Human Capital & Careers

Electronic Arts Facing SEC Inquiry

Options granting practices at EA invites SEC scrutiny, while Sycamore Networks restates based on incorrect options accounting.
Stephen TaubSeptember 21, 2006

Electronic Arts said the Securities and Exchange Commission has requested certain documents and information related to its stock option grant practices dating back to 1997. The video game maker stressed it intends to cooperate with the request.

In July, EA said a review of its stock options data going back 10 years found no evidence of backdating or springloading.

The company also announced in a regulatory filing that a shareholder derivative complaint filed by a plumbers and pipefitters pension fund alleging improprieties in EA’s issuance of stock options, has been dropped after the court last week dismissed the complaint. No compensation was paid by EA to the plaintiff or its attorneys, and each side has agreed to bear its own attorneys’ fees, it added.

Meanwhile, Sycamore Networks said it will restate financial statements for certain prior fiscal periods to reflect the effects of additional non-cash stock-based compensation expense. As a result, the data network equipment maker said the financial statements for fiscal years 2003 through 2005 and interim periods in fiscal 2006 should no longer be relied upon.

The company, which has a $1.1 billion market capitalization, elaborated that while an internal investigation is ongoing, it has reached a preliminary conclusion that the appropriate measurement dates for financial accounting purposes of certain stock option grants differ from the recorded grant dates of such awards. Sycamore also said it has not yet determined the amount of additional non-cash charges for stock-based compensation expense, nor has it determined the resulting tax impact, if any, or which specific periods require restatement. However, it does not anticipate a “material adjustment” to its historical revenues, non-stock option related expenses or cash position.