The recent stock options backdating issues at Juniper Networks Inc. (NYSE: JNPR) could end up having serious repercussions for the company, sources say, possibly even leading to the ouster of some of its top executives. (See Feds Call on Juniper.)

One analyst source confirms that people in the investment community are talking about a potential change in Juniper leadership. But, the source says, both institutional and private investors are split on whether such a move would benefit the company and its stock. (See Options Scare Hits SafeNet, Juniper.)

Juniper said that on May 22 it received a Request for Information from the United States Attorney for the Eastern District of New York, regarding its stock options granting practices. Juniper says it’s cooperating, but unlike some others who’ve been ensnared in options back-dating inquiries, it's made no announcement of a formal internal inquiry.

In the meantime, shareholder irritation on the matter appears to be growing. Shortly after the Justice Department's request, Juniper was served with two separate lawsuits concerning its stock back-dating practices.

One of the complaints, which was filed in the District Court of Northern California, reads as follows:

(See Juniper's Suits)

Morgan Keegan & Company Inc. analyst Simon Leopold says the back-dating inquiry, in combination with the lawsuits, is souring some investors on Kriens and his team. “It highlights the anger over what is perceived as corporate greed at shareholders' expense,” Leopold writes in a June 15 investor brief.

“This news likely further pressures the stock, with the options back-dating issue and general market malaise outweighing the fact that business fundamentals are unchanged,” Leopold writes.

Piper Jaffray & Co. analyst Troy Jensen points out that, based on the fates of senior executives at Comverse Inc. (Nasdaq: CNSI) and Vitesse Semiconductor Corp. (Nasdaq: VTSS) stemming from the stock options scandal, one shouldn’t rule out executive ousters at Juniper. (See Vitesse Gets Subpoenaed and Comverse CEO, CFO Resign.) The removal of CEO Scott Kriens would be a big, big deal, of course. “If Juniper lost Scott, that’s the culture of the company,” Jensen says.

Kriens has been CEO at Juniper since 1996.

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Jensen says some executives may find that the perception of wrongdoing might weigh as heavily as anything: “Some of these guys that are getting nailed are going to claim that they are within the accounting regulations, which they probably were, but from an investor point of view it just looks kind of suspicious or self-serving.

"The fact that the management actually picked the time of the lowest price -- it’s just the ethical quality of the management team is really more at risk."

Indeed, the question of legality remains blurry. Securities and Exchange Commission (SEC) spokesman Kelly Bowers refused to say even whether stock options back-dating is an illegal act, and he offered no information on the Juniper inquiry. Light Reading received another emphatic “no comment” from the Department of Justice.

Of course shareholder perceptions do, in the end, depend on facts. The direction of, and the eventual results of, the DOJ investigation will determine shareholders’ feelings about Scott Kriens and other Juniper management. If the DOJ finds evidence of serious wrong-doing, a subpoena could be issued, which could indeed turn up the heat on Juniper top brass to step down.

JP.MorganChase analyst Ehud Gelblum says that the existence of an internal Juniper investigation on options grants should be assumed. A snippet of Juniper’s email to Light Reading seems to suggest such an investigation: “We take the matter seriously and our lawyers and accountants are working toward resolution.”

Ehud believes that if any management changes end up happening, it will more likely be the result of such an inquiry, not the result of a typically slow-moving DOJ investigation. “This is the government we’re talking about; they clock out at 5:01.”

The stock options troubles started at Juniper when the company was named in a Center for Financial Research and Analysis report identifying 17 companies whose options grant dates were proximate with low points in their stock prices. The report states that Juniper had “at least three” grants fitting that description.

Before the arrival of Sarbanes-Oxley in 2002, companies had 40 days to report options grants to the SEC. With all that time to file, the company could have picked the day in that 40-day window when the stock price was at its lowest, therefore maximizing the cash-out potential of the stock when prices were higher.

So a series of grant dates that line up nicely with stock price troughs alone is no smoking gun. However, the U.S. Attorney’s office may be able to acquire internal documents showing whether the lineups were deliberate or merely coincidental.

In the wake of the CFRA report, some Juniper analysts began doing their own studies. J.P. Morgan found 15 SEC proxy statements for option grants to named Juniper executive officers –- six of them occurred at the stock’s low price for the month.

The firm, however, is quick to point out that suggestions of wrong-doing shouldn’t be inferred from the research. “There are many reasons, including seasonality, why grant dates could end up at the low point of a month,” the firm states in a note.

Pacific Growth Equities Inc. analyst Erik Rasmussen says his firm conducted a similar study. The results confirmed that Juniper had some grant dates near to stock price low points, although Rasmussen says Juniper’s offenses don’t appear as serious as some others now being investigated.

Juniper itself is completely silent on the issue. “Unfortunately, due to the legal and formal nature of the inquiry and the subsequent process, we are -- and will continue to be -- unable to openly communicate anything regarding the process until some conclusions have been reached,” a Juniper spokeswoman continued in the email note. “This may take some time.”

— Mark Sullivan, Reporter, Light Reading