Sycamore Slapped With Options Suit

Sycamore Networks Inc. (Nasdaq: SCMR), already under investigation for its stock options history, will "vigorously contest" legal action taken by a former employee whose wrongful dismissal case against the optical vendor includes allegations of stock option back-dating, according to a document filed with the Securities and Exchange Commission (SEC) . (See Options Probe Spreads to Sycamore.)

The document, dated July 10, notes that a former employee has filed a complaint in Massachusetts state court claiming wrongful dismissal, and that the complaint includes allegations that Sycamore engaged in fraudulent and deceptive practices.

The former employee, identified this morning by the Wall Street Journal as former human resources director Stephen Landry, claims he was forced to quit the company in October 2000 and, according to the SEC document, "was induced to not exercise his options as a result of alleged false and misleading statements."

At press time, Light Reading was unable to obtain a copy of the lawsuit. Stay tuned for an update.

Landry's lawsuit also "alleges claims relating to certain of the Company's stock option grant practices in 1999-2001. The complaint seeks lost wages, unspecified monetary damages and reinstatement of medical benefits, among other things."

According to the WSJ, the evidence filed with the court includes an internal company memo that allegedly shows that Sycamore staff discussed ways in which they could manipulate the dates of stock option grants so that they coincided with low share price points. One way to do that, according to the memo, was to consider altering the date an employee joined the company.

Sycamore "believes that it has meritorious defenses to the complaint, intends to vigorously contest this action and intends to file counterclaims, as appropriate," it states in its filing.

Sycamore also disclosed that it has also been named in three separate shareholder lawsuits that allege wrongdoing related to the back-dating of stock options grants. One of the lawsuits also alleges insider dealing by Sycamore executives.

A Sycamore spokesman says it's not the company's policy to comment on matters related to litigation.

The company's stock is down 13 cents, more than 3 percent, at $3.81 in pre-market trading this morning.

Sycamore is just one of a number of companies under investigation for alleged back-dating of stock options. (See Marvell Joins Options Fun, Redback in Options Probe, Foundry, VeriSign in Stock Option Probes, and Feds Call on Juniper.)

— Ray Le Maistre, International News Editor, Light Reading

pedrosanchez 12/5/2012 | 3:49:02 AM
re: Sycamore Slapped With Options Suit waiting for your smug response on these allegations.
Honestly 12/5/2012 | 3:49:01 AM
re: Sycamore Slapped With Options Suit This guy will be exposed for what he is. Sour grapes. People will do anything for money and revenge. Take the time to study SCMR's 10kia and what is public knowledge on all of this. The management team has not had an option grant in 8 years.
In the end I bet SCMR is as clean as a whistle, just look at public records.
optiplayer 12/5/2012 | 3:49:01 AM
re: Sycamore Slapped With Options Suit "waiting for your smug response on these allegations"

Here is my response, its up to you to judge if its smug or not.

There is not enough info in the WSJ piece to fully assess the level of wrong-doing at SCMR. Clearly the Zaval options were back-dated which is bad. The question is who knew about it.

The other cases cited are not examples of back-dating but unauthorized re-pricing for low level employees. Clearly dishonest and illustrative of poor oversight but not particularly noteworthy.

I would like to know more about Landry's allegation that he was asked by the CFO to change dates (and hence strike prices) for other (unnamed in the WSJ piece) employees but refused. This would help determine if D&D were complicit in this stuff of if the CFO was unilaterally doing favors for her favorites in her organization. If it can be proven that D&D were complicit then they should go.

I still see a distinction here between SCMR and say CMVT (and other companies caught up in this). At CMVT the CEO (who was also a founder and made 100s of millions from his founders stock) was deliberatly back-dating his options to increase his compensation - pure greed. At SCMR, I don't believe D&D ever were granted any options let alone back-dated options (all their stock is derived from $$ they invested in the company at its founding). This is a clear distinction.
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