updated 6/29/2006 3:32:03 PM ET 2006-06-29T19:32:03

More U.S. companies have become entangled in the controversy over suspicious timing of stock option grants to top executives. Several disclosed this week that they are under scrutiny by federal authorities.

In expanding investigations, at least 51 public companies are under scrutiny by the Securities and Exchange Commission or the Justice Department for possible manipulation of options grants to boost their value to the recipients.

The investigations are meant to determine whether insiders at the companies — many of them in the technology sector — rigged the system to increase the likelihood that executives would reap huge windfalls.

Under the practice, the options are backdated to an ebb in a company’s stock price instead of pegging the exercise price to the prevailing market value at the time of the award.

Stock options become more valuable as the market price rises above the exercise price, so backdating fattens the recipient’s profit.

This week:

  • Foundry Networks Inc., a maker of computer network switches and routers, reported Tuesday that its stock options awards had become the subject of an SEC inquiry and that it also had received a subpoena from Justice Department prosecutors.
  • Computer chip supplier Rambus Inc. warned Tuesday that some of its previously reported profits might be erased because the timing of stock options granted to its employees wasn’t properly recorded — a problem that could affect scores of other companies as they review their past options-granting practices. Rambus has been conducting an internal review of its stock options awards.
  • Cnet Networks Inc., VeriSign Inc. and Cyberonics Inc. disclosed Tuesday that they had received subpoenas for information about their stock option awards from federal prosecutors. Cyberonics, a maker of medical devices, is said to have granted options to top executives in June 2004 shortly after it received positive news certain to boost the share price. Cyberonics has called the assertions of unusual timing made by a Wall Street analyst “inaccurate and without merit.”
  • Macrovision Corp., Asyst Technologies Inc. and Linear Technology Corp. reported Wednesday that they had received Justice Department subpoenas.

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