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Sycamore Hit With SEC Probe

The Securities and Exchange Commission (SEC) is investigating networking company Sycamore Networks, the Chelmsford, Mass.-based firm announced.

The government probe into executive stock options is just the latest in a string of accounting inquiries hitting the tech industry.

The SEC investigation centers on stock options Sycamore granted company executives from 1999 to 2001, according to a statement.

Sycamore said it restated financial results for fiscal years 2000 through 2004, as well as the first half of 2005, after an internal investigation.

"The company has and will continue to cooperate fully with the SEC regarding this matter," Sycamore said.

The SEC has targeted a number of companies regarding how they issue stock options to executives. The investigations center on whether company stock options are backdated prior to a market rally, which could increase the value of the stock.

In its federal filing, Sycamore noted it has changed how it accounts for such options.

The change "requires us to account for share-based compensation granted under our stock plans using a fair value-based model on the grant date and to record such grants as stock-based compensation expense. As a result, our net income and our earnings per share have been and will continue to be significantly reduced and may reflect a loss in future periods," according to the filing.

Although restating its financial earnings between 1999 and 2004 cost the company $33.8 million, Sycamore still showed third quarter profits of $10.5 million, up from a $12 million loss a year ago.

Income also rose to $22.9 million, up from $17.8 million, in 2005, according to the company.

A Sycamore spokesperson would not comment.

A raft of government queries surround the practice of some companies. As Sycamore announced it was under investigation, Boston-based American Tower Corp. said Tuesday it received a subpoena from New York federal prosecutors.

The company said the probe revolves around stock options.

As a result of the subpoena and an internal investigation launched last week, American Tower is suspending its stock option program until its review is complete.

In related news, Qwest Software said it also would begin an internal review of its company's practice of issuing stock options.

Last week, Robert Davis, executive vice president and CFO of troubled CA became the latest to leave the company beset by one of the worst accounting scandals. In February, CA's CEO plead guilty to fraud.

And WorldCom finance head Scott Sullivan was sentenced last year to up to 25 years in prison for his role in what has been called the largest accounting scandal in the U.S.