Updated from 3:05 p.m. EST

Siebel Systems'

(SEBL)

aggressive use of stock options is coming under fire from an institutional investor.

In a lawsuit first filed in September, the Teachers' Retirement System of Louisiana charged that Siebel failed to properly account for about $22 million in expenses for stock options given to CEO Tom Siebel and President Paul Wahl in 1998 and 1999 with exercise prices below the market price at the time they were granted.

The TRSL, which holds $11 billion in assets, recently amended that suit, alleging that CEO Siebel certified financial statements under the recently enacted Sarbanes-Oxley Act that were false because the company did not account for the options expense properly.

"

The plaintiffs think that Siebel is a terrific company," said Stuart Grant, the attorney handling the case for the Louisiana group, on Wednesday. But "they

Siebel have a major problem about being addicted to options and handing them out like candy."

In a statement, Siebel defended its use of employee options. The company noted that its stock has returned roughly 700% to its public shareholders since Siebel went public in 1996 -- growth the company said was largely attributable to its broad-based employee stock ownership plan.

Siebel said charges that it has not properly accounted for its stock option grants or has filed inaccurate certifications with the

Securities and Exchange Commission

are "absurd and without basis in fact." Siebel said two similar claims brought against the company in 2000 were promptly dismissed.

The company also denied the suit's specific claims. "All outstanding stock options at Siebel Systems have an exercise price per share equal to the fair market value of the company's stock on the date of the grant," the company said in a statement.

But in a note Wednesday, Heather Bellini, an analyst at Salomon Smith Barney, said Siebel granted its CEO options on 2 million shares with a split-adjusted exercise price of $4.91, while the shares closed at $8.48. Siebel also received a grant of 4 million options a year later at an exercise price of $40.53, while the shares closed at $42, Bellini said. And she wrote that Wahl received options on 2 million shares at a split-adjusted exercise price of $9.61 when shares closed at $12.56.

Bellini figured those options should have led to a total charge to deferred compensation of $19 million to be amortized over the 10-year vesting period. That number is based on the difference between actual closing price and exercise price multiplied by the number of shares granted.

Bellini said the company took a deferred compensation charge in 1999, but she is unclear whether it relates to the options granted to Siebel and Wahl, and she is awaiting more answers from the company. Bellini has an in-line rating on Siebel, and her firm hasn't done banking business with Siebel.

"While this will certainly put pressure on the stock at the open, we believe it warrants more digging," Bellini said in a note. "We are awaiting more commentary from the company, in particular on the stock option grants that were issued below fair value in 1999."

In 2001, with IT spending plummeting, Tom Siebel gave up his salary and opted to receive only options. He currently holds 68 million shares of common stock and options totaling 45.6 million shares, including 23.7 million that are exercisable, according to Bellini.

Shares of Siebel inched down 3 cents, or 0.3%, to $7.66 in recent trading.

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