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Optical/IP

Options Scare Hits SafeNet, Juniper

Fear about stock-option pricing scandals appeared to grow in scope and scale in the past two days, with new legal action, analyst scuttlebutt, and stock-market scares hitting a handful of companies.

SafeNet Inc. (Nasdaq: SFNT) and Juniper Networks Inc. (NYSE: JNPR) shares were among the hardest hit, losing 22 percent and 6.5 percent of their value in the market, respectively.

Safenet and Vitesse Semiconductor Corp. (Nasdaq: VTSS) are among five companies served with federal subpoenas as authorities peer into stock-option cases that have snowballed into major scandals. SafeNet shares today lost $4.28 (22.28%) to close at $14.93. Vitesse shares, which have lost nearly half their value in the last month, traded up $0.09 (5.36%) to $1.77

Both companies said yesterday that they've been served by the U.S. Attorney for the Southern District of New York. (See SafeNet Gets Subpoenaed and Vitesse Gets Subpoenaed.)

Meanwhile, analysts are starting to delve into other companies's option grants, including those of Juniper and F5 Networks Inc. (Nasdaq: FFIV), seeking correlations to stock prices. It's not exactly The Da Vinci Code, but the work is turning up some results.

The Center for Financial Research and Analysis says it's identified suspicious options timing at 17 companies. And JP.MorganChase analyst Ehud Gelblum, after researching options activity at 14 companies, reported this week that Juniper and F5 granted some options at particularly fortuitous times.

"We just received the [Gelblum] report, and we're looking into this," an F5 spokeswoman says. Juniper was not immediately available for comment.

The options scare appeared to be weighing on Juniper shares, which lost $1.04 (6.46%) to $15.06 in trading today. F5 shares rose modestly, adding $0.16 (0.32%) to $50.61.

For now, however, the official legal investigation is limited in scale. In addition to SafeNet and Vitesse, companies subpoenaed from New York include semiconductor equipment manufacturer Brooks Automation (Nasdaq: BRKS) and healthcare-benefits firms Caremark Rx Inc. (NYSE: CMX) and UnitedHealth Group (Nasdaq: UNH).

The Securities and Exchange Commission (SEC) is getting into the act, too. Yesterday, SafeNet said it's been asked for documents as part of an "informal inquiry" from the SEC. Vitesse, apparently under a full-blown inquiry, said the agency has asked it for documents dating back to Jan. 1, 1995.

These investigations appear to be probing the possible back-dating of certain stock options, a practice that can wring extra profit from shares by matching the option date with a stock's low point.

In Vitesse's case, an internal investigation into the options matter has uncovered issues related to the company's earnings reports as well. That's led to three executive firings earlier this week -- of the CEO, CFO, and former CFO -- and the possibility of earnings restatements. (See Vitesse Execs Get the Axe.)

Vitesse wouldn't be alone. Brooks recently reported it may restate earnings reports as far back as 1999.

SafeNet and Vitesse both say they plan to cooperate with the SEC and U.S. Attorney investigations.

— Craig Matsumoto, Senior Editor, Light Reading

lpskeptic 12/5/2012 | 3:53:39 AM
re: Options Scare Hits SafeNet, Juniper WSJ Article yesterday says that Juniper, Broadcom and CNET are also at risk for being investigated
c_headed 12/5/2012 | 3:53:38 AM
re: Options Scare Hits SafeNet, Juniper There's a pretty easy way to check. Look at any company's proxy statements under 'Option grants in lastest fiscal year' and compare to the exercise price of the grants to the price at which the stock traded during the year. If it looks too good to be true, it probably is.
Pete Baldwin 12/5/2012 | 3:53:37 AM
re: Options Scare Hits SafeNet, Juniper There's a pretty easy way to check. Look at any company's proxy statements under 'Option grants in lastest fiscal year' and compare to the exercise price of the grants to the price at which the stock traded during the year. If it looks too good to be true, it probably is.

c_headed is right, and it looks like folks are doing just that. Another company that's been mentioned in a report elsewhere is F5.
DZED 12/5/2012 | 3:53:35 AM
re: Options Scare Hits SafeNet, Juniper If any company should be on the list its Bookham.

With the gift of enormous amounts of reserved stock to its execs, massive pumping of its stock price and subsequent scaling back of its forecasts there has to be something worth investigating.
RLAA 12/5/2012 | 3:53:34 AM
re: Options Scare Hits SafeNet, Juniper IMO, its all a pure stock options play. May be back-dating was going on, but making this a big event/news just on option expiration was planned ahead. I don't think it was coincidence. Option back-dating was going on for a while (sometime in year 2005) and it didn't happen during last few weeks/months.
ironccie 12/5/2012 | 3:53:34 AM
re: Options Scare Hits SafeNet, Juniper You can't trust a guy with a crooked smile. The muscles in the face are controlled by the mind.

IronCCIE
bruinjoe 12/5/2012 | 3:53:31 AM
re: Options Scare Hits SafeNet, Juniper You are right about Bookham. They have got to be one of the worst optics company still in business.

<<
If any company should be on the list its Bookham.

With the gift of enormous amounts of reserved stock to its execs, massive pumping of its stock price and subsequent scaling back of its forecasts there has to be something worth investigating.
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