Marvell would need to work with newly appointed auditor Deloitte and Touche to submit its fiscal 2Q16, 3Q16 and 4Q16 financials and Form 10-Q to the SEC. The analyst pointed out that the company could likely miss the deadline of March 8, 2016 to file with the SEC, which is needed to regain compliance with Nasdaq listing rules.