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Stock Options Scandal Rocks McAfee 78

Posted by CmdrTaco
from the no-escaping-that-worm dept.
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.'"
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Stock Options Scandal Rocks McAfee

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  • by B3ryllium (571199) on Wednesday October 11, 2006 @10:32AM (#16392769) Homepage
    I'm sensing a pattern here of rampant abuse-of-privilege in the tech industry powerhouses here. HP, McAfee ... who knows what other companies have some stinkers in the board?

    This might go a long way to explaining why the user constantly gets shafted with their purchases :) And what's with all that pre-installed software? Does anyone actually make use of that junk?
    • by jellomizer (103300) * on Wednesday October 11, 2006 @10:38AM (#16392877)
      Well it is an issue of years of abuse. And lately there is a crackdown on such abuses. I will expect more in the future as the feds get around to invistigating other companies.
    • by Silver Sloth (770927) on Wednesday October 11, 2006 @10:41AM (#16392941)
      I don't see why you limit it to the tech industries. Almost by definition the qualities needed to rise to the top include an ability to 'bend the rules' to achieve results. It's like finding out that a politician is a power hungry bastard; what did you expect. After all, if it weren't like that we wouldn't need all those industry watchdogs.
      • there are lots of theories that to be a top level director goes hand in hand with being a sociopath, here's one result from google [businesspundit.com].

        I've worked for many different companies, privately owned and public, and I would disagree with this a somewhat; but I would agree that being ruthless and totally pragmatic is an absolute necessity, as is a willingness to play god with people's lives.

        I think it's the culture of an organisation which can encourage that sort of ruthlessness, I saw it in one employer (who were

    • Perhaps the SEC will pursue a high profile company president like Jobs.
      Apple has been dancing around this problem recently, including a firing.
      Then again as Spitzer has found, the SEC passed on punishing most corporate crime.
    • ...some stinkers in the board?

      You couldn't be sensing a pattern because this isn't a problem with the board. If you read the article you'll find that the problems aren't in the board of directors. They're with executive level management appointed by the board (in this case, the President). If there had been a problem with the board, it would have been extremely strange. In public companies, board meetings literally are gatherings of shareholders who vote their shares on certain issues and also appoint o
    • by Aceticon (140883) on Wednesday October 11, 2006 @11:13AM (#16393417)
      Well, recently it came to the attention the authorities that a number of companies where granting stock options and (either immediatly or later) backdating them to a date when the stock price was low (ie, it was as if the options had been granted at a date when the stock price was lower, and thus the exercise price on the option was said low price from the chosen date).

      This is illegal.

      So the authorities started investigating and lo-and-behold, quite a number of tech companies had been backdating their options or commmiting other types of irregularities with their options.

      <RANT>
      Surprise, surprise - guess that during the last market bust a lot of managers on technology companies where patting each other on their backs and saying to each other "Its not your fault that the share price is going down, it's an industry wide problem and you should still be rewarded for all your hard work". I'm sure they conveniently forgot the fat bonuses they got when the stock prices were going up, even though that was not due to the success of the company but instead due to the bull market.

      Now they got caught. I'm sure the favorite excuses are:
      - Everybody else was doing it.
      - It would be impossible to retain our best people without doing it.
      </RANT>

      • by koehn (575405) * on Wednesday October 11, 2006 @11:38AM (#16393815)
        Well, recently it came to the attention the authorities that a number of companies where granting stock options and (either immediatly or later) backdating them to a date when the stock price was low (ie, it was as if the options had been granted at a date when the stock price was lower, and thus the exercise price on the option was said low price from the chosen date).

        This is illegal.


        No, it's not. It's only illegal if you fail to disclose the backdated grants to your shareholders. If you disclose it correctly, it's legal under current SEC regulations.
        • Exactly. It's not illegal. The company also has to mark the difference in stock value as an expense.
    • by mordors9 (665662)
      Hell, they can probably afford the bonuses and stock options just from the rebates they have swindled people out of over the years. It seems like about half the time, they find some reason not to pay me back. (the best one I thought, was they said they never received it from me and then would not accept the copies as they have to have originals...)
    • by flyboy974 (624054)
      The CEO of CNet stepped down today as well because of stock option problems.
  • "I regret that some of the stock option problems identified by the Special Committee occurred on my watch,"
    Well, regretting won't fix the problem, and neither will his ousting.
    • by Thansal (999464)
      I admit, I have never gotten the idea that the first response to a large screw up is for the CEO to retire (IE, gets fired with a nice big severance package). Is it really their fault?

      Is it the CEO's job to make sure that some one doesn't do something squiffy with their stock? I always thought that was the job of security/layers/other people, not the CEO. Doesn't the CEO come up with plans for how to make the company grow/turn a proffit/recover from a scandle?

      oh well, I guess I am just not cut out for Co
      • Two things to consider:

        * Most public companies, including this one, are not run as democracies. Just as the President is ultimately responsible for all actions of the military, the CEO is ultimately responsible for all business practices in his/her company. Knowing lots of other companies are being investigated a CEO can demand the CFO or others perform an internal investigation and fix any questionable practices. Since stock handling is so critical to public companies it's not unreasonable to expect CEO
      • Is it the CEO's job to make sure that some one doesn't do something squiffy with their stock?

        Yes.

        I always thought that was the job of security/layers/other people, not the CEO.

        Certainly, but blame is placed on the highest level manager anyway (no matter how fair or unfair it may be). In the same sense that the Commander-in-Chief of the United States can be held accountable for the actions of military personnel, the Chief Executive Officer can be held accountable for the actions of the people under him.

        Does

        • by nuzak (959558)
          > In the same sense that the Commander-in-Chief of the United States can be held accountable for the actions of military personnel

          Thank you. Best laugh I've had all week.
    • "I regret that some of the stock option problems identified by the Special Committee occurred on my watch,"

      Well, regretting won't fix the problem, and neither will his ousting.

      Translated: "I regret that this came to light while I was still around. Next time I hope to be out of the country before the federales find there was no actual pea in our exclusive executive shell game."

      Seriously, what attracts people to these jobs? Money.

      What do they try to get even more of than the large, by global standa

  • Looks like someone's been back dating options again. At least in this case the management teams is being held accountable. They're not just saying "oops", like Apple and the like. Corporate America needs more directors who hold management accountable for behavior like this.
  • by jense (978975) on Wednesday October 11, 2006 @10:37AM (#16392857) Homepage
    These gentlemen were caught by McAfee's internal-use-only feature, "Option Blocker."
  • by night_flyer (453866) on Wednesday October 11, 2006 @10:45AM (#16393005) Homepage
    it popped because of this... WorldCom, Enron, and all the others were playing with stocks, thanks to rules implemented in the 90s.

    Instead of earning a regular wage (and getting taxed for it), they were given stocks which encouraged the holders to do what they could to cook the books...
    • Re: (Score:1, Informative)

      by 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.

  • by Anonymous Coward
    Then I could get a 10 or 20 million dollar pay-off!

    That always gets me: we fuck up and get fired, we get nothing; a CEO gets fired; they get a wind-fall!

    • by jerkychew (80913)
      Always? Tell that to WorldCom's ex CEO [cnn.com] and CFO.
    • That always gets me: we fuck up and get fired, we get nothing; a CEO gets fired; they get a wind-fall!

      CEOs are hired to be fired. If things go well, they get credit, if things go poorly they get blamed and possibly fired. CEOs (and others) know this when they take a job and it's why they almost always have a severance package in place as part of their contract. You see, most executives aren't hired to do actual work like us peons.

  • by Billosaur (927319) * <wgrother@NOsPAm.optonline.net> on Wednesday October 11, 2006 @10:54AM (#16393143) Journal
    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.

    • by bhalter80 (916317)
      There was a magical invention pioneered by lawyers to deal with just this situation and to rectify it while earning them millions. The name of this is "shareholder lawsuit" The CEOs of these places have a legal responsability to protect the investments made to the best of their abilities and in most cases that extends to making a buck any way then can. If the shareholders can demonstrate that the board/CEO acted with some other interest in mind the shareholders can recover (unfortunately) some of this ca
  • If the anti-Microsoft newspaper ad was a diversion for a week from this bomb.
  • by jaypifer (64463)
    ...but can someone explain why the stock price is going up based upon this news? MFE [msn.com]

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

      Probably not. I gave up trying to figure out the market a long time ago. Remember that for a long time, SCOX kept going up in value while just about everybody in IT knew that they had absolutely nothing. Even after it should have been clear to even the diehards that SCOX's case was nothing but hot air, the stock still maintained its $4.00+ price. In fact, SCOX is now trading at $2.30 a share as I post this and it was a
      • by kfg (145172) *
        The "investors" aren't playing against the viability of the company, they are playing against each other, trying to snatch money from each other's pockets.

        The company is just a vector for the flow of money between traders.

        KFG
    • by EMeta (860558)
      When steps get taken to preserve the integrity of the commonly traded stock--like holding those accountable who abuse it--the stock is worth more. I believe the market had already adjusted for the fact that there had been some cooking in McAfee's books.
    • ...but can someone explain why the stock price is going up based upon this news?

      I'm a MFE stockholder (worked for Trusted Information Systems, had options, TIS went public and was bought by Network Associates, which became MFE...it's interesting to watch, at least) so I've been following this a little. There was a suspicion of a problem for months, which had pulled the price down. Now that it's known what the problem is, and steps are being taken to resolve it, that drag on the price is being cut loose.

  • by Anonymous Coward
    I have to say a hearty "fuck 'em!" to the senior management. The old saying about the cluetrain stopping there once a week but never making a delivery was never more true.

    Which is not to belittle the programmers, developers, network engineers and other technical types; I met some really outstandingly talented technical people there. Just a shame they were crippled by the top layer of dead wood.

  • by saboola (655522) on Wednesday October 11, 2006 @11:09AM (#16393359)
    Be sure to update your CEO.dat file on a daily basis, as new CEO's are released into the wild daily.
  • a crack dealer or a CEO at a High Tech Firm. Radio Shack's CEO turned out to be a fraud also.
  • hrm.. (Score:2, Insightful)

    by Intangion (816356)
    you think its a good idea to short them right now?

  • by mapmaker (140036) on Wednesday October 11, 2006 @11:32AM (#16393721)
    The company's Chief Executive Officer and Chairman George Samenuk...

    When the CEO and the Chairman of the Board are the same person, you can pretty safely assume that management is running amok. The Board of Directors exists solely to make sure management isn't putting its own interests ahead of shareholders'. When management is the BoD that setup doesn't work so well.

    • by seanadams.com (463190) on Wednesday October 11, 2006 @12:39PM (#16394803) Homepage
      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.
  • by Anonymous Coward
    http://www.eweek.com/article2/0,1895,1908834,00.as p [eweek.com]

    It was just over five years ago that then Network Associates CEO Bill Larson, President Peter Watkins and chief financial officer Prabhat Goyal announced their resignations from the company on the same day that NAI announced a fourth quarter revenue shortfall of $120 million and a new revenue recognition policy for sales through its distributors.

    It sucks, at the time the stock went from around 60 to about 10 overnight. I feel pretty bad for my former co-wo
  • George Kurtz [mcafee.com] would be a good internal CEO replacement candidate.
  • ..as if a million shareholders cried out in disgust then went suddenly bankrupt.
  • by vjmurphy (190266) on Wednesday October 11, 2006 @12:50PM (#16394999) Homepage
    "McAfee announced Wednesday that it has terminated the employment of its president, Kevin Weiss."

    Not only that, but I hear he was also running Norton Antivirus on his company PC.
  • by rabun_bike (905430) on Wednesday October 11, 2006 @01:31PM (#16395747)
    This scam took a statistician to find and prove and that was only because stock option grants to executives are publically published at the end of each fiscal year prior to the SOX law. Now they have to be reported in a matter of just a couple of days which is why all this BS ended in 2003. IMHO, the only way this could be so wide spread and adopted it must have been touted by accounting consultants, financial consultants, and executive placement firms.

    What concerns me even more is that this is surely just one of many widely used scams by executive to steal money from the company and shareholders. Obviously this scam had to be replaced with another money maker for executives once the SOX [wikipedia.org] law was passed in 2002. We live in a weird era where executives have complete control over these companies and corporate raiding is the norm.
  • A few years ago in a flurry of west-coast-itis and the dot com boom, many public ball parks and Coliseum were renamed for a price.. naming rights is what I think were sold.. So here in San Francisco, we have "Monster Park" (thanks to monster.com) which used to be "Candlestick Park" and "Pacbell Park" which might even be renamed again to "SBC Park" as SBC bought Pacbell a while ago.

    And in the east bay, the Oakland Coliseum was called "Network Associates Coliseum", but the signs on the highway went to McA

  • Ever since the release of this news, the McAfee antivirus product we are required to use at work has periodically jumped to 99% CPU utilzation.

    Of course it did that before the news too...
  • Wow, Dale Fuller taking over as interim CEO. He totally tanked Borland - let's see what he can do with McAfee. Maybe he'll turn them into an application lifecycle management company, too. I can't get over this decision.

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