Optical/IP Networks

SEC Steps Up Sonus Probe

Sonus Networks Inc. (Nasdaq: SONSE) put a halt to its recent run of positive news last night by announcing that the Securities and Exchange Commission (SEC) has launched a formal investigation into its financial statements (see SEC to Probe Sonus).

Until now, the SEC's investigation, which began after Sonus announced an independent review in February of its financial statements for periods in 2003 and 2002, has been informal (see Sonus Drops a Bomb). That investigation has delayed the filing of the company's reports for the fourth quarter of 2003 and the full year 2003.

Since then the softswitch vendor has sidelined its CFO and extended its review to cover prior periods (see Sonus Redeploys CFO and Sonus Extends Financial Review). Sonus says the issues being investigated relate to the timing of revenue recognition, and not whether the revenues should be recognized at all.

Now, though, the SEC probe is formal. So what does that mean? According to an SEC spokesman, an informal investigation is when the SEC is acting upon "an indication that rules may have been broken." A formal investigation is launched if SEC staff have what they consider real evidence that regulations have been breached.

At that point, the investigators request further time and resources from the Commission to step up the probe and determine whether any rules have actually been broken. It also gives the enforcement team the right to use subpoenas to complete the investigation, says the spokesman.

Other than the brief statement announcing the investigation, Sonus declined to comment further on the SEC activity.

The vendor, which faces delisting from the Nasdaq, also announced that it has been given a further extension by the Nasdaq Listing Qualifications Panel, to July 19, to file its annual report for 2003 and its report for the first quarter of 2004 (ended March 31). But Sonus warned that it might not meet that new deadline.

Having closed down 39 cents to $4.17 yesterday, Sonus's share price has recovered by 42 cents, or 10 percent, today to $4.59. Its 12-month high is $10.

Sonus has been making significant customer progress lately as operators ramp up their VOIP activities. (See Sonus Solutions Chosen by Qwest, Global Crossing Praises Sonus, Interoute Rides Europe's VOIP Wave , and Softbank BB Picks Sonus for VOIP.)

The vendor was also cited as a market share leader in specific carrier VOIP equipment segments by Synergy Research Group Inc. and In-Stat/MDR. Both firms ranked Sonus as number one for high-density VOIP media gateway port shipments in the first quarter of this year, while Synergy also had Sonus at the top of the pile for VOIP media gateway port shipments covering all densities.

— Ray Le Maistre, International Editor, Boardwatch

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