Optical switching vendor Sycamore Networks said it will restate $215.6 million after an audit of the company's stock option grants revealed that the company's former chief financial officer deliberately altered option grant dates. (See Sycamore Completes Audit.)

Sycamore's internal investigation had been going on for about a year. The audit began in earnest in June 2006 after the SEC commenced an investigation into the company's stock option grants during calendar years 1999 through 2001. (See Options Probe Spreads to Sycamore.)

The 2006 investigation is actually the second investigation Sycamore has launched into its stock option practices. [Ed. note: You can never have too many.] A 2005 investigation led to a stock option expense of $33.8 million that was erroneously accounted for in calendar years 1999 through 2001.

According to the company's statement, the most recent investigation included a review of more than 1.8 million pages of documents and an examination of 5,100 stock option and restricted stock grants made since the company's inception in 1998. The restatements cover fiscal years 2000 through 2007, with 97 percent of the expense relating to the period through the fiscal year ended July 31, 2004.

That means the altered option grants took place under the watch of then-CFO Frances Jewels, who stepped down in October 2004. According to company filings, she collected $218,000 in salary and an additional $120,000 bonus that year. [Ed. note: What's in a name?] (See Sycamore Replaces CFO.)

In July 2006, Sycamore's former human resources director filed wrongful dismissal charges against the company, claiming he was forced to resign in October 2000 because he wouldn't backdate option grants. The former employee, who was identified as Stephen Landry by the Wall Street Journal, included as evidence internal memos discussing ways that Sycamore staff could manipulate stock option grants. (See Sycamore Slapped With Options Suit.)

Sycamore claims that all individuals responsible for the option backdating have left the company, and no current members of the management team or Board of Directors knew of the stock option irregularities before the 2005 investigation.

With the investigation ongoing, Sycamore has been subject to delisting from the Nasdaq due to delays in filing its quarterly and annual earnings reports. (See Sycamore Granted Stay, Sycamore Receives Notice, Sycamore Gets Extension, and Nasdaq Warns Sycamore.)

Now that the audit is out of the way, Sycamore intends to file its earnings release for the fiscal year ended July 31, 2006 "as soon as practicable." The filing will include restated results for the years ended July 31, 2005 and July 31, 2004, with the additional restatement of selected data for fiscal years 2003 and 2002.

— Ryan Lawler, Reporter, Light Reading