Feds Call on Juniper

Juniper Networks Inc. (NYSE: JNPR) has officially been drawn into the stock-options scandal that's rocking Wall Street.

The company announced this morning it's received a request for information from the United States Attorney for the Eastern District of New York, regarding stock-options grants. Juniper said it intends to cooperate with the request.

Juniper stock had fallen 6 percent on Friday on analysts' reports that noted some suspicious options activity. (See Options Scare Hits SafeNet, Juniper.) Its shares were up $0.44 (2.92%) at $15.50 in afternoon trading today.

The question at hand is whether certain directors and executives have back-dated options to maximize profits. A stock option that happens to be granted when shares are near a low point would provide a greater return than a randomly dated option.

This became a hot topic in March with a Wall Street Journal article that called out several companies for having eyebrow-raising options practices. Not all the companies are technology-related -- UnitedHealth Group (Nasdaq: UNH) is among the cases getting the most attention. Chipmaker Vitesse Semiconductor Corp. (Nasdaq: VTSS) was among those named, however, and that led to an internal investigation and the firings of three executives, including the CEO. (See Vitesse Execs Get the Axe.)

The feds stepped in late last week, launching subpoenas to companies including SafeNet Inc. (Nasdaq: SFNT) and Vitesse. (See SafeNet Gets Subpoenaed and Vitesse Gets Subpoenaed.)

Analysts naturally began searching through options dates for potential red flags, and that's where Juniper comes in. The company reportedly is among the 17 firms noted by the Center for Financial Research and Analysis as having suspicious options dating.

Analyst Ehud Gelblum of JP.MorganChase took a look at Juniper and about a dozen other companies in a report late last week. While pointing out that he's neither stating nor implying any conclusions, he noted that six of 15 Juniper options were granted when the stock was at its low point for a given month.

He adds, though: "In further discussions with Juniper, we learned that Juniper granted options at 78 additional instances from 1999 through 2003 and likely at several additional times from 2003 through 2006 as well, potentially skewing the significance of any conclusion that might be inferred."

— Craig Matsumoto, Senior Editor, Light Reading

chips_ahoy 12/5/2012 | 3:53:29 AM
re: Feds Call on Juniper the way that i understand the situation is that it would be wrong to have a meeting of the comp commitee and pick a price from say two weeks prior. however, it would be ok if the comp commitee had a con call every morning where a new low price was set and declare that to be the option price effectily netting the best price, but not back dating, nor illegal. they would then have a window of 60 days to report the price.

anybody know if this interpretation is correct?

mr chips
paolo.franzoi 12/5/2012 | 3:53:28 AM
re: Feds Call on Juniper
It would be technically legal, but highly impractical.

1 - Directors need to be scheduled and trying to get them on a call on an ad hoc basis is hard.

2 - Once the price is set today and the shares go down tomorrow, there is no way to recall the price setting.

What happens if you can't get the comp committee together any morning or the price fluxates during the day or outside events drop the market as a whole?

Having one date of "best price" is probably coincidence. Having many is not.

Honestly 12/5/2012 | 3:53:27 AM
re: Feds Call on Juniper Cannot think we will not see Cisco sent a letter as well. Many that hold options in Cisco bought companies have lerned that they get delutied by the company that is purchased as officers and workers headed to Cisco are re-optioned before a deal is approved by both companies BOD's. VC's and workers that go over to CSCO benifit as all other shareholders are diluted and CSCO never has to expense these options on thier books. Bet there are some real neat secrets there, but all fantasy at this point as someone has launched a witch hunt. More SEC waste and cost from our share prices. Wonder If someone, or acompany started this hunt.?
Honestly 12/5/2012 | 3:53:26 AM
re: Feds Call on Juniper Craig, CSCO was in remiss with 1099's this year on deals and innacurate with thier understanding of the tax code as it relates to option excercise, and ordinary income. they had to re-send 1099's again.

Rather sloppy for such a fine tuned machine. Well perhaps the machine is sliding just a bit.
Pete Baldwin 12/5/2012 | 3:53:26 AM
re: Feds Call on Juniper Honestly says:
Wonder If someone, or acompany started this hunt.?

It all stems from a WSJ report on March 18. From there, various analysts scanned some old stock options and found a few suspicious patterns, publishing their findings for public view.

The SEC doesn't really have a choice here -- if they don't investigate, they're going to hear an earful of questions as to why.

Interesting points about Cisco, but I haven't seen anyone point out suspicious about the *timing* of options granted, which is what this is all about.

btw, F5 got pinged by the feds yesterday, and Sycamore announced the same today:
whyiswhy 12/5/2012 | 3:53:25 AM
re: Feds Call on Juniper Chambers must have gotten a really sweet deal when he joined Cisco, since he is still disposing of options at the (what?) 1995 price: $5.55. At least it is posted that way on WSJ.

I suspect that since the stock has appreciated so much, and the deal was so sweet, he has no need to play with timing of the grant dates.

But the data is filed and public, check away!

lightreceding 12/5/2012 | 3:53:22 AM
re: Feds Call on Juniper Juniper seems to know how to get all the bad press. They sue John Does for posting on LR and get lots of bad press. Then they flub their stock option reporting and get more bad press. What next. Well now I see today that the Analysts are bashing them and trying to figure out how they are going to grow revenue and boost the stock price that is 40% under the 52 week high. This is after they were bashed at Analysts Day for lacking a strategy. Come on Juniper. Lets hear something good.
optiplayer 12/5/2012 | 3:53:21 AM
re: Feds Call on Juniper My take is that the SCMR issue is different than CMVT (which admitted it) and JNPR and FFIV (which are suspected of it). SCMR admitted months ago that someone changed option grant dates internally without authorization and they then restated results to reflect the correct dates.

At CMVT, United Health (the worst abuser so far to my knowledge) senior management intentionally back-dated options to increase their pay. It is the moral equivalent of stealing and it cost Kobi Alexander CEO and founder of CMVT his job.

Yes, the SEC is investing SCMR but they have already come clean and I don't beleive it was senior management that benefitted from the prior changes. Smith doesn't even get options since he owns so much stock outright.
very_objective_dude 12/5/2012 | 3:53:18 AM
re: Feds Call on Juniper I remember driving passed JNPR a few years ago. There was a guy "expressing his opinions" by putting up "greedy lane" banners on Mathilda claiming that Juniper execs are greedy bla bla bla. I heard he was an ex-exec in JNPR. The funny thing was he drove his BMW there. Anyway, I am wondering if he is laughing now and tells everyone "I told you so".

In any case, this is a good company gone bad ..... really really too bad..... what a waste.
laser_focus 12/5/2012 | 3:53:14 AM
re: Feds Call on Juniper David Abramson, former director of corporate communications. His story is Google-able. Perhaps a whacko, but like a broken clock twice a day, whackos are sometimes right.
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