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Thursday, June 22, 2006 - Page updated at 12:00 AM

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Investors suing F5 on dating of stock options

Seattle Times business reporter

F5 Networks faces three shareholder lawsuits alleging its top executives and directors defrauded the company and its shareholders by receiving millions of improperly backdated stock options.

The suits were filed in the weeks since allegations of opportunistic options timing have rocked Seattle-based F5 and dozens of other U.S. companies.

The three suits name co-founder Jeffrey Hussey; director and Chief Executive John McAdam; the five other directors on F5's board; and several current and former officers.

A company spokesman did not respond to a request for comment on the suits.

F5, which makes hardware and software designed to manage Internet traffic, has acknowledged receiving a subpoena from a grand jury in New York state regarding its option programs, as well as a notice of an "informal inquiry" from the Securities and Exchange Commission.

While differing in a few details, the three suits share the same basic contention: that F5's officers and directors colluded to "backdate" stock options — that is, list them as being granted on different dates than they actually were.

Those dates, the suits allege, were picked to coincide with low points in F5's stock price — giving the recipients a guaranteed profit and allowing them to pay less to exercise the options than they should have.

"In a striking pattern that could not have been the result of chance, nearly each and every one of the ... option grants was dated just before a substantial rise in F5's stock price," one suit claims.

"In addition, with the exception of five option grants, each of the dates selected was at the lowest price level during the trading week in which the options were granted," it says.

Although the executives and directors profited from the backdated options, the suits claim, F5 itself has sustained "millions of dollars" in damages — from additional compensation expense and tax liability to the cost of restating its financial reports and complying with the investigations.

The suits seek to force the executives and directors to give up their options profits and reimburse F5 for its damages, along with other unspecified remedies.

One suit, filed by Burien law firm Emerson Poynter on behalf of Glenn Hutton, was filed in U.S. District Court in Seattle on May 31.

The other two, filed by Sammamish attorney Clifford Cantor on behalf of Marilyn Adams and John C. Wright, originally were filed May 23 and June 12 in King County Superior Court but were removed to federal court.

Cantor said he's considering whether to challenge the relocation.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com

Copyright © 2006 The Seattle Times Company

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