SEC charges 3 in Sycamore stock options backdating case
Trio agrees to pay more than $650,000; firm will not be fined
Federal officials yesterday charged the former chief financial officer of Sycamore Networks Inc. and another former executive with fraudulently backdating employee stock options in a recurring abuse within one of the state's best-known technology companies.
The Securities and Exchange Commission also charged Sycamore, a maker of telecommunications equipment in Chelmsford, with financial reporting violations, including making false and misleading statements related to the options.
Frances M. Jewels, Sycamore's former finance chief, and Cheryl E. Kalinen, once Sycamore's director of financial operations, agreed to settle the charges without admitting to or denying the allegations, as did a third former employee, Robin A. Friedman, once Sycamore's director of human resources, whom the SEC alleged helped mislead Sycamore's auditors.
The three individuals will pay more than $650,000 in combined penalties, including $450,000 from Jewels, the SEC said, and accept restrictions on future work.
Jewels, for example, will be barred from serving as an officer or director of a public company for five years.
Jewels's lawyer, Michael Gardener, said in a statement, "She is pleased to have this behind her without any need for litigation."
Through her lawyer, Kalinen declined to comment.
A lawyer for Friedman did not return messages.
Sycamore is led by two stars of the local technology scene: chairman Gururaj "Desh" Deshpande and chief executive Daniel E. Smith, neither of whom were cited in the SEC findings. The pair founded Sycamore in 1998 and took it public a year later with an astounding valuation of $14.4 billion. Within months, the stock hit a peak of $189 a share.
But the company's shares later fell to earth along with those of other technology firms, and its leaders have since kept a lower profile.
Sycamore also agreed to settle the charges against it without admitting to or denying the SEC's claims.
The company had previously restated its results to account for about $250 million in extra stock-option expenses - costs that reduced shareholders' equity. Sycamore executives had blamed the practices on Jewels and others.
"We are pleased that this matter with the SEC is now concluded," Smith said in a statement.
The SEC said Sycamore cooperated in the investigation and would not face fines.
The Sycamore case is part of a broad investigation regulators launched into the technology industry's practice of liberally awarding employees stock options, which are rights to buy shares at set prices. Studies have shown that many companies picked a low point in their stocks' trading history and used that as the grant date for the options, benefiting the recipients.
The practice can be illegal if it isn't disclosed to investors. Sycamore is the 14th company to face charges by the SEC over options practices, and the 10th to settle.
At Sycamore, the SEC said, Jewels and Kalinen allegedly "falsified or caused others to falsify various company documents, including grant approval lists, grant agreements and other records reflecting option grant dates," in order to boost the value of the options they were distributing. In some cases they benefited personally, the SEC said.
At one point, for instance, the SEC cited a memo that Kalinen sent Jewels in January of 2001 or so that "contemplated the falsification or alteration of certain company records" by outlining actions needed to backdate the grants of various employees.
"Investors rely on public companies and their executives to tell the truth. The defendants broke the law and breached investors trust," said David Bergers, head of the SEC's Boston office. "This case sends a strong message that lying to the public and to auditors will not be tolerated."
Ross Kerber can be reached at kerber@globe.com.
