Sycamore Faces Criminal Probe on Options

Telecommunications equipment maker Sycamore Networks disclosed Wednesday that its stock-option woes are growing deeper, with a federal grand jury subpoena coming on top of an ongoing U.S. Securities and Exchange Commission (SEC) probe.

Like a string of other high-tech companies that have made recent disclosures, Sycamore is grappling with the issue of backdated stock-option grants. In backdating, the date of a stock option grant is moved to a time when the stock was worth less, leading to a greater gain compared with a later share price. Juniper Networks and Analog Devices also have faced criminal inquiries over the issue. Other companies, including McAfee, Rambus and RSA Security, are undergoing independent or government probes.

Sycamore, based in Chelmsford, Mass., now faces not only the formal SEC investigation that it disclosed earlier this month, but also a criminal probe. Last Friday, the U.S. Attorney’s Office for the District of Massachusetts issued a subpoena to Sycamore seeking documents related to its option grants, the company said in an SEC filing Tuesday. It is cooperating with both the SEC and the U.S. Attorney’s Office. Company spokesman Scott Larson referred to the filings for questions about the issue.

Last year, Sycamore restated its financial results for periods stretching from 2000 into 2005 as a result of an independent investigation into stock-option grants made from 1999 to 2001. Accounting problems with those options included deliberate changes to employees’ start dates and some cases in which grants were deliberately canceled and reissued to provide a lower exercise price.

Sycamore sells core, regional and edge switches for service providers as well as network management products, planning and design tools, and services. Founded in the late 1990s by data networking pioneer Gururaj “Desh” Deshpande, the company saw its stock soar above US$300 per share before plummeting along with other telecommunications shares starting late in 2000. In the third quarter of its 2005 fiscal year, which ended April 29, it had net income of $10.5 million, or $0.04 per share on revenue of $22.9 million. On Wednesday, Sycamore’s stock (SCMR) rose $0.09, or about 2 percent, to $4.42.

-Stephen Lawson, IDG News Service

For related news coverage, read McAfee Dumps General Counsel and U.S. Authorities Expand Stock Grants Probe.

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