The number of companies involved in a widening federal investigation into the timing of stock-option grants grew Monday, with Seattle-based F5 Networks added to the list.

F5 Networks, which makes products to manage network traffic, is so far the only Seattle-area company named in the investigation. But more than a dozen companies nationwide — from high-flying technology names to a pharmacy-benefits manager — have received inquiries from the U.S. attorney in New York or the Securities and Exchange Commission (SEC) seeking details on how they grant stock options to executives.

The companies are being targeted for juicing up the payoff of stock options by backdating their grants to coincide with a point where the stock prices had dropped to lows.

The practice, if proved, meant executives were able to reap profit as their companies' stocks rose well above the options' exercise price. Not only have some corporate officers ensnared in the investigation lost their jobs, but a former SEC head and other corporate-governance experts project the inquiry could create a firestorm on Wall Street.

F5 Networks said Monday that it received a grand-jury subpoena Thursday issued by the U.S. District Court for the Eastern District of New York requesting documents related to the granting of stock options from 1995 through the present. F5 was incorporated in 1996 and went public in 1999.

On the same day, the company received notice that the SEC was conducting an informal inquiry into its stock-option grants and requesting documents related to the granting of stock options from Jan. 1, 1997, through the present.

Company spokeswoman Alane Moran said Monday that the company intends to cooperate fully with both requests.

UnitedHealth Group is the biggest company to be enveloped in the investigation, saying in a statement last week it was subpoenaed by the Department of Justice. Most of the others that have acknowledged being targeted were technology companies; besides F5, they include networker Juniper Networks and semiconductor-equipment maker KLA-Tencor.

The fact that at least 20 companies already are involved "indicates more of this went on than anyone could have imagined," said former SEC Chairman Harvey Pitt.

The federal probe comes amid heightened scrutiny of executive compensation — which includes everything from hefty pay packages to lifetime use of the corporate jet. It also comes when still fresh in investors' minds are names such as former Tyco International CEO L. Dennis Kozlowski and Enron's ex-Chairman Kenneth Lay.

The SEC is poised to make the biggest changes in rules governing disclosure of executive compensation since 1992. Under rules now being completed, companies could be required starting next year to detail in annual filings the total yearly compensation for the chairman and the next four highest-paid executives. The true costs to the bottom line of their pay packages, including stock options, would have to be listed.

Legal experts say it is still uncertain if the practice of backdating is technically illegal, but they predict it will become a priority for the SEC as it looks into executive compensation.

"CEOs in these cases are playing cards with a stacked deck; it's an egregious breach of trust," said Charles Elson, director of the Center for Corporate Governance at the University of Delaware. "The number of companies we've seen so far, I fear, is the tip of the iceberg. Who knows how far this investigation is going to spread, what companies are going to be targeted."

Beyond just regulatory problems, the practice of backdating stock options could cause many of these companies to restate earnings if improper stock-based compensation is on the books. Further, those that engage in the practice could face a wave of class-action lawsuits claiming companies violated disclosure laws by not reporting it, and executives breached their fiduciary duty.

"We're definitely going to see action against these companies on behalf of the shareholder, and there will be regulatory action, and Congress might even have to step in," said Lowell Peterson, a lawyer with Meyer, Suozzi, English & Klein, who specializes in compensation and labor issues. "I had no idea it was quite so blatant. It's pretty remarkable ... chutzpah is the technical term."

Representatives of both the SEC and U.S. Attorney's Office in New York would not comment on the investigation, which was prompted by a series of Wall Street Journal articles beginning in March.

This story is based on information from Associated Press reporter Joe Bel Bruno; the F5 information was provided by Seattle Times business reporter Kristi Heim.

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