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Red Hat Vs. The Lawyers
ajs writes "On July 13, Red Hat announced that they would be re-stating their revenues for the last 3 years. This sent a shock-wave through their stock price, but early analysis seems to indicate that it's not that big a deal (the end-result is the same for a given contract, but it will be counted toward a different month). But then the really bad news hit. [Opportunistic lawyers] are taking this opportunity to punish Red Hat for reporting the change and the resulting drop in price. Red Hat is doing well, but can they weather major class action law suits without harming the business? How have other technology companies dealt with this sort of suit?"
Nows the time folks....buy up
lick the cancle button (at least thats what our Chinese QA says)
But it appears that the crux of this case is that Red Hat must prove that the mis-stated earnings were the result of an honest mistake, not intentional fudging (*cough* Enron */cough*).
That makes it sound simple, but Red Hat will still have to fork out enormous legal fees to win this case, or settle with the firm (hereafter referred to as "ambulance chasers" or "greedy bastards") and fork over cash that way.
Red Hat is probably in a better position to handle this than most Linux companies (with the obvious exception of IBM), but it has already hurt their stock price, so we'll just have to hold tight and see.
If my answers frighten you, stop asking scary questions.
Rad Hat has annual revenue of less than $150 million. And a market cap just south of $3 Billion. A price/sales of 20. I'm sure Red Hat is a good business, and will continue to grow, but they have to grow a lot to justify that price. And since much of their revenue is for service, their costs will grow as their sales grow (in contrast to Microsoft's Windows monopoly, which requires very few marginal expenses for each sale). Nice company, can't imagine their stock will be much higher in 5 years.
People don't like to be lied by management when they invest their money into the company, and people will launch lawsuits when they deem something inappropriate had been done.
I suppose some of 'em will, but this holder of a non-trivial number of shares of Redhat stock, sees this as a ploy by an external hostile force (the lawsuits, not the restating, obviously). As such it pisses me off more than it makes me want to take part in such a lawsuit.
If there's a class-action lawsuit, I will take the proceeds and dump it right back to Redhat, in the form of subscriptions or straight donations. The P/E ratio isn't relevant to the fact that some sleaseball lawyer, probably in Redmond's pocket, is making a stink about this.
That having been said, it's a true sign that you're succeeding when your competition feels threatened by you. Sleep well, Bill... the penguin is gonna get you.
Red hat is being sued by its own investors, what do they hope to get out of it? Their own money back... If the share price is now lower than when they purchased their shares, and Red Hat have to write the legal battle off as an expense then the money these investors hope to gain back would be much less than if they just sold their shares and walked away.
Case of cutting off your own nose to spite your face!
I think the Motley Fool article is right. The drop in the stock price makes Red Hat a good buy right now.
The downside is the frivolous lawsuit. In the end RH should prevail, but it will spend a pretty penny defending itself. I'm all for class-action lawsuits when they are appropriate. This one against RH is not.
Tort reform is one of the few issues where I side with Republicans. Fair implementation is going to be the hard part.
This country has a lot bigger problems than lawsuits, asshole.
Bush. Cheney. Environmental Destruction. Pointless War. Most other nations Hating our Guts. Religious Right trying to destroy any concept of civil liberties. Lack of focus in battle against terrorism. Deficits. Inadequate Education System.
So go fuck yourself and your tort reform.
The argument is that SCO misrepresented it's IBM lawsuit in various public statements, in order to give the impression that it was about "owning Linux", when it's really mostly a contract dispute.
Of course, the SEC isn't going to do anything about it until SCO loses the lawsuit, by which time it won't matter.
OTOH, RedHat didn't do their accounting correctly, which is something the SEC can come down on right away.
About a month ago, Red Hat suddenly lost their CFO. Immediately thereafter, they pre-released earnings in order to cushion the blow. Now we find out two things: (1) the day before the CFO left, their auditor complained about their accounting practices, and (2) they recently received a request for information from the SEC. They didn't announce either of those facts during their extraordinary earnings release or at any time since then.
Like it or not, those are both material facts. No, the accounting change isn't all that significant, and yes, most SEC audits turn out fine, but that is irrelevant. They did things to prop up their stock price, and didn't publicize all the news, limiting themselves to the better news. To the extent that they propped up their stock price by selectively releasing only positive informaion, they're in violation of their fiduciary responsibility to their shareholders.
Blaming the ambulance chasers for Red Hat's misbehavior is like blaming Janet Reno for Microsoft being held in violation of the Sherman Antitrust laws. Just like MS, Red Hat did this to themselves; the attorneys are just doing their jobs by trying to hold crooks accountable for their crimes.
For all you whining asshole Republicans:
ARLEN SPECTER (R - PA)
Detailed Contributor Breakdown
2000 ELECTION CYCLE
Goodkind, Labaton et al $7,600
Open Secrets
And before you get all smarmy, yes, they gave to Democrats, too. But Alren Specter didn't turn their money down, either.
Microsoft held back signifigant portions of their Windows 2000/Office 2000 era earnings in a "cookie jar" that was supposed to level out revenue after the dot com bubble burst.
Which also cheats investors - the ones who had and sold stock that DIDN'T go up - or didn't go up as much as it should - because Microsoft understated their earnings. Investors are trading stock all the time, and while investment is not zero-sum a market distortion reified by a transaction during the distortion IS. It helps some investors by hurting others by defrauding them out of their money. Even if NOT reified by a transaction it may have produced an opportunity cost - as someone held stock they could have liquidated for more money to sieze some other opportunity.
There are tight rules on this.
Managers believe that investors like stocks that show steady upward growth rather than a roller-coaster revenue chart - even if the area under the roller-coaster is much larger. So some of them try to even things out by pushing parts of windfalls into the next quarter, rather than taking it when it comes and creating future expectations they can't meet.
My preference would be to take the money and run - then in the post-report conference call tell the analysts that's what we did, what the numbers WOULD have been if we'd fudged, but that if another windfall happens (and we don't get beaten up in the market THIS time) we'll take the money and run again because it's stupid to leave it on the table. Then the analysts can set reasonable expectations for the next quarter.
Bantam Dominique roosters crow a four-note song. Once you've heard it as "Happy BIRTHday" you can't NOT hear it that way
Here's a little Google exercise for you:
Find out how many signers of the Declaration of Independence were lawyers.
Now look up those who signed the US Constitution.
Yep, more lawyers than any other single profession.
Here's another question:
What did Republican President Abraham Lincoln do for a living before he was elected to public office?
(I'll give you a hint -- it wasn't splitting rails.)
I worked at C-Cube, makers of the first MPEG video decoder chip, in the late 90's. It was great fun and it looked like I was going to make a fortune on my stock options.
Then the organized short sellers hit. Then the class action law suit. The stock tumbled. My options went under water. I made nothing.
Watch out Red Hat. These soul sucking vultures can destroy your stock price and your company. Your CEO will waste so much energy dealing with this distraction that your core business will suffer. Next employees will start leaving. It is a downward spiral.
It happened to me. My advice, take this threat seriously. Good luck.
First, my opinion is that Red Hat is coming back from this hardship nicely. They are doing an excellent job of determining where their holes in product lines are and filling them.
;-)
I was one of the very vocal opponents of Red Hat dropping their standard distro in favor of Fedora, but I have largely changed my mind.
The only real issue is that one of my RedHat servers is running 7.x because Red Hat 8 had a glibc bug that prevented one of the programs from working properly, and upgrading to Fedora is going to be *tough.* I wish they made it easy at least to upgrade from RH9 to Fedora (Hear that RedHat?).
Now regarding this lawsuit, the SEC, etc. I find it encouraging that they are stating that the SEC must *review* (not *investigate*) their accounting statements. In other words, the SEC must probably approve the changes.
OTOH, the investigation into SCO so far looks more serious. It seems plain that the SEC is conducting a mostly secret investigation, as evidenced by the reports of Baystar being investigated for their involvement. In otherwords, the review of RedHat's papers is routine, while the investigation of SCO is serious stuff.
Yes, this is your tax dollars at work, and they are working pretty well
LedgerSMB: Open source Accounting/ERP
Whoa dude, hold up on that clue thing for a minute.
Do a google on that law firm. Then come back and tell us they're not "ambulance chasers".
And read the press release again. There hasn't been anyone harmed here. That law firm is looking for some patsy to put their name on their trumped up charges.
I've got to ask you, how is someone harmed if the price of a stock dips? I tend to look at that as a good thing since it allows me to purchase more stock for my money. Was someone forced to sell their stock at a loss here?
. Quit playing Monopoly with Bill. Switch to one of many non-Microsoft products today.
Ambulance chaser is a nice reference. I'd call them blood sucking, company killing, socialist bastards or worse. They deserve it. By the way, VP candidate Edwards is one of those blood sucking trial lawyer types that suck the blood out of our country. Very cocky sucker! He hasn't even done one term in the senate and he runs for President. Please wait while his mother changes his diapers. Lots of foul odors coming from him. Or maybe that stench is from Kerry.
I just don't get it. With fedora, I'm getting the same deal I was getting with the distro when it had redhat slapped on the label. I get a full OS, the price is right, in my case a few bucks plus shipping, and free security and enhancement updates. When I am stuck on something I go look on google. When I had a boxed set with RH on the label, it cost me 60 clams, and I got free security and enhancement updates. The only difference is I got some redhat stickers and a dead trees version of the manual. When I got stuck on something back then I went and looked on google. I have a better distro with more stuff than two years ago, and it costs me less, so I should be mad at redhat and..huh?
You make money from free software primarily by using that software in your other, *real* business, building/selling/servicing widgets.
Redhat got two versions,one sorta free kinda,and one really really free,and it actually costs them to provide it. One for businesses who are theoretically making enough money using computers somehow to be able to pay a fee for the "pro-commercial" version, and another one for hobbiests and enthusiasts who agree to help out and help develop and look for bugs, etc. Seems reasonable to me.
I don't see what the big negative deal is really. Either version works, the pro version has a different and more tweaked server and some other doo-dads obviously, but you get more support. The really free version has everything you need as well, just somewhat different, I mean apache is apache and whatnot. The money has to come from someplace. I think they made the right move, to both stay in business and keep getting better, and to offer the most to the most people for the most purposes (and most budgets to boot). It's not perfect, but what is?
Yes, but nobody in financials gives a shit about P/S, because P/S can be huge while a company is tanking.
P/E is the ratio people actually use. While grandparent may have correctly stated what he was talking about (P/S ratio), his attribution that RH's is good is a loaf of crap.
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Mod me down, you fucking twits. Go ahead. I dare you.
(I read with sigs off.)
I recommend reading most anything on his home page. You won't agree with all of it, but he gets you to think, and you have to admire his spirit.
The company went public in 99, and the revenue restatement is for three years. This means that, in their opinion at least, they were not hyping their revenue potential during or following the IPO. Realize that there's a difference between saying "we can achieve X" and "we have achieved X." One is forward looking, and the way the market was going then, who knew? At least, it was acceptible to think that way. The other, though, is booking revenue that a reasonable audit would show is probably unavailable, either because of rebating, non-paying customers, etc, and then continuing to do it for three years.
In my opinion, good, let the lawyers sue them (even if I do like RHAT), but not because they were hyping their stock.
Read jack phelps dot net
So did the "Ambulance Chasers" send Taco a threatening letter about ajs calling them names?
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"Outlook not so good." That magic 8-ball knows everything! I'll ask about Exchange Server next.
Here is what I sent to them, for curiosities sake. If I get a reply, I will post it as well:
I would like more information regarding your action against Red Hat. As a share holder, I find it a bit confusing as to what prompted this action. The restatment makes little to no difference on their bottom line, as the did not misreport any erarnings. The restatment merely takes the number from one column and moves it to a different columns. The dip is stock price is due to the market's normal reacivity to announcements of this sort, from any company whatsoever.
As a shareholder, and as someone who is qualified as part of this class, I find it odd, and a bit disconcerting at the speed at which this was filed. I dare say that no one actually came to you asking for a mass tort suit, but here it comes anyway. Sadly, your firm seems to me to be nothing more than opportunistic lawyers intent on making a large fee from the settlement of class action suits.
Of course, I could be wrong, and I always stand waiting to change my opinions of people and situations, should an incontrovertable arguement be presented to me.
Therefore, my challenge to you, is to convince me otherwise. I have read the documents you have provided regarding this case, but have yet to be convinced that I should join this venture. As I see it so far, the only people who really benefit from litigation of this nature are the lawyers themselves, with the many plaintiffs recieveing a paltry share of the settlement.
So please, enlighten me. Convince me. Change my mind. That is my challenge to you. Are you up to it?
"Our funds have never taken part in toxic or death spiral convertible financings of any sort" -BayStar's managing partne
The title of this article was "Red Hat vs. The Ambulance Chasers" yesterday, now it is "Red Hat vs. The Lawyers". Since when did /. start worrying about being politically correct. Many of these comments are about the title containing Ambulance Chasers, now they seem irrelevant.
"Anything is possible with enough programmers, time and pizza." (Substitute caffeine for time as needed.)