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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?"
It's no wonder some companies cook their books. Sometimes you're damned if you do and damned if you don't.
I'd really hate to see Red Hat take a huge hit from something stupid like this.
This is freaken sad. SCO has not been investigated by the SEC by Redhat was? My tax dollars at work.
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.
I wish , just once.. a company I owned stock in would restate their books in a positive manner... ie: oops, we forgot to count that extra 200 million worth of revenue.
That'd be a pleasant change.
From reading the submission blurb it seems that those impeccable white knights on horse just made a mathematical error (must've been using an older kernel) and the resulting slump is pure emotion by the investors.
Well, it's not. RedHat's Q4 2003 earnings are now $0.02 instead of $0.03 which is either a 33% or 50% reduction, depending on which way you count, and the stock fall represents just portion of that.
Also, even after fall, Red Hat trades at 133 P/E, which is way overvalued even for this sector (MSFT, for example, is at 40.59).
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.
Isn't it just grand how thousands of very intelligent geeks spent countless hours creating and improving Linux and Red Hat, and now a bunch of doughy, pasty-faced vultures at "Goodkind Labaton Rudoff & Sucharow LLP" will rake in an assload of cash from this?
God, I really hate the American legal system.
RedHat was following the rules (particularly the ones about switching auditors), and their new auditors convinced them to use a slightly different accounting method for their subscription accounting. It looks as if their previous accounting method was not neccesarily incorrect, flawed, or false - just different.
How is it that someone can bring a class action lawsuit against a company for changing their accounting practices from one one allowed method to another allowed method?
"Great men are not always wise: neither do the aged understand judgement." Job 32:9
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.
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 isn't the typical "ooops, we recognized all the revenue of that 5-year contract this quarter" shin-an-igans that you typically read about - this isn't that huge of change - as referenced in the article, take a look at the restatement table and the net income/loss per share hardly changes.
Hulk SMASH Celiac Disease
Then damn news broke on 2004/07/13. It is now 2004/07/14. A one day delay is very good for /.
I patently reject your characterization of me as an "ambulance chaser." I am one of the many investors who lost significant amounts of money in redhat stock,
.com bubble bursting, not a trivial restatement of earnings. The only thing you can claim to have lost as a result of this is today's change in price.
Waah. I bought in on the day it opened at about 50, got out of half of it at 300 (pre-split), and kept the rest. The paper losses are a result of the
But, by all means, please do sell while it's undervalued, I'll be buying up your shares. Any lawsuit here is strictly driven by greed, either yours for not knowing when to get out (welcome to the stock market, it's gambling, deal with it), or (ahem) somene else's greed in trying to hurt the competition.
Class-action suits against a company for mickey-mouse bullshit is repulsive. If the company was actually doing something sleezily financially bad (eg enron) or dumping arsenic in the public water supply, then these class-action suits are deserved. But suits merely because of stock-price slippage are pathetic. I bet you wouldn't give 2 shits if the same tactics you decry redhat of have earned you money. But since you lost, you can't blame yourself, you're too smart to have made a bad decision. Yeah, blame redhat.
It's asshats like yourself that have destroyed the society and culture that used to exist in the West. Now companies first priorities are their investors, not their customers nor their product. It's pathetic, and that's exactly the reason why all prime-time TV is the same and sucks, why restaurant chains and consumer food companies use shoddy unhealthy (but cheap) ingredients (eg high-fructose corn syrup and MSG), etc. Because the companies have to look after your ass because you invest in them.
I think if you invest in a company, you should that company and have to bide by it's decisions. If those decisions make the stock go down (as long as it's ethical) than tough shit. Now the lawyer in you is probably defining 'ethical' to mean whatever takes care of investors the most. If you are thinking that, then you REALLY are a lifeless asshat that is destroying our society.
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.
Take a look at the dates on the announcements... less than a day from the RedHat announcement of their changes to the announcement of the class-action lawsuit. Hardly enough time for a law firm to investigate and decide if the case really has any merit, I would think.
Even if the case has merit, that doesn't change the fact that the filing of the class action suit happened incredibly quickly... so quicly, in fact, that there's a reasonable question as to whether it was filed because they firm thought they would have a strong case, or if it was filed because the firm though there was a possibility that they might have a strong case.
...suing a company that has all its intellectual property assets under the GPL. Are the lawyers going to try to get their fees from Bob Young's enormous collection of Tux plushies?
Which they only did because the SEC was coming after them, and they didn't want to go to jail. Oh thank you redhat.
Actually, their auditors recomended they restate their earnings, and they did.
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
Wow, where was your name mentioned in the article? Seems you're taking something personal that was in no way directed at you. Unless you're a lawyer, you can't be an ambulance chaser.
"Give a man fire, and he'll be warm for a day; set a man on fire, and he'll be warm for the rest of his life
The particular law firm is a new one on me, usually these are done by that scumbag Bill Lerach in San Diego.
"Strike suits" are a basic fact of life for public tech companies. In fact, it kind of proves RH is growing up.
The idea is that any sudden movement of a company's stock, in either direction, is actionable because the company presumptively withheld information that impaired the public's opportunity to either profit or avoid losses. Eventually the lawyers quietly get paid huge $$$ to go bother someone else.
It's just ridiculous that judges even let this garbage into their dockets. Welcome to America.
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.
Redhat's P/E is an amzing 125.
autopr0n is like, down and stuff.
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.
If you were stupid enough to sell for less than what you purchased the stock for, that's your own problem.
This is insightful? Give me a friggin break moderators. Have you ever invested in the stock market before? If you buy the stock and the price starts to go down, you have a choice -- if you think it's going to go down more, you can limit your losses and sell. If you think it's going to go back up, you ride out the bad times. Sometimes you make the right choice. Sometimes you make the wrong choice. Calling someone stupid for selling a stock for less than what they bought it for is ridiculous. What's stupid is holding onto that stock, when all indications are that it will never rise again, just because you don't want to sell at a loss. And from looking at RedHat's stock profile since its IPO, it looks a bit unlikely that RedHat will ever again achieve the highs it once hit.
Sounds like me that they decided the booking for their system was out of kilter for one month and just adjusted the entries back by one. Unforunately, it is the ignorant masses that do not understand it; they caused the price drop. Personally, I would see this as a sign that they wanted a more strict book keeping, which on the face of it sounds like responcible accounting behavoir. Take basic accounting and you'll quickly realize there are many complex issues and multiple ways to be "right."
My two cents,
Bel, the mostly sane.. "Of course I can't see anything! I'm standing on the shoulders of idiots." -- Me
... you can sue anybody for anything. It doesn't mean you'll win."
I like to repeat that saying to myself when reading about lawsuit X, which I heard from a very successful personal injury law firm leader.
IANAL, but it seems to me that this public admission of change from one acceptable accounting practice to another should help things blow over; we'll likely see this case dismissed.
It also strikes me as odd that they'd put out a press release about their shiny new lawsuit without a plaintiff.
Earnings statements are done within the US tax code. There is no one on the face of this earth that knows everything in that abortion. It's huge, with a hundred years of crap that never got deleted, and it changes every single year. It is impossible for the IRS to keep up with all of it, why should anyone be surprised if a mistake is made?
It's time to junk the whole thing and go far a flat rate with no loopholes, for individuals and businesses. It would end the cottage industry of lobbyists, lawyers and accountants that make a fortune translating, modifying, and manipulating the mess.
Professional Politicians are not the solution, they ARE the problem.
My advice: grow up.
Sometimes you lose money on a stock. Sometimes you make money on a stock. That's true for everyone.
But everyone doesn't go crying to a lawyer every time they have a problem. Only a certain kind of person does that -- not the good kind.
I suggest if you really want your money back, you should just go rob a liquor store. As you point the gun at him, you could explain to the clerk that you're doing it because you're a victim of a small disagreement in corporate accounting methods.
Or you could earn it, like -- well, like a grown-up.
You know why RHAT fell so hard? Because I bought a few shares just a few weeks ago. Whatever stock I buy, the behavior is the same - it goes down the drain really quickly.
Now if RHAT pays me a million bucks I'll dump the stock and their problems may go away. Or they may not.
Just because people here think that Red Hat is a good company doesn't mean that Red Hat is held to a lower standard. An earnings restatement is an earnings restatement. If they did wrong they should suffer the paint that other "restaters" have felt. Subscription accounting models are very difficult to account for and have caused problems for many in the past.
All they effectively did was change a "YY/MM" field to "YY/MM/DD".
Get over it.
"I'd rather be a lightning rod than a seismometer." -Ken Kesey
ambulance chaser
n. Slang
1. A lawyer who obtains clients by persuading accident victims to sue for damages.
Does a class action civil lawsuit equal a "lawyer who obtains clients by persuading accident victims to sue for damages?"
Isn't it just grand how thousands of very intelligent geeks spent countless hours creating and improving Linux and Red Hat, and now a bunch of doughy, pasty-faced vultures at "Goodkind Labaton Rudoff & Sucharow LLP" will rake in an assload of cash from this?
Naw.
There are a number of sleazebag outfits like "Dewey, Sooem, and Howe" who file class action suits every time a stock takes a major dive, and advertise for some (possibly former) stockholder to sign on as lead plantif. (Expect several more before this is over.)
Usually what happens is they get before a judge and get pitched out on their ear. Occasionally the company screwed up, in which case they MIGHT get some judgement - of which Dewey et. al. split a big chunk and a bunch of stockholders maybe get pennies per share. It's like playing the lottery, for law firms with some small-change time on their hands.
They almost never get anywhere. But when a whale truly IS wounded the shark's chunk is SO big that every time there's blood in the water the sharks circulate in hopes of a feed.
Red Hat will no doubt slap these guys down in due course - at which point you will see a small note in the stock's news page. That's part of why corporations keep at least one attorney on staff. Partyl to make sure they stay squeaky-clean - partly to lead the coutner-attack when somebody says they're dirty.
Bantam Dominique roosters crow a four-note song. Once you've heard it as "Happy BIRTHday" you can't NOT hear it that way
If you have yum. I swear to god... I did a fresh install, pointed yum at the appropriate mirror, and did a dist-upgrade. The only thing it didn't fix was the /etc/redhat-release still being used in the /etc/issue* banners.
THIS THING CAN TURN ON A DIME, MACROSSZERO STYLE ALSO FUCK BETA, ~NYORON
that the stock price dropped not because of the SEC filing, but primarily because of the lawsuit brought against them AFTERWARDS.
THIS THING CAN TURN ON A DIME, MACROSSZERO STYLE ALSO FUCK BETA, ~NYORON
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?
I'm not sure why they're sueing Red Hat since the plaintiffs are the stock holders of Red Hat and the defendant is Red Hat which is owned by the stock holders. The only one who's going to profit from this are the lawyers.
EvilCON - Made Famous by
How exactly is this suit supposed to "help" the shareholders? Isn't the company OWNED by the shareholders? The lawyers are essentially suing the shareholders, then, right? Sounds like the lawyers are just looking to fatten their wallets.
This kind of biased editorializing that has been pointed in the past but why not point it out again: I don't remember the anti-MS California class action attorneys being labeled "ambulance chasers." What bothers me more though is just any old lawyer being called an ambulance chaser. Sharks, maybe. Ambulance-chasers, no. It reminds me of when people call liberals "terrorists" because they are anti-war. I don't care if you think they are bad because they are anti-war, but don't use some irrelevant word. Same thing goes here. Ambulance chasers are laywers that solicit clients soon after personal injury. Anyway, it doesn't look like the class has been certified. It could be this case goes nowhere and it doesn't even cost RH that much (relatively). (Don't mod me troll because I mentioned lawyers, liberals, and M$ in the same post :P)
You know, that'd be a great name for a rock and roll band.
I think if you go, for example, to finance.yahoo.com and poke around, you'll find that pretty much any time a publicly traded company restates earnings, class-action suits follow. They usually also fade away without much fanfare.
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.
So did the "Ambulance Chasers" send Taco a threatening letter about ajs calling them names?
--
"Outlook not so good." That magic 8-ball knows everything! I'll ask about Exchange Server next.
It is pretty sad that some greedy lawyers are looking to cash in on this small change in accounting. Coincidentally, I do not believe that either method of accounting for this revenue is incorrect and certainly not illegal. No wonder so many companies continue to maintain bad accounting practices, changing them for the better will get them sued.
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.)