Before he joined F5 six years ago, McAdam was operating chief at
Sequent Computer Systems
, a data-system developer in Beaverton, Ore. In four years at Sequent, McAdam had the good fortune to receive some suspiciously well-timed stock-option grants -- just as he has at Seattle-based F5.
Sequent's federal filings show three of McAdam's last five option grants were dated when the stock was at a monthly low. In one instance, a grant was dated Oct. 28, 1998. That was just prior, as luck would have it, to a big November run-up.
In reply to a request for comment from McAdam, an F5 representative says: "John cannot comment on this, nor can anyone else, including attorneys."
Web switch maker F5 caught Wall Street's attention on May 18, after a JPMorgan analyst's report
showed that six of 10 executive option grants were conveniently dated at the stock's monthly low.
The next week, F5 became one of the first companies to get snared in the widening backdating investigation. On May 23, F5 said it had
received a grand jury subpoena and notification that the
Securities and Exchange Commission
was conducting an inquiry into its options practices. Dozens of companies have received similar notifications.
Regulators are probing instances of options backdating, and related accounting and disclosure practices, to see
whether investors were defrauded. The suspicion is that executives and directors backdated options grants to reduce strike prices, handing option holders bigger gains.
Last month, F5 said it
discovered a discrepancy in the timing of at least one option award date. As a result, the company wasn't able to report earnings for the June quarter. It said it plans to restate results from fiscal 2001 through the first two quarters of fiscal 2006.
F5 shares have fallen 40% since March, putting them below the $49 they fetched when McAdam joined the company in July 2000.
The options mess at F5 isn't the first brush with scandal for a company with McAdam in the executive suite.
While McAdam was president and chief of operations for Sequent, the company found itself in hot water over a mysterious order. According a
1999 story by
, an order that was shipped by Sequent on the last day of the first quarter of 1999 wasn't actually placed by the supposed customer.
Instead, the order -- valued at $15 million to $20 million, according to the report -- was shipped from Sequent's headquarters to a Portland, Ore., warehouse. The equipment was then shipped back to Sequent three weeks later without ever leaving Oregon, the paper reported.
A Sequent representative told
the shipment, supposedly destined for a customer in Maryland, was never booked as revenue. But a well-timed big order could help save an otherwise difficult quarter -- and at the time, Sequent's business wasn't going so well.
Though inventory was rising and gross margins were narrowing, Sequent managed to squeak out a 6% year-over-year sales gain in the first quarter of 1999. But that all changed in the second quarter, when sales plunged 39% from year-ago levels. Sequent claimed takeover speculation led to about $50 million worth of canceled orders.
The controversy around Sequent's orderless shipment faded when
agreed in July 1999 to acquire Sequent for $810 million.
But other questions seem to have followed McAdam north to Seattle.