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A 'Witch Hunt' in Silicon Valley
garzpacho writes "BusinessWeek Online has an interview with Daniel Warmenhoven (CEO of Network Appliances), who joins a growing list of technology executives in saying that the government's search for backdated options among tech companies is going too far: 'It's become a witch hunt. I think the government is looking to find some egregious examples [of wrongdoing] and to publicly hang people for them. That's fine. But where does it stop? I'm not saying the past practices were all good. But I thought the SEC's role was to build investor confidence. What they're doing right now is destroying it, and I don't see the purpose. They're penalizing today's shareholders for events that occurred five years ago. But who is this protecting, exactly? With Enron, every shareholder in the company lost money. The same with Qwest, and with MCI-Worldcom. But I don't know who the injured party is here.'"
If these people commited crimes - they need to pay. Fuck em.
I hope high gas prices are depriving your children, you fucking dumbass.
Do you even lift?
These aren't the 'roids you're looking for.
'It's become a witch hunt. I think the government is looking to find some egregious examples [of wrongdoing] and to publicly hang people for them.
If they've done wrong, even in the past, shouldn't they have to answer for it?
Seems reasonable to me, should seem very reasonable to those who place their trust in and money at risk with the stock for these enterprises.
As always, those who have done nothing wrong and keep good records have nothing to fear.
A feeling of having made the same mistake before: Deja Foobar
This is about making trades fair. Why should the privaleged few be the ones to make bank while everyone else takes a huge loss? Look at Martha Stewart. She is really great at her appeals to emotion. "Oh wo is me because I'm under house arrest and I had to serve jail time"(paraphrased of course). The point is that nobody should be let off the hook for doing things that the SEC specifically prohibits. Once people understand that they will be prosecuted to the full extent of the law, invester confidence will rise. We will be confident that finally those privaleged few might be too afraid of the reprocussions to go around screwing us small guys.
When will you get your due? Why does the world stack itself against you and scorn your creative ways of taking money from investors and lining your pockets?
I cry for your predicament! Worry not, hell hath no wrath like an MBA wronged!
Yeah, wake me up when we go a solid week without gross examples of cronyism, boards not doing their jobs, and investor fraud. Then do it again for a whole year, then we can complain about the "witch hunts". Instead I'm guessing there's a lot more stuff to uncover. In fact, the louder they complain, then the more there is. If they didn't have anything to worry about, well, there'd be nothing to complain about.
Hey, I'm just your average shit and piss factory.
This guy is an executive?!
Backdating means that the strike price on your option is less than it should be. The 'strike price' of stock options is generally the price on the date the option was granted. If the option is backdated to a date when the stock price was lower, then that extra money comes out of the company's profit, and, thus, out of the shareholders' pockets. Instead of rewarding execs for increasing the stock price in the future, backdating rewards them for increasing it in the past. You can argue that they may deserve the extra. However, hiding the compensation in a stock option intentionally misleads investors.
The injured party is the mope (or market) that the executives sold their stock to. The injured party is the rest of the shareholders. I mean, this is stupidly simple math.
It was illegal when it was done. It was clear that it was illegal. It was (for the most part) hidden very much on purpose. It is very clear what was going on and why they thought they could get away with it.
If the SEC prosecutes all of these instances, than my faith in the market goes up, not down.
"If you want to improve, be content to be thought foolish and stupid." - Epictetus
Ever notice that, any more, any time any investigation into anything is started, someone comes out declaring it is a "Witch Hunt"? It seems to be the easy-out everyone tries to use when things start to get too hot. I swear I've heard it like 4 or 5 times in the past year or so, in public statements to the press by lawyers for defendents, and by other potentially biased parties such as this guy.
Also, the guy says that the purpose of the SEC is to build confidence, and he wonders how the investigation builds confidence? What a moronic question. That's like saying that the police "hurt the publics confidence" in the safety of their community by investigating crimes? I mean, wtf? We all know crimes are committed all the time. Having the police actually investigate, and then arrest people builds my confidence far more than a police department that tries to *pretend* no crime is actually happening.
Oh the poor, poor CEOs of public companies...will the suffering never end?
The facts pretty much speak for themselves. Anytime a public company is allowed to fudge, manipulate, obfiscate, distort or just plain lie about publicly required financial disclosures with impunity, they will. It's a numbers game and if it pays to screw people while enriching the big shareholders, then it becomes "a business decision". Wall Street has very little integrity. This is why the SEC and public interest groups (including shareholder rights suits) are important. They make the greedy bastards have to work harder to screw us. At some point, hopefully, it will become financially more profitable to just run a clean company.
I don't see one reason why any public company cannot document options transactions including dates and how they were calculated. Five years ago is still pretty recent and well within the seven years that you're supposed to keep most business records.
What would be more satisfying is to see those who do abuse the public trading system actually do hard time for this.
But I thought the SEC's role was to build investor confidence. What they're doing right now is destroying it, and I don't see the purpose.
Wait, let me get this straight-- by making sure everyone is playing fair, the SEC is destroying investor confidence? Where's this guy from? Bizarro world?
The theory of relativity doesn't work right in Arkansas.
you broke the law. pay the consequences. boo-fucking-hoo. if you don't want to get in trouble, don't break the law. its not that difficult[1] people.
[1] offer only avaliable to rich land-owning white males, thank you drive through.
Since when do they need a purpose, exactly? They are investigating potential violations of the LAW. Obey it or leave! If your business was committing unethical practices, you deserve to pay for that, regardless of the consequences.
A burglar doesn't get tried because it's convenient, they get tried because they broke the law.
"But I don't know who the injured party is here"
Well that should be obvious - it's the shareholders. If executives weren't fiddling the dates over share options to make more money, the shareholders would probably get more money in dividends, a higher stock price, shares in a company without a damaged reputation and possibly a company with more money too. All these should be incredibly obvious to someone who's spent more than 2 seconds thinking about it.
Video Game cheats, hints a
But I don't know who the injured party is here
Well, the shareholders are, that is, the owners of the company, if you had forgotten. Giving a stock option is fine, backdating it is plainly getting money out of the coffers of the company and into the hands of employees. That's also fine if the shareholders accept it, but they didn't.
About the witch hunt, it's based perhaps in the SEC being fed up with ever-more-ingenious schemes to divert money into the hands of the executives, said schemes devised by the executives themselves. Of course now there are not failing companies, like with Enron, because the economy is doing all right. But Enron crashed during a small recession. Let's see what the next recession bring. Then perhaps many of those back-datter companies will fail, the executives retire rich and the stockholders start asking questions, some of the to the SEC.
In a word, if they want to reward themselves, let them do it, but in an open way, that's all the shareholders and the SEC ask. And only fear of criminal prosecution will do it, because they'll certainly have no fear of money fines.
Rome taught me patience and assiduous application to detail. Virtues which temper the boldness of great, general views.
They are talking to an executive who joins a growing list of other executives who have raked in millions upon millions and are now scurrying like cockroaches when the light is shined on them. Meanwhile they tell the rank-and-file to keep their heads down 'cause their jobs just might go to India and market company stock to the public as though it were just another product.
I work for a small company and I can say that if I hid stuff from the owner the way these guys do I'd be out the door in no time.
It's high-time that shareholders were treated like the owners they are. If he "doesn't know who the injured party is" then he should talk to the shareholders of the companies that are having to restate earnings to account for their misdeeds.
~~~~~~~
"You are not remembered for doing what is expected of you." - Atul Chitnis
In a lawful society, laws need to be enforced - this goes triply against non-human entities like corporations. If more laws were enforced maximally, we'd see better laws (public would not put up with bad laws nearly as much if they were not used mostly to harass poor/minorities) and we'd have less lawless behavior.
Corporations do whatever they can to make money, and we need to keep this in check by actually enforcing the laws that govern them. If there is to be leniency, well, that is why we have judges - they get to make the final call.
But I don't know who the injured party is here.
Come on, that's really disingenuous. To be clear, these investigations are not into backdating stock options for high-ranking execs, which is almost always a legal practice. The investigations deal with backdating stock options, and then not doing the required public reporting that the backdating occurred.
In many cases, this is like sliding a six or seven figure check under the door to these employees, and then refusing to account for it in your statements on executive compensation.
The injured parties are clearly shareholders, who are being lied to about the actual compensation levels for senior management. Shareholders have the right to know if execs are being compensated fairly for their performance, or if money that could be paid out in dividends is in fact sneaking its way back into the CEO's hookers-and-coke fund.
Wasn't the practice of backdating options was a subtle admission that the stock prices in the 90's were meaningless? It's basically a statement that "today we grant you this option, but we know that our investors are too stupid to figure out the legitimate value of our company and so we'll give you whatever silly valuation this month is most favorable to you." After all, if the stock price is really determined by the value of the company then it is highly unlikely there will be significant changes over the course of a single month.
Sadly, when the board is found to have defrauded and misled investors by doing things like this, the penalty for it, most often, is to fine the company, i.e. its investors.
We don't have a mechanism to make the executives responsible for the deception pay for it. Instead we force the shareholders, who've already been duped, to pay the penalty.
Mmmm.. Donuts
...Not one example is given in this article of how far the 'witch hunt' has gone. But a lot of opinions on why the witch hunt should stop are given. If executives have nothing to hide then why fight the investigation. And given the light of recent wrongdoings it makes sense that an investigation exists.
In a print edition of the Wall Street Journal, they had (think it was D1, but the cover of one of the inside sections) a fairly lengthy article yesterday, and another lengthy one on Saturday (the weekend edition), on how Sarbanes-Oxley and back-dated options are in fact serious problems and most of the CEOs and senior execs who were so upset at options expensing being a balance sheet cost for tech businesses later turned out to be the people using back-dated options to steal money from the shareowners of the company.
So, you may call it a witch hunt. I'll call it going after employees who steal from me, thank you very much.
-- Tigger warning: This post may contain tiggers! --
Every crook on trial says: "What good is this doing? We can't undo what happened in the past. This doesn't help anyone."
... even genocide. And it's logic can't be challenged, as long as you forget every principle of criminal justice, such as deterrence and punishment.
Applies to murder, armed robbery, mugging, theft (which is what the back-daters did)
My heart goes out to these poor guys; thieves, never knowing if it will catch up to them. Here's an idea that might satisfy everyone: What if they gave the money back? Then the crooks would feel better, the victims would feel better, and the judicial system would probably be very lenient. I wonder why Warmenhoven doesn't suggest that, instead of suggesting that the government let them walk away?
But I don't know who the injured party is here
Is this a serious question? Not only does the difference between strike price and grant price come from company profits but the options also increase the number of shares outstanding -- which further dilutes the profits per share. The SEC has addressed the disclosure of options but yet, companies still dole them out left and right. At the expense of the OTHER shareholders (ie: you and me)
I am astounded that this 'executive' asks such a stupid question. And yes, it is a STUPID question for anyone who has taken more than 1 finance class. Methinks there is more to this story than his 'innocent' question.
Sorry for the vitriolic return, but this guy needs to go work for startup tech companies for a six or seven (as an *engineer*, not on product managment). Survey a few who've hopped from one shining star to another, just to see the star fall, and the options agreement screw the folks who build the products that make these companies fly (for the year or two they exist until the Bad Things start happening). If you've ever worked in the roller-coaster startup industry, you know what I mean by the Bad Things. Like when the investors and your C*O's start getting into political warfare, and the layoffs start, or the Wierd Policies begin. Then, when new rounds of funding come in, and everyone's options are diluted, the engineering staff is always assured that theirs will be "evened out" or they'll be "squared up".
Bullshit.
What we see again and again is execs doing what they can to take care of number one. The company I'm with now is the first one in my life that I've worked at where I feel like I'm being told the (basic) truth, and some of the principles have a personal stake (read, $$$) in the future of the company. Even then, the value of our options is essentially fictional until we Go To Market with our product, or we are Acquired.
This crap is rampant... no doubt CEO's are crying about it, and it's just like BusinessWeek to fly that flag.
When I grow up, I want to have Christopher Walken hair.
Clean up your books, give all your extra personal cash to Bill Gates, and the government will forgive you for a generous bribe... uh, donatation... to the Republician National Committee.
"But I thought the SEC's role was to build investor confidence. What they're doing right now is destroying it, and I don't see the purpose. They're penalizing today's shareholders for events that occurred five years ago. But who is this protecting, exactly?"
But you thought wrong - it's the option backing dating that is destroying investor confidence. The SEC is in place to insure a level playing field and play by the book. If you cheat and the staute of limitation hasn't expire, the SEC is obligated to bring charges. I do hope that all excutives that cheated share holders by back dating forfeit their option gains (in total) and pay a fine.
Sadly, when the board is found to have defrauded and misled investors by doing things like this, the penalty for it, most often, is to fine the company, i.e. its investors.
... like oh, a certain Enron CEO.
We do, actually, have a method of dealing with this, in fact, quite a few.
One, is a civil trial for theft. With awarded damages (treble in this case, as I recall, due to Sarbanes-Oxley).
Second, is federal or state fines for the CEOs and execs who steal the money from the shareholders.
However, I should point out that more than 80 percent of the CEOs and execs who steal the money and are fined, never pay the fines.
Or, in the case of some, they pretend to die of a heart attack after a visit to an island famed for zombie drugs, and after much money had disappeared overseas in numbered accounts
-- Tigger warning: This post may contain tiggers! --
There must be some mid-term elections coming up. Lord hemp us.
...is to build investor confidence?
Wow, and here I thought it was a regulatory agency, not a marketing agency.
Pax -- Ob
I'd have a lot more respect for them if they'd turn their guns on the cooked books Congress and the President are keeping.
The same could be said for all the Sarbanes-Oxley (aka "SOX") crap. It's supposed to protect shareholders, but instead, it's costing companies millions of dollars. Where does all that money come from? Out of the bottom line. Who gets hurt? The shareholders.
... instead of just guessing what they're supposed to do, paying a 3rd-party auditor to come in and guess what they're supposed to do, and then finding out in the end that they spent millions and still did the wrong thing. :(
I'm not saying they should just cover their eyes and say "Second set of books? I don't see any second set of books.", but SOX sucks and needs to be reformed. Maybe next time around, they could actually spell out what they want, so companies might be able to comply
"Who's the injured party here?" Pot smokers ask that question all the time. The answer that comes from the Judge is "Well, thats the law."
"The SEC is supposed to increase investor confidence" since when? And if they do they do it by ensuring compliance with the rules, by assuring that accounting practices are legal and fair.
To answer that idiot, the injured parties are the stockholders, the people who paid a bonus based on bogus dating of stock options. The injured people are the consumers who paid inflated prices based on imaginary performance. And the injured parties are the people who didnt get to keep the money that these scamming fatasses are now in posession of.
It is moronic to act like these "slightly funny deals" dont hurt anyone and that by ignoring them we save others more pain and torment. Ever hear a squeaky bearing? It's a sign of a problem. It does not go away. Eventually the wheels fall off the wagon. In this case if we dont put a stop to people taking unwarranted value out of these companies then the companies have to fold. This is because the economy is a limited pool. There is a finite total value of everything. If they keep finding ways to steal it at the top and hoard it eventuaslly there will be nothing left at the bottom. So who does stock option backdating hurt? Well, it hurts you. And it hurts me.
When someone hurts me I want to see them hurt in return. I nhope these stock option manipulating bastards go straight to the deepest darkest pits of federal pound 'em in the ass prison.
There it is. Right there in black and white. Here is one of the core issues that continues to be a problem for many of us railing against Boards not doing their jobs and holding executives accountable. Bad numbers. Poor operations. FANTASTIC pay package for the CxO's and directors. We all know it goes on. We have all seen it. And yet, nobody ever admits to it.
Quote: "He said "I'm just tired of being a CFO," and he's as pure as the driven snow. He said, "I'm tired of going to conferences and speaking with investors and always feeling like I'm guilty of something." He said all the fun was gone. So I put him on the board. He used to work for me. Now I work for him."
Cronyism at it's finest. Fan-f'ing-tastic. I just can't believe he put it on paper. How can anyone seriously read this and think that the board is doing it's job here?
Glad I don't own Netapp stock right about now.
Saying the SEC is investigating any company, makes investors believe there's a problem, even if the SEC clears the company the small relief from that is nothing compared to the huge drop in stock prices and confidence lose. Who wants to buy a part of a company that might be hit with an SEC lawsuit?
The fact is the SEC has no proof of any wrong doing at any of these companies, yet at the same time they publicly will talk about investigating them, a step that is known as the first step before a serious legal action is taken. The company loses, the investors who didn't hear about this ahead of time loses, and the SEC either find something or walks away, creating a world of paranoia in the companies.
This would be fine except any company that is investigated and is doing everything completely on the level gets hammered in the market when the investigation is brought to light. Now instead of buying into a company you believe is a good company, you're going to look for a company that the SEC isn't going to investigate.
Over time it's hopeful that an SEC investigation isn't an immediate tail dive for a company but for the forseeable future most investors see it as a major problem.
What's even worse is that while the companies do get screwed when the SEC does find something even when the companies, who wins? The investors lose, the company itself loses, the SEC wins, the only other winner is other companies competing with the first company. Now should they have cheated? No. But at the same time should the only winner be a third party entity that had nothing to do with the original problem and wasn't harmed by the original problem, while the victim who is mostly ignorant of it in the first place still gets nothing?
I personally say the SEC should continue to investigate large scale crime, stop attacking every business with out an idea of any wrong doing or at the very least make sure not to damage every company they want to investigate just for the sake of being impartial.
The answer is obvious. Backdating options to the lowest price point of the underlying stock is essentially paying cash to the employees receiving the options. Backdating removes all the risk.
When you pay cash from the company's coffers to the employees, you must register that cash as an expense, thus reducing the net profit of the company. However, most companies in Silicon Valley did not adjust their finance sheets to reflect the expense of backdated options. As a result, the current stock price of the affected companies do not reflect the true value of the company. The companies, in effect, are worth much less than what the long-term stock price indicates -- since backdating stock options has been an ongoing but hidden (or so the crooks thought) problem for years.
The person who was hurt by the backdating is, like always, the small investor: you and me. You can be sure that the "big boys" like the money managers at Schwab and Merrill Lynch knew what was happening since they play golf with the CEOs of most of the companies in which the money managers are invested.
After the SEC forced several companies in Silicon Valley to re-do their financial statements dating back as far as 1996, the stocks of these companies have nosedived to reflect that loss in value of these companies.
What is interesting is that the CEO complaining of a "witch hunt" is actually the head of a company purchased by Juniper. If you search the Internet for news on Juniper, you will find that Juniper has been quite dishonest in how it has conducted its business.
To the cries of "witch hunt", I say, "Burn them at the stake. Protect the small investor." Can someone please ask Elliot Spitzer, the champion of the little person, to file some lawsuits against some of these dishonest companies?
The SEC should be prosecuting Jim Allchin, Paul Allen, Steve Ballmer, BayStar Capital LP, Baystar Capital II, L.P., BayStar Capital Management, LLC, Boies Schiller & Flexner, The Canopy Group, Brent Christensen, Steven Derby, Bill Gates, Lawrence Goldfarb, Jeff Hunsaker, Steven M. Lamar, Darl McBride, Microsoft Corporation, Morgan Keegan, Darcy Mott, Thomas Raimondi, Royal Bank of Canada, S2 Strategic Consulting, Blake Stowell, The SCO Group, Inc., Vulcan Capital, Ralph Yarro, and Bert Young. for numerous crimes centered around the recent activities of The SCO Group, Inc.
A witch hunt is not a search for the guilty. Since there is plenty of guilty parties to be found. Are the innocent being charged?
I bet you would try the everyone else was speeding, therefore you should not give me a ticket.
( I here that statment earns you bonus tickets).
I hope you and RMS cashed out when the stock was worth more than a nickle.
I dont see the problem. The more people are caught, the fewer people will think they can get away with it in the future. Seems like the one and only best deterrent if you ask me
"But who is this protecting, exactly? ... I don't know who the injured party is here."
The injured party is the people you work for. Remember the stockholders? They are the people who actually own the company for which you work.
When you backdated the options and failed to report it (the key part here, backdating with proper accounting is usually legal), you stole that extra value from the other stockholders.
Just because you stole it 5+ years ago, and/or you only stole a little from each other stockholder, you still stole it.
This idiot is a disgrace to the entire tech industry. There is enough money to be made to do it honestly; if you have to cheat like that, you are both incompetent as well as dishonest.
The SEC is doing exactly right thing, and should specifically investigate this CEO and his crew.
We don't have a mechanism to make the executives responsible for the deception pay for it. Instead we force the shareholders, who've already been duped, to pay the penalty.
What about sending them to a great "Pound me in the Ass Prison?'
...the *problem* is with the bewildering array of "paper financial products" and the various schemes scams and cons used to shuffle them around. It's 99% Grade A US prime BS and has nothing to do with investing and has everything to do with skimming and running games at the top levels. Want some real stock trading honesty, bring it back to "investing"? Start with carved in stone time limits between trades, a long period, like two years minimum. Two years is an investment, two days or two hours or even two months is program trading casino action, trying to scam some cash out. Want another? Get rid of mutuals. People can't *possibly* know what's going on with various corporations they want to invest in when most of the time they don't even have the awareness to know what their names are inside a mutual, let alone the direction the companuy is taking, etc. No investment there, none, just a "dump and pray" mindset. Here's another, no options at all! Not needed. Never was. Scam. One, owning your own stock as a heavy insider is just too tempting, I mean, c'mon! Obvious beyond belief! No way they would ever be able to control insider actions then. Another-direct sales needed for all stocks. Sure, allow brokerages, who cares, but they really aren't needed. Another-dividends or else. Stocks start paying dividends after say the first five years or else-delisted, company goes bust automatically, tough crap for you. You either make it or you don't.
And so on. The system is set up to be a pure scamfest now, it no longer represents the past history of what shares meant in joining a corporation by providing funding. Simplify the rules of engagement, make it more transparent and fair, and accountability will follow. You could dump most of the laws arround stocks, institute a few saner ones, and have a much more robust market. Although you'd have to find some service for the hordes of parasitical snakeoil scammers then.
I know, automatic military draft! You'd have the immediate result of a lot less wars if the con artists and scammers and mass bulk profiteers knew they'd be going to the front if they screwed up! No jail,no fines, to the front! Gruntsville! They want a lot of that interesting "profit" from wars, as in "money has no conscious", swell! Let them go to the front and wave around a fistful of stocks and c-notes, see how that works, see if money has no conscious. If it's a computer related company who's execs get caught, swell, give them a 16 hour a day job on the floor at a lao gai factory. And so on.
to be pissed.
The Kruger Dunning explains most post on
The issue isn't that a crime didn't happen, it's just that it would depress stock prices if enforcement action were taken. How unfortunate, thats a real downer for a CEO whose performance is rated by share price, than something more tangible, like an increase in profits. These CEOs shouldn't be persecuted for crimes that they committed. I guess we are all equal, but some are more equal than others.
If the investors are so weak, that they panic at the hint of an SEC investigation, they should sell and invest in TBills. The stock market by definition is speculative in nature. The purpose of the SEC investigation is to keep investors from getting ripped off. Once you are ripped off, will never get back what you lost. If there is some collateral damage, so be it, the end justifies the means. Witch hunt? Burn a few at the stake and keep the rest of those greedy pigs in line.
For the brave investor, this could be an investment opportunity. After all the hogs depress the share price, buy stocks of good companies that are under investigation. Sweet.
Has anyone else noticed the link was that Slashdot people are making $$$ with using the campaign ID and posting fucktarded articles to make money? I'm not against them making money, but please!!!
3 23 232441 92013 27 ...
This is such a PR front by people hoping that public opinion is going to sway...
http://slashdot.org/article.pl?sid=06/08/07/18212
http://yro.slashdot.org/article.pl?sid=06/08/10/1
http://it.slashdot.org/article.pl?sid=06/08/11/14
http://slashdot.org/article.pl?sid=06/08/09/19282
http://slashdot.org/article.pl?sid=06/08/15/14825
These stories tend to be the lamest and insipid of them all... WTF? Why sell out Slashdot?
Only communists opposed the McCarthy hearings, Mr. Warmenhoven. Are you a communist? Perhaps we can work out some sort of deal if you'll testify for us.
Mr. Gingrich. They turned him into a Newt.
Mod parent up.
Summary: The injured party is the company, which in turns means the company's owner's -- its stockholders.
--Pat
SEC: What makes you think she is a witch?
Stockholder: Well, She turned my stock into a newt!!
(pause)
SEC: a newt?
(long pause)
Stockholder: It got better...
Stockholders: BURN HER anyway! BURN! BURN! BURN HER!
That seems like an odd POV. The more that you uncover and eliminate bad practices, the more confidence we'll have in the system.
It seems to me the same as saying that you can bolster peoples faith in government by ignoring corruption...
Someone should dig in, reveal and eliminate any trace of wrong-doing in business. Who are you suggesting should do this if not the SEC, and how do you suggest we enable (whoever you pick) to do this job?
I know this for a fact. I watch Fox News and they don't talk about any examples of cronyism, fraud, etc. You must be watching those liberal commie rag shows or something. The ban on options backdating is just another confiscationalist attack on wealth building. This is a witch hunt, I say, a bigoted witch hunt! The innocent women of Salem Massachusetts must be rolling in their graves at all the persecution that's going on.
[end right wing parody]
--- Grow a pair, liberals... stop letting the Republicans bully you!
Uttering logically derived and empirically supported truths to the disciples of the orthodox establishment.
The CEO sounds like a real putz throughout the article. I dunno, maybe I'm cynical.
beware the jabberwock, my son! the jaws that bite, the claws that catch!
The tone of the posts under this topic confirms that this is indeed a which hunt.
First off, the amount of stocks set aside for options is typically already known well in advance and already priced into the price of the shares. If someone exercises an option they bought at 1-cent, and sells for $100 dollars that will have the same effect on the price of the stock as if they bought options at $99 and sold them for $100.
Second off, while executives benefit from options, the people who benefit the most are employees. People are so blinded with envy over a few boys-club executives, that they are shooting themselves more than they are shooting the 'good-ole-boys'.
Third off, artificially reducing the option price would take money away from the company, but typically this price is minimal and reflected in other compensation. If a hot-shot programmer got 100K in value from 50K of options + 50K of salary, or got 100K in value from 25K of options + 75K of salary. The company and the share holders are pretty much out the same expense either way. The former actually benefits the company more because it increases the companies cash on hand that it can use for other activities.
Fourth off, noone seems to understand what's driving this, and it's not greed, but taxes. Between sales, property, state, federal, social security, and medicare eating the majority of peoples pay - it is humanly impossible to have any independent savings or any decent retirement. Now people go thru all these crazy schemes to aviod taxes that are clearly unjust and like fools we start whining about these crazy schemes. Well bullshit.
Fith, stock options are not inflationary. Over the last 5 years the Fed has doubbled the amount of money in circulation. People who have held on to dollars, or are paid in dollars have been screwed and not by the companies. They get screwed because the value of their pay gets watered down, and they get screwed because as their pay adjusts for inflation they get pushed into higher tax brackets. So then when people counter by back-dating their options - we call them thieves?, well bullshit again.
Corrected link : for numerous crimes centered around the recent activities of The SCO Group, Inc
I could get behind that. Let me know if you find ones that look like Sam or Tabitha.
.. paranoid crackpot leftover from the days of Amiga.
In Warren Buffett's 2005 annual letter to shareholders (http://www.berkshirehathaway.com/2005arn/2005ar.p df), he points out that a company with zero growth, spending it's constant profits on a stock buyback, gives holders of fixed-price options excessive returns. See page 17 for details. A quote: "Simply by withholding earnings from owners, [the CEO] gets very rich, making a cool $158 million, despite the business itself improving not at all." I did the math and (not surprisingly) Warren is correct. A CEO with an option on 1 million shares of a company with $1 billion in profits and a constant P/E of 10 on 100,000,000 shares outstanding at the time of the grant will end up with $158 million bucks even if the company STILL only has $1 billion in profits 10 years later!
As if even this isn't enough, they want to backdate the options, too? C'mon...
There is a problem with simply saying "The stockholders are the injured party"
Companies didn't have to report stock option expenses on their financials until just recently.
To make it clear: These are dollars the companies didn't ever report before. They were deemed unimportant. Only recently with the change to stock option accounting has the costs mattered to the SEC or the public.
A (poor) analogy: You live in a shared house and keep a bucket of money for misc pizza and beer. The bucket has never run out, everyone chips in and takes out as neccessary. Suddenly, someone says "I've been keeping track of who pays and takes and BillG isn't paying his fair share" Strictly speaking this is true, but since no one was keeping track, did it really matter?
Trillion dollar bet
http://www.pbs.org/wgbh/nova/transcripts/2704stoc
What did teh winners do with some of the money? Dot come boom and bust, easy come easy go.
What of the losers like worldcom and enron, to only name two?
What does mother nature and father physics say about it?
9/11
is such wrongful world economic manipulation worth punishing?
the best way to address terrorism is to deal wioth the cause, not the symptoms.
and to remove the ignorant politicians and war mongers.
Now I am opposed to the death penalty, because I know that the legal system is exremely biased and commonly produces incorrect results. Just look at the number of people (almost always poor and/or non-white) who have been cleared of rape and murder convictions becasue of DNA testing that was only avalable after their trials. Even so, we have decided, as a society, that the death penalty is just and it deters future crime. If any area needs more justice and more deterence, it is white collar corporate crime.
I am sick and tired of reading news about a corporation that has been caught breaking the law, is caught, and then pays a fine while 'neither admitting or denying responsibility.' If someone steals your car and is caught, do we let them drive the car back to your house, fill it with gas, and let them go as if nothing happened?
There is a complete disconnect between the penalties for corporate crime and the penalties for individual crime. In Califorina, there are people in jail for LIFE for stealing less then a few thousand dollars worth of property. You can't read the business section of the LA Times for a week without a story about a company that is paying a multi-million dollar fine, with no admission of guilt and no accoutability by any individual. No one faces a trial, no one is fired. The penalties are paid by the company, and there is no justice and no deterence.
You never hear about a corporate criminal going to jail unless they either drive their company into bankruptcy or cheat the IRS, and even being charged after bankruptcy is almost unheard of. This shows that the only real crime is cheating the wrong people, i.e. the government and the really big investors. When companies cheat anyone else (or each other) it's just good business.
What we should be doing is sending more corrupt corporate officers to jail for a long, long time. If you break the law to the tune of millions of dollars, you should be in jail for at least 5 years, if not more. If it's over 20 or 30 million it should be 10 to 30 years. If it's over 100 million, you should be facing life behind bars. If it's a sizable part of a billion, you should be facing death. Just remember, if you break the law and the amount is above a half a billion, it is a statistical certainty that your bad behavior has caused someone to die. People loose their income, their houses, their health insurace, some of them will die. Heck, some will kill themselves.
Here's one example. It's somewhat unusual, but it shows how bad the damage can be when corporations act badly.
The Northern Califoria Kaiser HMO (a non-profit) just shut down their kidney transplant program. It was started a few years ago, and was a complete disaster from the beginning. Other transplant programs in the state had a death rate less then half of the Kaiser program. Kaiser was turning down matching kidneys becasue they wanted to make their surgery success rate look good. They were fined two million dollars, and they are 'voluntarily' putting three million into a public awarness campaign for transplant doners. People died. Becasue of state law, no one can sue. They have to submit to arbitration paid for by Kaiser They'll get a real fair treatment in that setup, I'm sure. Now some of them will sue, and given the breakdown of the system, they may get their day in court, but it will be even harder then a normal malpractice case. Kaiser did admit to failing. Even so, when a Kaiser spokesperson was asked about anyone being fired, they said that they were not placing blame, they were trying to get their former kidney transplant patients into other programs. They are so commited to the well being of their c
Backdated stock options carries no risk and 100% reward. Backdating stock options sets the strike price to the lowest price point in the past.
Backdated stock options must be treated as cash and must be expensed on the balance sheets. Giving cash (e.g., wages) to the employees must always be expensed on the balance sheets.
The backdating of options dilutes stock value. This IS an expense and it results in an overstatement of earnings. Some people out there just don't realize that a fraction has a numerator and a denominator. The number of shares is the denominator. The company's equity/market value is the numerator. Give away shares to management at a low price and the denominator goes up a lot whilst the numerator doesn't. Bang. Lowered per-share value. I don't see it as a witch hunt, I see it as a raid on the CEO class that is systematically sifting money from pockets of its employees and shareholders and showering it on itself. It constitutes a steathful and unthical raid on the cash drawer. It also circumvents the IRS rules on the cap for salary deductibilty for execs and cheats the taxpayer. It's time to put it to these SOBs who are puttin' it to the rest of us.
FYP
To the cries of "witch hunt", I say, "Burn them at the stake.
Burnin's too good for 'em.
They should be torn into itsy-bitsy pieces.
And buried alive.
These are my friends, See how they glisten. See this one shine, how he smiles in the light.
While I don't agree with the parent poster's spin re: "the editors" he's right about his core point: this is an astroturfing campaign, and even (as he points out) has a tracking ID built into the link.
Mod him up +1 Informative since we can't mod stories "-5 Astroturf"
--MarkusQ
abuse of backdated options -> Personal income tax evasion
- The company gives the executive something of value and the executive does not report as taxable income. A backdated option with a strike price lower than the date it was given to the executive has monetary value. This value is the current stock price minus the strike price. This is a taxable gift. Failing to report as taxable income likely is the serious crime of income tax evasion.
Exactly how does only restating the corporate earnings and not pursuing income tax evasion charges against the board and recipients of the options acceptable?
If a big tech company is doing poorly, there is no reason for you to improve your product or service, or to cut costs, or to compete fairly. Simply put political pressure to "investigate" a succesful upstart competitor, and watch their stock prices sink!
The ones with the most capital to influence politicians will be able to dominate the economy, and the whole thing will be cheered on by the masses who think they are somehow "sticking it to the man". (Even though "the man" wrote the laws, approved the laws, and enforce the laws!).
Yeah, the U.S. government will start throwing tech CEOs in prison, and all the nation's worries are over with. It isn't like there are smart, well trained, buisness savy people OUTSIDE the bullying power of the U.S. government who would be happy to take over the tech industry.
I was with you right up to the end. You're right that the injured party is the investor. Back dated options are (should be) a cash expense.
But you're confused about Network Appliance (NTAP) whose CEO is interviewed here. They're an independent company, hence the NASDAQ listing. You might be thinking of NetScreen. And you start to sound like a fanatic when you throw around unsubstantiated claims about how "dishonest" Juniper has been.
Ummm. Do your research douchebag. Network Appliance was not bought by Juniper. Why in the good lord's name would a networking company spend the billions it would take to buy a pure storage company of NetApp's size.
Apple Fan: What's all this about accounting regularities? God, I hate Corporatism. Always out to screw the little guy. Artificially inflating their stock prices at the expense of the small investor. These people need to be run out of town on a rail! Put 'em in jail, by God!
(Normal Guy): Pssst! Apple was one of the worst offenders! Steve Jobs was right in the middle of it!
Apple Fan: Damn mainstream media! Always picking on Apple. Can't they just leave Apple alone and stop making crap up? Obviously it's just more of the same lies. Steve would NEVER do anything underhanded. No, those commercials were just trying to be funny. Besides, everyone lies in advertising, it's part of the game. Some Micro$ofty probably snuck in and changed Apple's records to get them in trouble...
Sometimes it's best to just let stupid people be stupid.
So what's the Southeastern Conference sports have to do with one? (I just couldn't resist...)
Any experts out there?
It must have been something you assimilated. . . .
Daniel Warmenhoven must be an idiot for not understanding that anyone is hurt by this. SEC is building investor confidence by making sure that people who cheat answer for their wrongdoings. He doesn't understand who is getting hurt!? The execs doing this stole money from investors in the company. When you exercise an option you pay the company a certain amount of money. If that amount is too low then you are cheating the company and thus cheating its investors.
What's there not to understand?
This is how I read his tone:
I don't know why they keep hounding me. I robbed that bank five years ago and they're still drumming up old business trying to search me out. All they're doing is hurting my family and other innocent people. The money is already spent, it's not like they're going to get any of it back. Why don't they just leave well enough alone. It's like they're on a Which Hunt. Besides, I learned my lesson. The next time I won't empty the whole safe; I'll leave some for the next guy. Truly, they should just forget the whole thing and let me get on with my life.
It's a little scary that a CEO is saying things like this. The first thing to make clear is that backdated options are overwhelmingly given to top execs; it's not like the rank-and-file of a company gets them, typically. And it's important to remember that the point of rewarding an executive with options, rather than with outright cash, is to incentivize them to run the company better; if you pay them money today and the company tanks tomorrow, oh well...they've been paid, no direct impact to them as long as they move on to another job (which they typically do). But if their compensation is tied to the success of the company, that's different.
On the other hand, however, if their options were back-dated, then that incentive gets short-circuited. The options are already well-ahead, so there's no real need for the company's stock to do that much better. The fact that this CEO either doesn't get it, or wants to make it seem like this fact doesn't exist, is half of what's scary here. The other half of what's scary is that, simply put, backdating options is against SEC regulations. Does he think that laws shouldn't apply, as long as he says he doesn't understand who's getting hurt?
For your security, this post has been encrypted with ROT-13, twice.
Now it is clear it is not a witch hunt.
And I thought you were going to probe how this handling of dates, shares and accounting was not immoral and/or iillegal.
IANAL but write like a drunk one.
"It's become a witch hunt. ... hang people for them. ... where does it stop? ... I don't see the purpose. ... who is this protecting, exactly? ... I don't know who the injured party is here."
Sounds like someone who should be talking to a lawyer and not a reporter...
Good point, the shareholders are indeed only one of the groups among customers, peers, etc. that any manager must consider. I completely agree that the stockholders should be taken care of in a secondary manner, e.g., the aphorism "take care of the customers and the stock price will take care of itself".
However, my point is about theft, not about who is my highest priority. Just because I don't put someone in first priority, doesn't mean that I think it is OK to steal from them. Taken in the context of a response, your post could seem to argue that it is OK to steal from the stockholders because they are of secondary importance compared to customers and peers. I certainly disagree with that.
I might hire a manager whose sole job is to increase customer satisfaction, or a Tech whose sole job is to improve our knowledge management effectiveness. But, the minute I discovereed and confirmed that they were stealing from my company, they'd be fired, and prosecuted if it was major. That doesn't mean that I'd 'piss on them' to boost the share price or dividend.
It's called "insider trading", and it hurts shareholders. Now that it's a known exploit, if it's not prosecuted assiduously investor confidence will suffer.
I would love to have another bubble form in the technology sector in some ways, but I'd also rather one not since it's just that, a bubble. These investigations might prevent over-saturation of employees in a given field by preventing companies from hiring left and right because they _think_ they can afford it, giving a more realistic outlook to people planning on going into a certain career (I for one would hate to have been one of the people who payed $30k/yr to go to a private tech school, end up with a lot of debt, and all of a sudden be unable to find a job graduating right after the bubble hit).
In undeveloped countries, the consumer controls the market. In capitalist America, the market controls you.
The editors probably have nothing to do with this. But this is very interesting, and deserves more notice. Someone with mod points, click on those links and look at the "campaign_id" field in the links submitted with those stories. These stories are the result of astroturfing campaigns, without a doubt.
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton
No, I mean that in regards to the companies, the investor's confidence or lack thereof is well founded. With respect to the market itself, the SEC's role is to ensure that the investor has the information it needs to decide whether any companies in the American stock markets are worth investing in
I see.
So, you are saying the SEC has done all it is supposed to do?
Then my question is "there is a regulation, if the SEC should
not enforce it, who should"?
emt 377 emt 4
Companies didn't have to report stock option expenses on their financials until just recently.
The Financial Accounting Standards Board has been insisting on options disclosure for over a decade, IIRC. And many firms have been vociferous, including lobbying Congress, in trying to keep the grants out of the limelight. The rules for reporting were laid out a couple of years back and companies got to choose when/how they started reporting.
Given that this was ID'd by all parties as a Major Issue a decade ago, and grace periods were established, the "just recently" argument doesn't hold water. As an investor, I'm surprised that so many companies thought they'd get away with blatant misrepresentation having gotten such clear notice of investors' interest.
When companies report an option grant incorrectly, they are commiting fraud. As described earlier, there's no law against giving employees backdated options, or other bonus type compensation; the problem is claiming that the grant was valuable ONLY if the shares went up in price from the time they were given.
The investment industry -- intermediaries such as mutual funds and institutional investment firms who manage your retirement accounts whether 401(k) or defined pensions -- are setting up tools to detect this fraud, so they can avoid firms with management teams that attempt to hose the owners. No Surprise Dept: firms that are implicated in the backdating scandal are those with the most "aggressive" accounting and closed governance policies. That is, this is just one more way that some companies' managements increase their pay by unilaterally changing their contracts with the people who put up the money to start/run the company.
The United States enjoys dramatically better opportunities for entrepreneurs because of high quality financial reporting, openness and anti-fraud provisions. Allowing a few firms to exploit the trust established by others opens the door to an economic catastrophe because nobody will be able to get reasonable access to money to start new businesses. Tech firms would be the hardest hit.
Finally Mr. Warmenhoven ought to be censured by his board: the SEC was founded with the explicit mission of protecting the shareholders from misrepresentation by his ilk. (The nature of the scams has changed, but not the need to root them out.) Claiming that the SEC is on a witch hunt when it's doing its job is an admission that he doesn't understand the environment in which he is expected to excel.
"Inquiring Minds Want to Know!"
As an added bonus for your patience and forgiveness, click on the link to a story by the "San Jose Mercury News". Juniper must now restate its financial results for the last 3 years in order to account for backdating of options.
The corruption at Juniper has become so bad that its financial results are suspect. According to the news story, the analysts at American Technology Research (ATR), a Wall-Street securities firm, has stopped covering Juniper in ATR's research reports to the investment community.
Was David Abramson right in his criticism of Juniper?
"They're penalizing today's shareholders for events that occurred five years ago. But who is this protecting, exactly?", -Daniel Warmenhoven, CEO of Network Appliances
It's statements like this that make me leary of investing money into the stockmarket, particularly Network Appliances. Does that help to answer your question Mr. Warmenhoven?