Stock Options Scandal Rocks McAfee

narramissic writes "ITworld is reporting that in the wake of a stock-options investigation, executive shake-up is under way at security software vendor McAfee, including the firing of the company's president. From the article: 'McAfee announced Wednesday that it has terminated the employment of its president, Kevin Weiss. The company's Chief Executive Officer and Chairman George Samenuk is retiring from those roles and the board of directors has appointed Dale Fuller as interim CEO.'"

Comments

The Crux of the Matter

[Billosaur]

McAfee set up a special committee of independent directors to look into the company's practices of stock-option granting. The committee was assisted by independent counsel and forensic accountants. Based on the committee's findings, McAfee now expects to have to restate financial results over a 10-year period to record pre-tax non-cash charges of between US$100 million and $150 million for stock-based compensation.

Which is where the problem lies in any company that hands out stock options. The trick of "back dating" options so CEOs can cash in on higher returns, coupled with a CEO's knowledge of events in the company, give them unprecedented power to make money off the company's stock while simultaneously causing the company to slide toward oblivion. No one can claim McAfee has exactly been tearing up the anti-virus market of late. Now, having to restate earnings, the stock is threatened with a nose-dive and the other investors are left holding the bag while the defrocked CEOs and Presidents get to walk away with large sums of cash.

Re:remember the 90s bubble

[Anonymous Coward]

WorldCom, Enron, and all the others were playing with stocks, thanks to rules implemented in the 90s.

Err, no. Those scandals had absolutely nothing to do with the backdated options that are at issue here.

Yet another scandal...

[jaypifer]

...but can someone explain why the stock price is going up based upon this news? MFE

Sometimes bad news really is bad news.

Re:This didn't used to be illegal (sort of)

[durdur]

Right, it was never legal.

Sarbannes-Oxley requires company officers to personally vouch for the accuracy of financial statements. This has caused companies to put in much more stringent internal controls so that they can ensure accurate reporting. But this doesn't mean filing inaccurate reports was allowed, previously. Nor was back-dating option grants.

--Jon

Re:All you need to know

[seanadams.com]

When management is the BoD that setup doesn't work so well.

It's not quite that black and white. If you have competent management, it is GOOD to have them on the BOD (plus a few, perhaps a majority, of disinterested members for checks and balances). Otherwise the BOD doesn't know what the fuck they're supposed to be doing, which is quite often the case. For example, in a private company it is not unusual for the founder to also be CEO and Chariman. Keep in mind, shareholders ELECT the board and as long as your charter gives them reasonable voting rights it should not be able to get too far out of hand. Ideally shareholders should elect a few people who are "in the know", plus a few principal shareholders who are NOT employees, plus a few industry experts who are compensated only for the time in serving on the BOD.

Also board members, be they management or not, have a fiduciary responsibility to shareholders, so if the CEO does something against shareholders interests he is liable. And not just to the tune of whatever personal benefit he may have gained, but jointly for the full damages attributed to malice/fraud on the part of the BOD.