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A 'Witch Hunt' in Silicon Valley 178

Posted by Zonk from the does-she-float dept.
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.'"
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A 'Witch Hunt' in Silicon Valley More

A 'Witch Hunt' in Silicon Valley

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    • I agree completely. I'm inclined to sell Network Appliances short based on that one quote. If he doesn't know that it was wrong, why it was wrong, and why it's important for the SEC to fix the problem, then odds are good there are other quaint SEC customs that's he's unfamiliar with.

      I prefer an honest scumbag who knows what's wrong and does it anyhow to somebody like this. He has a too-convenient blindness to some basic concepts of capitalism.
      • It wasn't "wrong" until 5 years ago at most. The big players that were the worst offenders, Microsoft, etc, got off with being asked nicely years ago. Unfortunately, they set the tone for the industry and the unrealistic expectations of investors, so everbody else did it to keep up. Of course the little people are the ones that don't have huge accounting/legal teams to re-run 5 years of numbers on command for the SEC. The backdating thing is more about droping everything and kissing up to the auditors a

  • Well... (Score:5, Insightful)

    by ackthpt ( 218170 ) * on Tuesday August 15, 2006 @06:31PM (#15914687) Homepage Journal

    '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.

    • Re:Well... (Score:4, Funny)

      by jd ( 1658 ) <imipak@yahoGINSBERGo.com minus poet> on Tuesday August 15, 2006 @06:33PM (#15914709) Homepage Journal
      I agree, but we shouldn't hang them. Well, not until we've taxed them of all their money, at least, and only if the business execs can't claim for reasonable wear and tear on the rope.
    • You have obviously forgotten that the elites deserve
      much better treatment than the averages do.

      And of course, he is just so right on the button
      in pointing out that investor confidence is not
      built unless the investors are allowed to keep
      their heads in the sand.

      And for the sarcasm impaired, sarcasm mode is now off.

      • Re:Well... (Score:2, Interesting)

        by IgLou ( 732042 )
        Well of course their heads are in the sand. How many folks have their money in funds and have a clear idea or a strong say in where that money is invested? Raise your hands please.

        When I last looked into this for retirement plans all anyone gave me an option was on what percentage I want in high risk and low risk. For Pete's sake! I want a bit more control than that. I want to tell my advisor "I do not wish to have any stock in *insert name of company with dubious practices here* please" and then it
        • " I want to tell my advisor "I do not wish to have any stock in *insert name of company with dubious practices here* please" and then it just happens."

          If are educated enough to know with a fine scapel exactly which companies you do/don't want to be investing in, you do not need an adisor. Open up an internet brokerage account and go nuts.

          Also if you know which ones you DON"T want but don't know which ones you DO want, get a personal advisor to buy individual stocks for you and give him a black list of "do
          • There's a slight difference between saying "I don't want to be involved with gambling" and enumerating all companies that are involved in it in some fashion. Advisors serve a role of simplifying investment, and this isn't necessarily a binary process (either you know enough to be an advisor or you know practically nothing). I think the person you're responding to is rather sensible in deciding that they only want to be involved to the point where it's ethical, or that they want to exclude just a few compani
    • How do you do wrong in the future?

      • Re:Well... (Score:2, Insightful)

        by ackthpt ( 218170 ) *

        How do you do wrong in the future?

        Simple!

        The headcount of the enterprise are given stock options at bargain rates. When the company tanks and headcount find themselves out on the street looking for a new job, the IRS swoops in and taxes the hell out of them on the bargain stock they purchased, which is now not worth the paper it's printed on.

        Meanwhile, the oil companies are raking in huge profits, not hiring, not investing their huge returns and get every tax break from Washington. The lesson we i

        • my point was, you can't commit a crime in the future. You can plan one, but you can do ANYTHING in the future.

          Like someone sayuing "This is a photograph of me from the past."

          well duh.

    • Who is the injured party? You and Me (Score:5, Informative)

      by Anonymous Coward on Tuesday August 15, 2006 @07:10PM (#15915060)
      The article asked, "But I don't know who the injured party is here."

      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?

    • Re:Well... (Score:3, Interesting)

      by samkass ( 174571 )
      If they've done wrong, even in the past, shouldn't they have to answer for it?

      I think there are a few issues with this:
      1. It wasn't clear that this was wrong at the time. The law isn't 100% clear-cut, and this was apparently a pretty common practice at one point.
      2. The purpose of these deals was to acquire and retain key people who presumably added significant shareholder value. If the shareholders are the party that is "wronged" by these actions, but the stock price has gone nothing but up, who's the inj
      • Think of it this way. My employer (one being investigated by the SEC for such practices) offers employees the chance to purchase stock at a reduced rate, 85%. The stock tanks due to the recession. Of course the people at the top of the ladder get their stock first. Suddenly, there aren't enough shares to go around to all the people at the bottom who set the money aside. The company shrugs it's shoulders and hads back a portion of the money it's emplyees intended to invest. The employees have just given thei
        • this isn't about employee purchase, it's about backdating option the price of options to the lowest price for the calender month. It's about the stock being valued at $3 on one day and $2 earlier the company lets you buy it at $2. The real issue is that until 2000 or so, perhaps even later, companies weren't required to list options as salary, and didn't have to report until the options were cashed in.. so most companies haven't been tracking outstanding options for years. This issue is even less of an i

  • Leveling the playing field (Score:5, Insightful)

    by Bryansix ( 761547 ) on Tuesday August 15, 2006 @06:33PM (#15914713) Homepage
    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.
    • I kind of assume everyone else got backdated options. It's not unusual. My options were dated when they were offered to me, not when I actually signed (and agreed to) the paperwork. Does that count as backdating? I don't know if I made or lost money by having my date being off by 4 days, and have no way of looking up the stock history of the pre-IPO shares. But it's entirely possible that I made/lost around $500.

      Is the SEC going to come after me? Problaby not, maybe what was done was allowed, but more than
    • 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.

      Unless investors are those privileged few.

    • Re:Leveling the playing field (Score:3, Insightful)

      by Anonymous Coward
      Look at Martha Stewart.

      Good example. Martha Stewart was not arrested for insider trading. There is no evidence to convict her (or even charge her) with insider trading.

      She was convicted of lying to investigators while being investigated for insider trading, which is normally a trivial matter that is almost never prosecuted.

      I suspect they chose a famous person to make an example of, to appear tough on white-collar crime. Or the spouse of the prosecutor really loves Martha Stewart and the prosecutor doesn't w
    • The point is that nobody should be let off the hook for doing things that the SEC specifically prohibits.

      She settled with the SEC. Her jail time has nothing to do with whatever stock shenannigans she was involved in.

      She violated a rather iffy criminal law designed to make it possible to prosecute and convict mob bosses/illegal drug distributors who were otherwise unprosectuable, not even under RICO, because of a technicallity; there wasn't any evidence that they'd commited a crime.

      So a new crime was created

  • Oh poor MBA! (Score:5, Insightful)

    by irritating environme ( 529534 ) on Tuesday August 15, 2006 @06:33PM (#15914716)
    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.
    • 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]
    • 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 emp
    • 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.

      And I'm sure those all up in arms about wiretapping have nothing to worry about if they aren't t

  • Uh, the shareholders? (Score:5, Insightful)

    by cfulmer ( 3166 ) on Tuesday August 15, 2006 @06:35PM (#15914732) Journal
    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.

    • Yes, but who will pay for it? (Score:5, Insightful)

      by donutello ( 88309 ) on Tuesday August 15, 2006 @06:46PM (#15914846) Homepage
      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.

      • Re:Yes, but who will pay for it? Correct in part (Score:5, Informative)

        by WillAffleckUW ( 858324 ) on Tuesday August 15, 2006 @06:53PM (#15914915) Homepage Journal
        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 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 ... like oh, a certain Enron CEO.
      • I've recently come to the conclusion that monetary fines don't discourage CEOs and other executives.
        As a result, I have concluded that the old ways are sometimes the best. My suggestion is that penalties should be for the board, rather than the investors - a week in the stocks* out the front of their office building, with a sign saying what they did wrong, and a basket of old fruit nearby. Of course, a mimimum fruit-throwing distance will need to be marked, but that's not a real problem.

        It provides a disi


      • We don't have a mechanism to make the executives responsible for the deception pay for it

        In the case of Enron we did. Fastow's in jail. Skilling's going to be in jail for a good long time (too bad they couldn't pin Baxter's death on him - that was no suicide).

        Unfortunately, Justice was too slow to find Ken Lay before he escaped.

        Then there's the alternate theory that the corpse was a drifter that looked like him, and the real Ken Lay is on a beach in French Polynesia somewhere, retiring with his billions -

    • 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 option strike price is not almost always higher than the then-current trading price of the stock. In most of th cases being discussed, that is not the case. The idea behind stock options is to provide the recipient with an incentive to raise the stock price but to do so without a direct cost to the company. In other words, you're saying "I know you don't own 10,000 stocks of our company but we'll give you these options so that if you raise the stock price, you'll also gain just as if you owned 10,000 st
    • [This guy is an executive?!] You would think that if his shareholders, you know, the people he is working for, red this article he won't be one for much longer. But, of course, they will probably just throw their proxy ballots in waste can instead of voting their shares and getting rid of a guy that doesn't see any problem with defrauding them.

  • Give me a break... (Score:5, Insightful)

    by moehoward ( 668736 ) on Tuesday August 15, 2006 @06:35PM (#15914742)

    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.
    • The company sold shares to the directors for less than it should have done. In other words the company ended up with less money in the bank as a result of the sale.

      The directors then sold them on the market for the market price, and made a larger profit than they should have done on the sale.
    • Yeah, but don't forget potential shareholders. No, I'm not talking about the unwashed masses, but the *other* employees whose options are unexercised. Profit-taking measures like the ones we're talking about will dilute a share value past everyone else's strike price in a hurry.

      The staff, I would say, stand to lose as much as (or, proportionally more than) the investment pool. Make no mistake, it's not like my options would be back-dated with the CFO's...

    • Re:Give me a break... (Score:3, Insightful)

      by Isao ( 153092 )
      If the SEC prosecutes all of these instances, than my faith in the market goes up, not down.

      I think he meant the investor confidence in the specific companies, not the market in general. If I hear that the SEC examined a company for this and found nothing my confidence in it is increased. This doesn't help him if his company is found in violation.

  • Every investigation is a "Witch Hunt" apparently (Score:4, Insightful)

    by Anonymous Coward on Tuesday August 15, 2006 @06:38PM (#15914772)
    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.

  • Boo Hoo (Score:3)

    by ScooterBill ( 599835 ) * on Tuesday August 15, 2006 @06:39PM (#15914775)
    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.
    • Well the point is that they were documented, and the documentation was allegedly falsified.

      Valuing the options is pretty simple. You phone your stockbroker to get the current share price, or look it up online, and that is the price of the options.

      What they are suggesting actually happened is that they looked at the history of the share price movements, picked when it was lowest, and backdated the documentation to that date.

  • Bizarro Silicon Valley (Score:4, Insightful)

    by User 956 ( 568564 ) on Tuesday August 15, 2006 @06:39PM (#15914776) Homepage
    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?
    • By announcing that they are investigating a company they destroy invester confidence in the company, whether there is good reason to suspect wrongdoing or not. This can have a DRASTIC effect on the market price.

      For instance: Redback Networks had been trading in the 23-24 range, and had been pushed down to the mid 18s by rumors started by a confused analyst. These had been debunked by other analysts and the stock was apparently starting to recover.

      Then the regulators announced that they were looking at Re

      • Now does this look like the regulators had the interests of the stockholders in mind when they made an announcement that destroyed (hopefully only temporarily) somewhere between 25% and 42% of the value of their investment?

        I can't determine the motives of the SEC here. But this is an example of dumb money losing out in the market. In particular, you can't "temporarily destroy" value and the people who sold out at the deflated price have just figured that out.
  • 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.

  • injured party (Score:4, Interesting)

    by 56ker ( 566853 ) on Tuesday August 15, 2006 @06:43PM (#15914817) Homepage Journal
    "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.
    • It was apparently obvious to the interviewer. Burrows' follow-up in TFA was:

      The victim was the investor, who was not getting accurate information about the options their companies were doling out. And in the case of backdating (in which shares are granted at prices below the market price on the day of the grant, guaranteeing the recipient paper profits), insiders were getting a better deal on shares than the company's public investors could get.

  • Who ? (Score:4, Interesting)

    by OpenSourced ( 323149 ) on Tuesday August 15, 2006 @06:43PM (#15914818) Journal
    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.

  • Well Duh (Score:3)

    by linuxwrangler ( 582055 ) on Tuesday August 15, 2006 @06:44PM (#15914824)
    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.
  • 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
    • Apparently some of these infractions occurred in 1999-2000. So where has the SEC been the last 6+ years? And where does it end? Should the SEC start investigating the illegal actions of the 80's and early 90's. I'm sure there was funny-money stuff happening back then too.

      I do think this is more destabilizing because the rules associated with it aren't being made clear to the public. And given the fact that the laws are only now being "enforced", so far from the actual "illegal act". The Nebulous information

  • The Injured Party (Score:3, Insightful)

    by corby ( 56462 ) on Tuesday August 15, 2006 @06:45PM (#15914837)
    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.
  • ...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.

  • Well, then why does the WSJournal disagree? (Score:5, Interesting)

    by WillAffleckUW ( 858324 ) on Tuesday August 15, 2006 @06:48PM (#15914860) Homepage Journal
    In a print edition of the Wall Street Journal [wsj.com], 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.
  • 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.
  • 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. Li

  • Same goes for SOX! (Score:2, Insightful)

    by Anonymous Coward
    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.

    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 b
  • "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 infl
  • 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 spe
  • 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
    • When the company being investigated drops in price because of panic selling, a smart investor does the math and finds what the worst possible fine could be. He then realizes a PE of 9 for a growing company is absurd, buys a huge amount at the discount, then sells when the headlines go away and the stock goes back to normal price.

      The only (new) people who lose are the fradulent executives and the panic sellers.
    • If I buy a stolen car not knowing it's stolen, when it all comes to light, unless the police can track down the theif I bought it from, I'm out the money even though I did nothing wrong.
  • Many USA based corporations are involved in "shonky deals" which positively affect the executives share prices before they dumb the shares on the market. However the SEC could use a better series of targets as an example.

    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

  • 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,

    • I seem to be unusual. I don't work for the shareholders.

      Sure, they own the company. Sure, they benefit from any dividends the company issues. Sure, I may even be one.

      However, they come pretty far down my priority list. I put them below the customers, my colleagues, myself. I even put them below people like the local communities affected by my company's operations, the governmental bodies we're involved with.

      A lot of that can be argued back to business continuity, business benefit and thus long term sharehol
      • 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
  • 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.

  • stolen from valleywag but what the hell (Score:3, Funny)

    by mgabrys_sf ( 951552 ) on Tuesday August 15, 2006 @08:20PM (#15915474) Journal
    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!

  • Strange POV (Score:3, Insightful)

    by bill_kress ( 99356 ) on Tuesday August 15, 2006 @08:22PM (#15915483)
    ...I thought the SEC's role was to build investor confidence. What they're doing right now is destroying it

    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?
  • that the government's search for backdated options among tech companies is going too far
    Well, what else can one expect from the SEC under the stewardship of the extremely evil yet stunningly incompetent Chimpy McBu$hitlerburtongharib administration and its Rovian crony-capitalist neo-conservative zionist overlords?
  • The interviewer answers the guy's question immediately after he says "I don't know who the injured party is here."

    The victim was the investor, who was not getting accurate information about the options their companies were doling out. And in the case of backdating (in which shares are granted at prices below the market price on the day of the grant, guaranteeing the recipient paper profits), insiders were getting a better deal on shares than the company's public investors could get.

    The CEO sounds like a rea

  • I could get behind that. Let me know if you find ones that look like Sam [imdb.com] or Tabitha [imdb.com].
  • 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,

  • 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...

  • IANAL, but I beleive that backdating is not actually illegal. Not recording / charging it properly against earnings is, however, and I think this is really the problem.

    Any experts out there?


  • This is how I read his tone:

    /sarcasm/

    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 t
  • 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

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