Accounting & Tax

Sycamore Suit Cites CFO Backdating Role

An HR executive contends that the ex-finance chief instructed him to change employees' hire dates so that they could receive stock options with low...
Helen ShawJuly 12, 2006

A former Sycamore Networks human resources executive asserted in a lawsuit that the company often backdated stock-option grants and that the company fired him because he wouldn’t comply with the backdating.

In a wrongful-termination suit against Sycamore, former HR director Stephen Landry claims that shortly after he was hired in October 1999, Frances Jewels, the ex-CFO, instructed him to change employees’ hire dates so that they could receive stock options with lower strike prices, according to The Wall Street Journal. Landry asserts that when he refused, he was replaced.

Jewels resigned from Sycamore as finance chief in 2004. Her attorney, Michael Gardener, declined to comment on the lawsuit for the Journal.

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Landry also informed company executives about the existence of an internal memo that mentions options grants to multiple employees, includes instructions to change the start dates of specific employees for options-granting purposes, and characterizes the risk of discovery in an audit for each action, according to the newspaper. The memo is being used as evidence in the lawsuit.

The backdating of stock options, the practice of assigning an option grant date from the past during a time of lower share prices, has prompted the Securities and Exchange Commission and federal prosecutors to investigate the options-granting practices of over 50 companies. Backdating, when not properly accounted for and disclosed, is an illegal practice that can artificially boost employee compensation.

After he was replaced, Landry continued to remain with the company as an adviser and was promised a $10.8 million employment agreement and severance package. He claims that the agreement was terminated in June 2005, partly because he complained about Sycamore’s stock-option practices.