It can be one hectic job running a technology company. Busy, busy, busy.
How could you come to any other conclusion after reading the official story from Sycamore Networks Inc. about its $216 million stock option backdating problem? No one at the top had any idea it was going on. For years!
Sycamore, a Chelmsford company that makes optical-networking equipment, is just one company among more than 200 struggling to investigate and ultimately explain evidence the dates on stock option awards were altered or otherwise rigged to make the perks more valuable. There is no shortage of cases here in Massachusetts, but the scale of Sycamore's case may turn out to be the state's largest.
Sycamore described its investigation Tuesday in a press release about expenses that will be charged to its financial statements to account for backdating problems between 2000 and 2007 though the company said almost all the damage was done by summer 2004. An investigation by the board's audit committee pinned nearly all the blame on the former chief financial officer and a few underlings, all of them gone today. If this story line rings a bell, you may be remembering similar backdating investigation developments at Apple.
Sycamore went out of its way to say no member of the current management team knew anything about improprieties. It goes on to point out that the founders, chairman Desh Deshpande and chief executive Dan Smith, never received any Sycamore stock options.
A Sycamore spokesman said yesterday that no one from the company was going to talk further about option backdating and referred me to its earlier disclosure.
It takes a healthy imagination to get your head around the idea that none of Sycamore's current executives had any idea what was going on. First, there is the $216 million, a big number that's hard to miss in any company. That's a noncash charge, numbers on a financial statement that won't cost the company any real money. But it's a good yardstick to measure Sycamore's substantial option backdating problem. No microscopes required.
Second, there is the idea that a small group of people directed option backdating on that scale and kept it a secret inside the company for their own reasons. Possible, perhaps, but that imagination can come in handy.
Looking back, circumstances at Sycamore made the company an ideal candidate for option backdating. The stock went through an enormous boom-and-bust cycle as soon as it went public in 1999, coming out at a split adjusted price of $12.67 and climbing to nearly $190 within months before crashing into single digits a year later. Option values could change dramatically by moving dates forward or backward on a piece of paper.
Sycamore was a hot company in a very hot field, selling the hardware to rebuild telecommunications networks for a high-speed age. Competition for talent was a big issue. When more than 200 companies, most of them technology businesses, investigate option backdating, you get a good feel for the recruiting and retention standards of that time.
Smith and Deshpande didn't hold any options, as the company notes, because they already owned so many millions of Sycamore shares. That stock made them instant paper billionaires, several times over. They had substantial professional and financial interests in the success of the company and the managers recruited to work there. Neither was divorced from the effects of option backdating.
Sycamore's investigation is done, but the Justice Department and Securities and Exchange Commission are still looking at the company. Perhaps they'll tell a story that doesn't require so much imagination.