Sycamore Networks Inc. and three former executives on Wednesday agreed to settle federal regulators' allegations of improper backdating of stock options from late 1999 to mid-2002.
The telecommunications equipment maker was not fined under the settlement with the Securities and Exchange Commission, which cited its cooperation in the agency's investigation. The former executives, however, are paying a total of more than $660,000.
Chelmsford, Mass.-based Sycamore Networks neither admitted nor denied wrongdoing under the accord, but did agree to refrain from future violations of the securities laws.
In a civil lawsuit filed in federal court in Boston, the SEC alleged that two of the executives _ former chief financial officer Frances Jewels and former director of financial operations Cheryl Kalinen _ fraudulently backdated stock option grants to obtain more favorable prices for Sycamore employees. Jewels and Kalinen personally benefited from the deception, misled the company's auditors and shareholders, and failed to disclose nearly $250 million in options expenses in financial statements between 2000 and 2005, the SEC said.
Sycamore's former director of human resources, Robin Friedman, was accused of helping to mislead the company's auditors.
The former company executives also did not admit or deny wrongdoing, but did agree to refrain from future violations of the securities laws. In addition, Jewels agreed to a five-year ban against serving as an officer or director of any public company, or as an attorney or accountant for any. Friedman will be barred for two years from practicing as an attorney for a public company.
Jewels agreed to pay a $230,000 civil fine, to return to the company $190,000 in cash bonuses received during the period of the alleged violations, and to pay back $30,000 of allegedly ill-gotten gains from the sale of Sycamore stock plus interest.
Kalinen is paying a $150,000 fine and restitution of $28,000 of allegedly ill-gotten gains. Friedman is paying a $40,000 fine.
Sycamore President and Chief Executive Daniel E. Smith said the company is "pleased that this matter with the SEC is now concluded."
Michael Gardener, an attorney for Jewels, said his client "is pleased to have this behind her without any need for litigation."
Lawyers representing Kalinen and Friedman didn't return calls seeking comment.
Stock options give employees the right to buy shares of stock at a predetermined time. Especially popular in Silicon Valley during the high-tech boom, they're a coveted incentive to lure and keep talent, particularly when granted by newly public companies with the opportunity for rapid growth.
Backdating options make the rewards even more lucrative by retroactively setting the exercise price to a low point in the stock's value. Usually, a stock option's exercise price coincides with the market value at the time of a grant to give the recipient an incentive to drive the price higher.
If companies backdate options without properly disclosing and accounting for the move, it can cause profits to be overstated and taxes to be underpaid.
Suspect timing of stock option awards to executives and employees became corporate America's biggest scandal in 2006, when it was discovered that numerous public companies nationwide were manipulating the awards and failing to take appropriate charges.
Sycamore Networks was the sixth company since April to settle with the SEC. The agency has reached settlements with 12 companies and at least 35 former executives over improper backdating since late 2006. Of the 12 companies, seven weren't fined and five paid a total of $60 million in civil fines.
Federal prosecutors also have investigated scores of companies for options backdating, and about 20 executives have been hit with criminal charges.
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Securities and Exchange Commission: http://www.sec.gov
(This version CORRECTS time frame.)
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