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Corel CEO Charged with Securities Violations
M|U writes "Michael Cowpland, CEO of Corel, has been charged with three counts of violating securities law. CBC Newsworld has the story online, along with more details. Apparently trading of Corel stock was halted prior to the announcement. " The Corel booth at ALS has no comment at this time. The alleged current violations are insider trading, according to CBC. Update: 10/14 05:18 by H : Corel has responded in a press release. Dr. Cowpland is "looking forward to finally have the chance to clear his name..."
In case some of you forgot, Cowpland is just the CEO of Corel, he is not Corel. That means that if indeed he is found guilty of insider trading (to use the commonly known term) then he will most likely step down as CEO and someone else will be appointed. The stock in question was his own personal stock which he had purchased by himself.
Corel will take some heat over the whole deal but all in all, Corel will keep on going. Remember that a corporation is an individual, just like a person, in the eye of the law. Corel did not do anything illegal.
So, the moral of this rant - don't think that just because a company employee does something illegal that the company is going to go under or be destroyed. That would be like Rob Malda getting arrested for rotten poll answers and Slashdot getting the rm -rf / for it.
Really Bored?? http://ivany.org
Contrary to what many people are suggesting here:
1-- This has absolutely nothing to do with whether he traded at an allowed time, or filed proper advance notice. He probably did both those things, he is in trouble for something different.
2-- There definately was a victim. Every trade on the market has a buyer and a seller. Despite how it might seem when you call your broker up, you cannot buy shares out of thin air, you always buy them from someone. Whoever bough Cowpland's shares (probably a lot of people) were not engaged in a fair transaction: the person they were buying from secretly knew that they were being set up to take a fall. He had information that they could not possibly have had.
3-- Insider trading is not helpful. Someone suggested it "helps" by causing information about a company to be reflected in the price. We don't need insider trading to have this--audited financial statements that come out four times a year are pretty good at giving things away. You can shuffle the books around only so long before the GAAP rules force you to report the truth.
If Cowpland really did know that Corel was about to take a loss, and he traded at a time when he had that information and few others did, then he should fry.
That's about as greedy, inconsiderate, and illegal as it gets. OK, not as bad as if he'd made a derivatives bet--I guess even Cowpland felt that would be too obviously criminal. He was trying to be unobviously criminal--which is what criminals generally do.
But if you didn't engage in any trading, you should be angry that the info was not public, not that the people who did know were motivated to trade on it. Who wouldn't be?
The whole idea is to provide a buffer so that certain people can't rush their order before everyone else. Personally, I wish 'playing the market' (speculation I guess) was illegal - not possible due to unpopularity, but most instability in the market is due to people that buy and sell on little tidbits of information (rumors even!) rather than riding the storm out. There is no point in owning stock in a company (or mutual fund) if you can't ride it out. Stocks have plunged just because although a company did great, beat the previous year, they missed an artificial target by a single penny per share! Stocks spike when there are rumors of a good quarter or when companies did even _slightly_ better than expected. I honestly don't understand why companies give such loving devotion to such fickle people and still treat loyal customers like crap.
If you don't believe by subject line, remember this: the 'Great Depresson' was touched off by: stock holders / market crash.
Okay, as somebody who once lived in Ottawa, I can attest that his claims that he sold the stock off to pay off a few debts are probably true (or at least true enough to keep him out of jail). In the years after Corel Draw made it really big and prior to the stock plummet, the guy gets his mid-life crisis in a big way: he moves to a monster new house in the most expensive area in town (cost according to the newspaper - 14M), buys a new Lamboughini Diablo (cost - 100K ???) and ditches his old family for a trophy wife (Cost - 1M ???). Cowpland is ass-deep in debt, probably by another 4M, even after the 7M score, and will probably have to have a real talk with himself unless Corel Linux actually goes somewhere (probably not). This is all very public knowledge, as Mr. Cowpland leads a very public lifestyle. Those that did their research before investing in Corel knew that a sordid affair such as this was always a possibility. Is the company's viability going to be affected the freeze? Definately. The Linux, and more broadly the intire open source community, is very much a product of its leading personalities such as Trovalds and Cox. Cowpland has never demonstrated the kind of benevolent creed that inspires us to write kick-ass code for the good of all, and that's why Corel Linux probably will be rejected by a good number of us.
For more dirt on the good Dr., take a look at Frank Magazine. It's a satirical magazine based in Ottawa, and Dr Cowpand and his inflatable wife (v2.0) are often featured.
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Cowpland and others sold a bunch of stock just before announcing worse-than-expected earnings. Then when the stock took a nosedive the shareholders were cheesed off. You aren't supposed to act on inside information like this. IANAL, but sale of stock by company officers is supposed to be more or less transparent, with advance notice.
But it has to do with people who have inside access to companies manipulating stock values for profit.
The most familiar forms are what it looks like Corel's CEO did: taking advantage of knowledge of a coming stock shift to make money. For example, a CEO has the power and connections to do things like make a futures bet (perhaps covered through some holding company so as not to attract attention) that stock will drop, then announce news that causes the stock to drop. It doesn't look quite that bad for Cowpland.
This kind of thing falls under a general class of very strict rules about what you can do and what information you must provide if your company is publicly traded, since there are lots of opportunities for fraud in the stock market.
Securities laws mandate careful prospectuses and evaluation of prospective investors in an IPO to make sure they are not defrauded. Also, things like VA's "quiet period" before their IPO is specifically to prevent insider trading on the IPO.
Anyone want to give more legalistic definitions, since the best I can come up with is pretty anecdotal?
The *idea* of insider trading is that an insider (Cowpland in this case) knows something that is going to happen that will seriously affect the stock price, but this isn't public knowledge yet. Before it becomes public knowledge, insider takes advantage of the situation and buys/sells stock. A few days later, the general public finds out, and all hell breaks loose with the stock price, but insider either gains a lot of money, or prevents the loss of a lot of money.
-- Ever notice that fast-burning fuse looks exactly the same as slow-burning fuse? I didn't... (Edgar Montrose)
Insider trading is when you base your buying and selling of stocks on not yet public information.
In this case he sold his shares before the company reported a loss to the public and the stock fell in price.
And if the allegations weren't bad enough, to top it all off, the press release author split an infinitive!
That can get you in far more trouble.
it's everyone's, with an apostrophe. in the english language, an apostrophe followed by an "s" represent's either the verb "is" or the past tense version "has".
and they say i'm gonna fail composition 101.
Whoever bought the stock from him. (Heck, it might have even been you -- do you have any idea what is in your mutual funds? I sure as hell don't. Large cap, small cap, blah blah vagueness blah blah. For all I know, I might own a piece of -- ugh -- the company whose name starts with "M". McDonalds, yeah, that's the one I was thinking of. McDonalds for computers.)
Suppose I owned a computer with a processor that was extremely overclocked, and I decided to sell it to you. Before I sell it, I change the clock back to the processor's rated speed. The computer looks fine to you, but -- and there's no way you can know this -- it has been overstressed by heat and whatever else causes chips to fail. The computer is worth less that it appears to be worth, because its chances of croaking are higher than what you should expect. I know the computer has this problem, and you don't. You can even run diag programs overnight and not detect anything wrong.
The honest thing for me to do would be to tell you before the purchase that the computer has been through hell. The dishonest thing would be to keep my mouth shut.
The honest thing for an insider within a company to do is sell his stock right after a quarterly report, so that buyers' appraisal of the stock is as accurate as the insider's -- or at least as close as is possible.
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Ontario Securities Commission: Enforcement: Statements of Allegations
My reading is that the crimes alleged here are very similar to U.S. law (trading on material non-public information).
Cowpland could argue that his company didn't actually trade -- that would be an idiotic defense. The OSC would just display the trading records from the exchange.
Cowpland could argue that the information he knew was not material -- that other investors would not care. Just about as idiotic. The OSC would argue that the market did react by slamming the price of Corel stock the day the news did come out. Just about any jury in the world would see the connection by the time a prosecutor got done laying it out.
Cowpland could argue that the information was already public. He would have to introduce evidence, such as a press release or a newspaper article or a government-mandated public filing, and he would have to establish that this evidence had been disseminated to the public before his holding company sold 2.4 million shares.
It's quite unlikely that any such evidence exists.
Finally, Cowpland could argue that even though he was in possession of material non-public information, and even though he traded Corel stock, he did not do so because of the information. For example, he could produce records that show that he regularly sold 2.4 million shares of Corel during the second week of *every* month for the past two years.
Or he could argue that he had large debt payments due to a contract he entered into long before he came to know this specific material fact, and he was motivated by a desire to pay those debts. In other words, as you say, he could argue that he really needed the money.
Case in point in United States law:
Stock Trading by Insider in Possession of Inside Information Not Per Se Illegal
And finally, here is a simple introduction:
Insider Trading
The following is from memory. I spent 30 minutes looking for a citation from statutory law and couldn't find the killer source paragraphs, although there are several references in 15 USC Chapter 2B. Also, the following is United States law, which does not apply to Corel in Canada.
An insider is: someone who owns 10% or more of the company; or someone who is on the board of directors of the company; or someone who has a policy-making office in the company.
It is legal for insiders to buy and sell stock in their company. There are restrictions against practices like short swings (buying the stock and selling it in less than six months).
It is not legal for anyone, insider or not, to trade on material non-public information. Usually the insiders are in the best position to have knowledge of material non-public information, but other people can know it, too. For example, if your friend works at a printing plant and they call you and tell you that they just printed 400 copies of a document that say "Microsoft Acquisition of FOO.COM" on the front cover, and you then go buy 100 shares of FOO.COM, the SEC will bust your ass.
Material has a specific legal meaning. It means that the information, if known by a reasonable investor, would affect that investor's decision to buy the stock.
Non-public means that the information has not been disseminated to the public.
In this case, Cowpland appeared to have material information (he knew the company earnings were going to suck) and the information was not public (Corel hadn't put out a press release about it).
I don't think the online-ness of his broker has any bearing on the broker's responsibilities. In the United States, brokers are required to have written procedures in place to prevent trading on material non-public information. Part of this procedure is asking all customers "are you an insider of any company".
I believe that if Cowpland had traded on e*trade and answered "no" to this question that the SEC could bust him for criminal fraud. If he answers "yes", then it's my humble non-lawyerly opinion that e*trade would have an obligation to have a human being review all of Cowpland's trades in Corel stock, and to ask him questions like "do you have any material non-public information at this time?" before executing each of his trades.
On the surface it seems that this case of insider trading is based on his knowledge that the company was going to report losses, while the investment community expected gains. When the news hits, the investors jump ship and the price drops. The OSC is claiming he sold before the announcement in order to get the most for his stock.
He is claiming his decision to sell the stock was based on outstanding loans, not his possible knowledge of the stock dropping in the near future.
Its kind of confusing to me though. I thought that when a "CEO/CFO/Large player" in a company is going to buy/sell stock in the company they work for, they have to file the request to the Exchange. The exchange has to approve it, etc...
So, did he file to make the transaction, if so, did they approve it. If so, what the hell are they complaining about?
And if he made 7,100,000 dollars, who lost it? The answer is, the people who were "willing" to buy the stock at the higher price. But, would they have been willing to buy the stock if they knew what MC knew? Lots of questions about intentions and intentions are very hard to know with certainty, unless you are the party involved.
Thats the problem with "hate" crimes.
Interesting Story Here!
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BEGIN EXCERPT
By SYLVI CAPELACI -- Toronto Sun
Fibre optics seem to run in the family -- from the flashy software of Corel CEO Michael Cowp-land to the sexy hardware of his trophy wife, Marlen.
But this seductive socialite's shop talk includes silver lame, four-ply silks and, most recently, supple Italian leather.
Her Xena warrior catsuit strutted out at Coral's annual gala Wednesday was a radical departure from her sex-kitten style.
END EXCERPT
Jerks like this make Steve Jobs and Bill Gates look like really cool guys.
The article only briefly mentions this, but I think what's telling is that Cowpland claims he used the proceeds of the sale to pay off personal debt.
This could be a growing problem for employees of tech firms; you're recruited in with low wages but lots of stock options... the logical assumption being that you can use some of the options to make up for the lost income after a wildly successful IPO.
But, what the recruiters don't tell you is that once you're hired, you're an insider -- and any activity you undertake with your stock is watched and scrutinized by the regulatory agencies. Make a sale at the wrong time because you've got to pay off some loans you took out to get by in the pre-IPO era, and you could find yourself broke or worse, in jail.
Granted, Cowpland theoretically knew that they were about to release poor results numbers. Even if his intentions were golden, his timing based on his intricate knowlege of Corel's earnings sheds very bad light on his decision to sell when he did. BUT, what if the banks were literally banging on his door?
I see this as a growing problem. I hope employees of techie companies realize what they're getting themselves into with the low-pay/high-options employment plans.
-- "In order to have power, I must be taken seriously." -Mojo Jojo
Basically that's it. At my company, there are certain times that are blocked out for employees above a certain rank (within a few weeks of quarterlies for instance) and everyone gets notified. For the top officers and board memebers, the schedule is even more limiting. When you run a company, they stock had better do good, because you'll have a hard time selling it while you work there.
Canada, ironically, does not have an equivalent of the SEC. This is part of the problem. Corel is being investigated by the Ontario Securities Commission, a provincial body. Financial markets are not directly regulated by the Feds and the provinces are, in some cases, quite deep into the pockets of the business community.
Ontario likes to think of itself as the home of high-tech in Canada. They may hang Cowpland, but they won't touch Corel in any way that might seriously hurt the company. The NDP might have stepped aside and let the courts decide, but the PC will never allow it to get that far out of hand.
NASDAQ suspended trading in CORL at 2:50 PM EST, the same time as TSX suspended it. That does not mean this is an SEC action, exchanges can suspend trading anytime there are serious questions, since stock markets are private ventures that are, in principle, subject only to the terms of their private contract.
Generally, it is pretty awkward to have a company suspended on one exchange and not another. Usually, the exchanges cooperate with each other and the regulators on these matters, since getting blackballed by the cops would be very, very bad for an exchange.
The stock market wouldn't work very well if the insiders of the company kept robbing the outside investors.
Just because you're employed by a company, doesn't (necessarily) make you an "insider". The SEC has specific rules that denote who is considered an "insider"- noteably, officers, directors, and "key employees".
Basically, you're prohibited from trading (buying or selling) based on information that is not publicly available. This kind of thing would be major deals, meeting/failing to meet numbers, etc. For the most part, the lowly coders wouldn't really have a clue (other than "will we ship on time" which the PHB may do anyway).
Usually, the company puts out a policy, and you have to agree to the above, and (usually) you can't trade from a week or so before the end of the earnings period until a few days after the earnings are actually released.
With us coders, we just watched the calendar, marked off the blocks of dates we couldn't sell and made sure we had sold before hand. Voila! Cash in the bank!
What the popular press calls "insider trading" should more accurately be called "trading on inside information" and it (a) does not only apply to insiders, and (b) is illegal. It covers anyone who has access to information about a company that (a) is not generally available and (b) has a material impact on the value of the company. So, if you are the boyfriend of the janitor who works for the outsourced cleaning company that cleans up at the printing company that prints the stock certificates, and you learn about an impending transaction completely inadvertantly because one of the certificates has stuck to the bottom of your [genderneutral]friend's shoe, it is illegal for you to trade on this information. It is probably illegal for anyone who works at Slashdot to monitor the logfiles and measure what some tiny public company is interested in... the whole point of publicly traded companies is that you, the average Jo, can assume you have access to all the information anyone else does.
OK, but pay attention to this: before you get all hot and bothered about the greedy people who engage in trading on inside information, consider that it actually has a positive effect on the world at large! You see, if there is secret information that tells us that a company should be worth more or less than its current price, then the question really is, why isn't this information available to the public? The more that the rapacious people-with-inside-information trade, the more the stock price will move in the direction in which it should be moving.
So, if you sold stock at a low price to someone who knew "inside" that it was worth more, you have a right to be angry. But if you didn't engage in any trading, you should be angry that the info was not public, not that the people who did know were motivated to trade on it. Who wouldn't be?
He has a PhD from Carleton, a trophy wife, a load of debt, and now a securities fraud investigation.
Gee, this is making me all nostalgic for the 80's.
Really, half the CEO's in California look like this guy. Most have better financial advice though.