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The Almighty Buck

Credit Suisse First Boston Fined $100 Million 178

A couple of people wrote in to note that Credit Suisse First Boston, which was the underwriter for VA Linux ? ' IPO, has been fined $100 million for actions they took in that and other high-tech IPO's during the stock market boom. CSFB allocated shares of certain IPO's to customers who made kickbacks to CSFB. Here's their side of the story. There's also an additional statement by the regulators and CSFB's settlement agreement (PDF).
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Credit Suisse First Boston Fined $100 Million

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  • GASP! (Score:5, Funny)

    by ekrout ( 139379 ) on Tuesday January 22, 2002 @07:57PM (#2885200) Journal
    GASP! Now they're only worth $20 trillion.
    • Not Funny... (Score:2, Interesting)

      by gayrod ( 545101 )
      Actually I don't think this is any laughing matter. Being a lawyer, I can say from first hand experience that legal troubles, especially financial ones, are nothing to be laughing about. Especially when they involve the shady financing of businesses like VA Linux, which, if you're like me, you have your retirement savings invested in.

      In short, this is a pretty grave manner and I can only hope that the companies who were involved with this one are not tainted or hurt by their under-the-table doings. It could be a fatal blow to an already hurting technology industry.

      - Dave Brennins
    • Who gets the $10M? The state? The Justice Dept? GW Bush? And what's it used for?


  • What, no disclaimer? (Score:2, Interesting)

    by Anonymous Coward
    You're not publicizing that VA/Leenucks owns j00?
    • Not really needed (Score:3, Insightful)

      by autopr0n ( 534291 )
      I think most people know that VALinux (or is it VAsoftware now?) owns Slashdot. And for those who don't know I don't really think it's that relevant in this case. This has to do with CSFB's underhandedness with VA stock, not something VA did itself.
      • I think most people know that VALinux (or is it VAsoftware now?) owns Slashdot. And for those who don't know I don't really think it's that relevant in this case. This has to do with CSFB's underhandedness with VA stock, not something VA did itself

        Even so. On CNN, for example, every time they report on anything that's owned by AOL/TW, they make sure they say, XYZ Corp is owned by AOL/TW, parent company of CNN. You have to whiter than white in cases like this, to be completely safe, if you do anything that might affect the stock price. I'd like to think this was just an oversight on /.'s part, but it's a little odd to be reporting on a market irregularity and not conform perfectly yourself.
  • Cry me a River (Score:2, Interesting)

    This is article was a little bit more informative than the previos one on Reuters (1/19). However, it still begs an important question: How can wealth "evaporate"? Wealth isn't a liquid (Like water or mecury at high temperatures) so what process does it uundergo to "evaporate"? As a former Bank manager in Austin, I was constantly asked this question by employees and my answer was always: "I don't know." That was never enough. Sometimes I would have to say it loudly: "I don't KNOW!" That often worked.
    • by Anonymous Coward
      1. I buy a painting at a garage sale for $10
      2. I sell it to Taco for $25. I make $15, whoopee
      3. He gets it appraised. Lo and behold, it turns out to be a Picasso
      4. He sells it to you for $2M. He makes just under $2M
      5. A few months later, your appraiser determines, conclusively, that it is a fake
      6. You hold or sell the painting, which is now valued around $15 or so
      1. I buy 100 shares of DOTCOM for $10
      2. I sell them to Taco for $25. I make $15, whoopee
      3. Lo and behold, DOTCOM is proclaimed to be the best business ever; it will crush all established businesses.
      4. He sells the stock to you for $2M. He makes just under $2M
      5. A few months later, the bank calls in the financing on DOTCOM. DOTCOM isn't doing so well. DOTCOM is going under.
      6. You can hold or sell the shares, which is now valued around $15 or so
    • Re:Cry me a River (Score:4, Insightful)

      by mccalli ( 323026 ) on Tuesday January 22, 2002 @08:15PM (#2885286) Homepage
      However, it still begs an important question: How can wealth "evaporate"? b

      Wealth measured in stock is purely a matter of belief and confidence. If everyone believes your stocks are worth something, then they will be willing to pay a price for them.

      If circumstances change and confidence goes, then people no longer believe your stocks are worth anything and so no-one will pay any more. The upshot? Your wealth has evaporated.

      Of course, a counter argument would be that, with stocks, you never had any wealth in the first place. You merely had the potential to try and convert paper figures into reality.


      • Say you exchange your stock certificates for some physical greenbacks. You've exchanged one collection of bits of paper for another, and, again, your "wealth" is based on the assumption that you'll be able to exchange those bits of paper for something else you want. Now, with greenbacks, that's a pretty reliable assumption, but it's not always the case with currency.

        Let's go a step further and say you use your greenbacks to buy some property. Now, that property might be yours, but its worth depends entirely on what people are prepared to give you in exchange for it.

        In my view, the wealth you can accumulate in the stock market is no more real or illusory than any other type of wealth. It's just *much* more volatile (and as such is risky to borrow against - margin calls and all that).

        • True, but some wealth has a great deal more inherent value than other wealth. For example, food will always retain at least some value, because people always need it. Plus, you can always use it yourself if nobody else wants it. The same is not true for stocks.
          • Re:But then again (Score:3, Interesting)

            by jafac ( 1449 )
            Food is a bad example.

            In fact, there's really no good example of a commodity or security that's really a bullet-proof shelter.
            for example, US farmers got raped back in the 80's as food prices failed to keep up with inflation, and the income they were counting on to pay off 10-year loans on $100,000 tractors - wasn't reliable, and they lost their farms. Granted, it was a stupid decision to take risks like that, but when you look at the pattern of the large numbers of farmers who were getting foreclosed on, it looks like something fishy was going on with the loan underwriting. That's really beside the point.

            Food prices fall when there's an oversupply, which can be caused by poor planning, good weather, or unintended side effects of tax laws or changing political climates (with regard to economic sanctions, etc).

            What are more reliable commodities? Precious metals are generally good. Oil used to be good, but that's because the prices were propped up by a monopolistic cartel. The Russians are fucking their asses right now. Yay Russia!
            Land is almost ALWAYS a good deal - but there are factors that can sneak up on you and screw you. The value will drop out of land if there's a recession and people suddenly can't afford to pay $1 million for an 800 sq ft house anymore (San Jose, CA).

            The thing that absolutely SHITS me, is - I'm relatively on the side of "free markets" and such. But when you deregulate some crucial infrastructure commodity like energy, and for whatever reason, the value of a commodity like natural gas spikes, then it's a happy good time for the commodity traders who can take advantage of it. It's a SHITTY BAD time for the poor consumers, who one month, were paying $30 to run their lights and TV, and the next month, are being billed $100, and they're suffering rolling blackouts. For some reason, I don't think it's a good idea to let the invisible hand jerk us off ALL the time. For me, it was a simple matter of realigning some of my bills for the extra cash I needed for my electric bill. For a low-income family, it meant choosing between electricity or food. What really sucks is the thousands of office buildings that were running air conditioning full blast, leaving computers and lights on at night, and the poor low-income families couldn't afford to power their refrigerator to keep their food from spoiling. These arguments seem to miss the ears of the "free market" champions.
            • The free market's about wealth creation.

              Not wealth distribution.

              Therefore, it's perfectly fine according to the tenets of the free-market that the rich get richer and the poor get poorer, as long as the total amount of wealth increases.

              A purely free-market capitalistic society would be anarchistic, since there would be no need for taxes for socially beneficial services (roads, plumbing etc.) Just let the rich build their own, and the poor walk. (OTOH, one might say this has already happened in the US, as the mighty corporations have purchased the government and so the govt's actions are really those of the corporation).

              You want fair treatment for the rich and poor ? Try socialism. Move to Europe. (Of course that's got its own problems, but one can't have everything ...)
            • "But when you deregulate some crucial infrastructure commodity like energy..."

              Excuse-me, the industry was reregulated, not deregulated.


        • What you are saying is that no matter where you put your money you can never be sure it won't devaluate. This is true of course, nothing is guarenteed 100% even if it proposes it is. However when investing in stocks realise that there are two ways of investing, you can invest purely by looking at the trends in stock price ignoring what the ompany is, or you can look closely at the company; how it's structured where the cash flow comes from, fundemental elements of the business, etc. By making a sensible investment in the second way you can help to armour yourself against losses in the stockmarket (often) at the sacrifice of large and quick gains.
      • Wealth measured in stock is purely a matter of belief and confidence.

        Wealth measured in "anything" is purely a matter of belief and confidence. The only difference is that individual stocks are typically more unstable, though stocks in general are not.
    • Wealth doesn't evaporate. If I give you $100 for a share of stock, and then the stock falls to $1, I myself am poorer, but you are richer by an equal amount. If it goes up to $1000, and I sell, I am richer, but someone else is poorer by that amount. If I don't sell, nothing of course happens.
    • gold is considered by some to be wealth, and at high enough temperatures it to can evaporate. really though what disappeared was percieved wealth (or rather worth). the money made from this perception was spent on toys (pool tables, fast cars, nice offices, etc) which were leased. this and money spent on other services was used to employ people making things with no real definate wealth (software, website).

      so, when the company goes out of business and all they have to sell is two year old hardware (we know how that depreciates), and software that can be really specific to the task at hand.
    • Re:Cry me a River (Score:3, Informative)

      by Tattva ( 53901 )
      In economics, wealth "evaporation" means a change in the multipliers of a measure of money. In a liquid economy, money gets multiplied because it is leant out to other people who use it and whoever receives it lends another portion of it out. I am using "lend" in the loosest possible sense of the word, for example, when you put money in a bank, you are "lending" it to whoever gets a loan from that bank.

      When confidence dries up in enterprises that borrow money, risk is perceived to increase and people that hold assets are less likely to lend it out, decreasing liquidity. Less liquidity means less money available for investment, which is the primary negative effect on the economy as a whole when things like Enron and this IPO thingy happen.

      A government can try to increase liquidity through a number of means, reducing risk by buying off bad loans so troubled banks will be more likely to lend money, issuing more currency, and buying back government bonds are a few of the tools available to governments. Many people think Japan's only way out of its current recession is to bail out its banks, many of which have a bunch of bad loans on the books and are very adverse to new loans, thus preventing GDP growth since new businesses and business expansion is driven through bank loans (as well as stock.)

    • Re:Cry me a River (Score:3, Informative)

      by JordoCrouse ( 178999 )
      As a former Bank manager in Austin.

      If you were a former bank manager in Austin, and you didn't know how these things worked, then either you worked at a blood bank, or I should move my money somewhere else.

      It all has to do with the fact that we, as a society, are willing to assign wealth to unrealized assets (unsold stocks, options, bonds, etc..). And when the value of the unrealized assets drops, we perceive a decrease in the wealth of the individual that holds them.

      For example, I would guess that our good friend Bill Gates probably has somewhere in the 20 - 30 million dollar range of true assets (this would include his houses, trust funds, cars, wife's jewelry, greenbacks in his wallet, gigantic money vault in which he swims, etc..) However, we peg him at $74.645400 billion because he holds somewhere in the area of 141 million shares of Microsoft (plus holdings in other areas). So when the stock price of Microsoft tanks tommorrow morning on news of the AOL suit (from $66 down to about $60), then we would say that Gatesy-boy had "wealth evaporation" of $846 million dollars. However, he still has his houses, cars and wife's jewelry - so his assets have not changed, just his potential.
    • Most of those dot.bombs (I hate typing it that way, what are you supposed to say "dot dot bombs"?) had pretty ridiculous business models, and a lot of those that had sound ones behaved pretty stupidly, thinking that this was the vaunted 'new economy' and all that.

      So in other words, people believed that the service that they were providing was valuable, but it turns out no one wanted it. The wealth they thought they had, well, they didn't.
    • Re:Cry me a River (Score:3, Informative)

      by autocracy ( 192714 )
      Wow, I never thought I'd give a lecture on economics...

      The wealth DOESN'T evaporate. Stock is a medium between cash and physical assets. When you start a sole proprietorship, you invest in the business by buying things like desks and chairs and employee salaries out of your own pocket. Your return on investment (revenue-expenses=profit > /dev/pocket) is analogous to dividends. Now, move up to a partnership. Same thing basically, but multiple investors and therefore votes on how that investment is spent (ideally anyway). Next, jump to a corporation: EXACT same thing as a partnership with these mere differences: you're only limited to what you explicitly invest, you can't actually sell off what you invested in (only the holding on it, the stock - unless you get a majority of voting shares to agree), and it's possible to not have a controlling interest. That's what stock is, and yes - you needed to know it to understand what follows.

      Here's where people get confused: Stocks are an asset like anything else. My computer is an easy example. I may consider it to be worth $5k, but Bob might only be willing to stick $3k for it. People, expecting a return on their investment, will be willing to pay just so much for something. Stock prices are basically the price of what people are willing to pay to buy the all the stock, just as my Linksys router is as high a price as the manufacturer can get away with. Somebody might be willing to sell me one for only $50, or I may decide to hoard as many as I can and people seeing an opportunity in this will offer it for $200, which I might be willing to pay for it. Now, what if tommorow a major unfixable bug was discovered in all the linky's that the manufacturer couldn't fix and wouldn't replace? Now nobody is willing to pay for them. I'm basically out what I spent. Now this is what almost nobody understands - I DIDN'T LOSE THAT MONEY, I spent it like I would on anything else. Whoever sold me that stock (the linky) got $X dollars. I've already lost it. It didn't evaporate, it just changed hands. Look above to understand how the supposed "value" of a stock fluctuates, but it's really nothing more than what other people value it at.

      So, why do people become "broke" if they've already parted with their money? Imagine taking out a loan on your car. Because your car is an asset, you can have equity on it. No more than what other people value it at (Blue Book being the definitive guide here), but it's there. People use equity on their stocks just like they do on their car. But if you crash the car... you know what happens. Equity in a stock is just the same thing - only it's not on what you own, it's on what the business owns. Just like if I opened a convenience store and took a mortgage on the building.

      • > Here's where people get confused: Stocks are an asset like anything else.

        But of all the assets you could name, they are most like "pyramids".

  • 1. After what they have probably made on crooked deals.
    2. After looking at the losses JP Morgan and others posted after the Enron Collapse.

  • by mrsam ( 12205 ) on Tuesday January 22, 2002 @08:07PM (#2885248) Homepage
    I wouldn't be surprised if a few other brokerages will get nailed pretty soon, for similar kinds of shennanigans. Disclaimer: I have no direct knowledge of any regulatory investigation of ETrade, but we all know that they pretty much played the same games with RHAT.

    At least with CSFB did in fact give a handful of shares to everyone who applied for the friends-in-family deal - AFAIK - while ETrade tried to come up with every excuse in the book to kick out as many people as they could in their friends-and-family program. Although some of us did eventually get our pound of flesh (see my website: E*Trouble [] to revisit those exciting times) it would be icing on the cake to see EGRP whacked on the balls, again.
    • One thing that would be interesting is to see how the RHAT case gets settled. The RHAT case was different because RHAT itself was named as the defendant in the suits, not their brokerages. It never made any sense to me to sue a company over what their brokerages did, and apparently it didn't to Red Hat either, they responded to the suit publicly by saying that they had retained the world's leading brokerages, and had no knowledge of anything illegal going on. Sounds like a pretty solid defense to me.
      • The RHAT class action suit is not just about the kickbacks for IPO stock(misbehaviour of brokerage) as this one is.
        It is also the standard "sue the management when the stock goes down" lawsuit(false expectations, etc.)
        It also claims that RHAT promised a certain amount of shares for the open source community and did not fulfill it.
        There were a few more points to the lawsuit, but I forgot them and I apparently threw out the paper.
  • 1 []

    2 []

    3 []

    4 []
    • Three of those are the exact same article, about this current fine. The last one is miniscule at best...

      In May 1999 Swedish authorities fined Credit Suisse First Boston 2 million Swedish kronar because of an attempt by the Flaming Ferraris group of traders to manipulate the Swedish stock market index.
  • by Great_Geek ( 237841 ) on Tuesday January 22, 2002 @08:44PM (#2885418)
    Okay, so they (finally) nailed CSFB. How about the other side of that transaction? All those clients that made all those millions - they just live happily after? From the news releases, CSFB was stupid enough to keep records in nice spreadsheets, so it should be easy to identify and fine the clients too.

    The cynical view says it won't happen - the brokers like to keep the clients happy.
  • by cweber ( 34166 )
    that according to their own article CSFB does not admit any wrongdoing in their letters of acceptance to the SEC and NASD (as is usual in such settlements). Further down in their own article, however, they state that they have fired, fined, suspended, redeployed or otherwise disciplined employees involved in this IPO thingy. If that is not an admission of guilt, then what is???

    Corporations have such wierd ways of doing things...
    • Not exactly an admission of guilt. More of a "nolo contendo" or whatever.

      When I get a traffic ticket, I can sign 1 of 3 spots on the back, either admitting guilt and paying the fine, pleading no content, and paying the fine (thus, paying the fine, but not admittin guilt.) or pleading innocence.

      I see what they have done there along the same lines.
      • Yeah, but when you pay the fine on a ticket, it's a couple bucks and they jack your insurance some. We're talking US$100,000,000 here.

        I can't exactly see a bunch of suits smoking fat cigars in the boardroom going "Yeah, yeah, it's only a hundred mil. Sign the back of the motherfucker and send it in."
    • "Yes, we sent him a strongly-worded email reminding him that it was against company policy, and that further transgressions may impact his next quarterly bonus."
  • Really, for how many years have those of privledge misused their position to screw the poor just a bit more. Sure the stock brockers made a little money, the company made a lot of money and the rich made some nice play money. That 100million dollar fine is only for appearances, so chalk it up to the rich get richer and the poor get the shaft.

    The only gold rush is the rush to screw the poor.

    • If the "poor" were day trading IPOs then they deserved it.

      Your idea of poor and my idea of poor are obviously very very different.
    • Actually, the company got screwed too. When you have an IPO, only the proceeds from the *initial* sale of shares goes the the company going public. When an IPO skyrockets on its first day of trading, it leaves money on the table. VA went public at $30 and closed at $299 the first day. That means that it probably could have gone public for $250 per share or so and gotten roughly 14 times the amount of capital they got. Since VA sold 4,400,000 shares in its IPO, that's $968,000,000 that went to CSFB's big institutional account holders instead of the company.

      I think slashdot could survive a while on $1Bn cash, don't you?

      To sum up: the company got screwed because it was denied a fair and rational IPO price.

  • These guys do not know how to play the political corruption game as does SBC. SBC flat asses lied but got a small $6m fine [] plus got to keep the loot.
  • by solman ( 121604 ) on Tuesday January 22, 2002 @09:16PM (#2885540)
    The extraordinary thing about this is how lightly CSFB (and the street as a whole) is getting off. The profits from inappropriate IPO allocations alone substantially exceeded the penalties.

    No penalties will ever be assessed against the hundreds of analysts who hyped internet stocks in exchange for those companies giving their firms a slice of the investment banking business.

    Ask any analyst from any wall street firm, sell side or buy side, and they will tell you that everybody does this. Compare the SEC's treatment of big firms doing outwardly crooked things to their treatment of the little guy. []

    It looks like they're too busy busting 15-year olds to attack the real stock manipulators.
  • Heh, of course all those people that CSFB gave easy shares to probably lost a ton of money (although one could argue that someone so well connected in the financial world would know to get out while the gettin's good. But a lot of people on wallstreet were pretty stupid about that kind of thing)

    I wonder how long the investigation into this has been going on anyway? It seems a lot of irregularities are cropping up now that a lot of these companies are defunked (I.E. Enron). I guess when you have a lot of fake money in the form of overvalued stocks you can afford to cover things like this up, but when that dries up your fucked.

    But then again, it seems people ought to be more pissed off if the stocks actually turned out to be, you know, worth something
  • And in related news Acme Mobile Shredding stock has quadrupled in the last year. Says CEO Mike Flimflamigan, "...I hate to make so much money off of other peoples' misery, but its the American Way TM"
  • Dot com (Score:4, Interesting)

    by BluedemonX ( 198949 ) on Tuesday January 22, 2002 @09:21PM (#2885558)
    Ever heard the expression "Boston Wad" or "Pigeon Drop?" It's a con game where you get a roll of dollars, then add a fifty to the top. Wrap with elastic band.

    Then you find your mark, and agree to go drinking. Show him the huge wad of "fifties". Drop it (with him in tow) in a locker or safety deposit box and keep the key.

    Later on in the evening, get a phone call/page or something telling you to get out of town or whatever. (This works really well if both of you are dopers/criminal element) Suggest to your new friend that you need to boot out of town and could he grab you $400 from the ATM for bus fare, etc? He's totally entitled to keep the $1000 in the locker - you haven't time to get it and get out of town and are willing to eat the loss in order to save your neck.

    You get the $400 and split. Your "friend" finds out his wad was worth $75 or so.

    Dotcoms were pigeon drops. Legal ones. "Oh, uh, yeah, this stock's going to be the next Microsoft. Want mine for $100 a share? I made enough money on it having bought in at $3 a share!"
  • by Anonymous Coward on Tuesday January 22, 2002 @09:22PM (#2885561)
    ..."Even More Surprised By Poverty", his sequel to the much-ballyhooed "Surprised by Wealth" []- an account of his candid feelings on being worth $36 million-ish after the VA Linux IPO?

    A back-of-the-napkin calculation shows that $36M to now be $350K. Of course, to be fair, that still ain't exactly hurting. But yeesh, hindsight makes "Surprised By Wealth" one seriously painful read...

    And even richer a read, given CSFB's plight, is the ZDNet article on the subject of ESR's fortune [], which, with unintended irony, observes:
    "Some open-source developers are envious of those whose work has brought them wealth. Some who could have made money from the recent VA Linux IPO weren't able to because they didn't have enough money or connections to get onboard the VA Linux IPO bandwagon.

    The age-old question of the open-source community has been: "How do we make money at this?" That question, at least for some developers, has now been answered..."
    Yeah. It's been answered alright.
  • CSFB has a LONG history of blunders, the least of which is their sub-standard analysis department.

    Check out [] their calls... they even rated Enron a "Strong Buy" when the stock was near its all time high.

    While all of the Wall Street houses seem to have skeletons in their closet, CSFB seems to be unable to hide theirs well...

    • they even rated Enron a "Strong Buy" when the stock was near its all time high.

      To be fair, everybody rated Enron as a Strong Buy, because there were no indications that the Enron executives were such a bunch of evil folks.
    • These analysts are called in the business "the sell side". They are not analyzing stocks, they are selling them. Their job is to make every stock appear at least somewhat attractive, so their firm can make a load off people buying and selling it. A neutral rating of "hold" from the sell side really means "this company is worth 1.6 bags of dog shit." A rating of "sell" is extremely rare for most of the bigger houses. To get a rating of "sell", you are usually indicted in some criminal conspiracy, or your stock is already at record lows.
  • Can they pay the 100 millions in VA/Linux shares ?

  • by quakeaddict ( 94195 ) on Tuesday January 22, 2002 @09:33PM (#2885595)
    Thats Close To the Capitilization of LNUX.

    But thats right, there are no real viable Linux based companies anymore, and their really never were.
    • RHAT is very viable, not bleeding money, and actually not cooking their books in any serious way.

      They have a huge market cap, due to the staggering number of outstanding shares, but in all, they exploited their high stock price in a very intelligent way with their secondary offering, instead of buying tons of worthless companies with their inflated stock. Now they have a ton of cash to sit on, and even though they paid a lot for some companies, and they are still charging that off in large chunks, their pro forma earnings are pretty close to true earnings.

      If thier stock goes up enough to see massive employee options exercising, then there might be an additional dilution issue, but as long as they stay below $10 a share for a while, they will be in a healthy position with a sane stock price, and a winning business plan.

      Disclaimer: I own some RHAT shares.
      • You vastly overstate the value of RHAT as a company.

        1. "Not Bleeding Money" is not an achievement. Breaking even - which is essentialy what RHAT is doing right now - is the bare minimum level required to be a solvent company.

        2. Red Hat's Market Cap is 1.259B at the end of business today. That is not huge.

        3. In the period ending 11/30/01 (most recent, next period ends 02/28/02), they generated $12.9M Gross Profit on revenue of $21M. Just three quarters back they generated $21M gross profit on $46M in revenue. Out of the most recent $12.9M in gross profit they spent $31.5M in operating expenses. That leaves a net income of -15M for the MRQ (most recent quarter). If you take into account the non-recurring charges they took then they eked a profit of perhaps $550,000. Not bad for a startup, but not really revolutionary.

        4. As for the "tons of cash they have to sit on", it can best be described as: $68M. If they continue to burn -15M per quarter (which is generous, considering the previous three quarters they lost -55M, -27M, and -34M) They can go about 4.5 quarters without drastic changes in spending (ie layoffs) or drastic increases in sales (like doubling revenue while keeping costs static). If they keep up at this pace of spending without major improvements they will need additional funding within 1 year. That's the bottom line. I am not saying it will happen, but that if things continue as they have so far, it will be required.

        5. I really can't imagine what the winning business plan will be. What will change that will take them to net profitability and into the land of strong returns for consumers? Returning 0.01 per share isn't much of an achievement is it? On an investment of $1000 (~100 shares right now) you'd get $1 per quarter ($4 a year). After paying capital gains you and the wife might be able to split a diet coke at the local soda fountain.

        I really dont understand your enthusiasm for RHAT as a stock right now. Maybe you are a true believer in OSS/FSF/Linux. Maybe. That's fine by me. But you really are putting more faith than I believe is prudent in RHAT at this time. Again, not saying that they will fail or anything of the sort. BUT it is clear to me that changes will have to occur - either on the income side or the expenses side.

        BTW, a good link for my numbers is here at yahoo [].

        BTW again, compare that same $1000 investment with a purchase of MS shares. If you purchased 15 shares at ~64 a share, you'd make .50 a share in earners per quarter. Over the course of the year you'd receive $30 in earnings compared to the $4 for RHAT. You may hate MSFT, but in all likely hood they are a better investment (and hence, why they are the widest held stock in America today).

        Final note, if you look at a 5 year history of MS stock prices [] you will see that MS stock now, though not nearly as valued as it was at its peak, is a steady increaser, outperforming by vast margins the Dow, the SP, and the Nasdaq averages.

        • Red Hat's Market Cap is 1.259B at the end of business today. That is not huge.

          It is, considering their revenues.

          As for the "tons of cash they have to sit on", it can best be described as: $68M. If they continue to burn -15M per quarter (which is generous, considering the previous three quarters they lost -55M, -27M, and -34M)

          You keep referring to the amortization of goodwill as a loss. It isn't. Goodwill is a worthless asset on the balance sheet. The one time charges that RHAT is taking are not of dubious nature like the Cisco inventory write-down, RHAT's one times are "money" that was spent a long time ago (It wasn't really money, only in the opportunity cost sense).

          Returning 0.01 per share isn't much of an achievement is it? On an investment of $1000 (~100 shares right now) you'd get $1 per quarter ($4 a year). After paying capital gains you and the wife might be able to split a diet coke at the local soda fountain.

          Do you even understand how the stock market works?

          Oh, I see by your later paragraphs. You are a microsoftie. I guess that allows you to totally disregard the way accounting and the stock market works.
          • I see. Verbal slander and mal-lavished insults towards my understanding/knowledge.

            Four points:

            1. Please point out where I was wrong. As a former RedHat investor (one who sold within 5% of the highest ever point for RHAT), I left because (a) the chances for meaningful divends never materialized; (b) I felt the bubble would bust; (c) the stock was vastly overvalued; (d) the business plan never materialized.

            2. Please, explain to me why RHAT is a great stock as you claim. Somehow it seems that because they arent doing devious things in accounting and basically screwing people that they are a good stock. Doing the baseline minimum (ie good accounting, following the law) doesn't make a stock outstanding - it makes it baseline.

            3. About goodwill, yes, I agree with your point that writing it off as a one-time charge does make sense especially sense the opp. cost on that money was paid previously. However, according to their SEC disclosures, the bulk of that non-recurring charge was taken in the period ending August 31, 2001 (36M). The periods before and after the charges were 4M and 2.5M respectively. In the most recent quarter that cost was only a small portion of total operating expenses (8%). Excluding that in the last quarter they would have generated a profit of $2M. Still not exceptional. Still marginal (but nonetheless an achievement of sorts).

            4. Your original claim was that they have a "huge market cap" - I disagree with "huge", but, I am willing to disagree on the defintion of "huge". You claimed they have a "ton of cash to sit on", when in fact, they have about 1 yr operating capital (again, assuming current trends continue).

            Yet despite me making these incredibly valid points you must resort to bashing me to promote your stock. Please, stick to the points. I hold that Red Hat is a bad stock to own right now because (a) profits have not materialized, (b) dividends are as close to zero as possible, (c) the price is reasonably low with some positive growth but represents a less than wise allocation of funds for both the short and long term, and (d) the market capitialization and cash reserves are grossly out of line with what they should be, tending to indicate future trouble if the market further corrects or sales decrease - as is the general trend during recessions.

            Finally, I hope you can respond intelligently. I did impugn or flame you in anyway. I am interested in your opinion. My point is and was that owning RHAT isn't a wise move, and compared to their competition, for example MSFT, they are an unwise investment.
            • First off, you talk about dividends, and yet MSFT has NEVER ONCE paid a dividend.

              You implied earlier that somehow earnings were automatically distributed as dividends, this shows a clear ignorance of the stock market, or if that isn't the case, then a twisting of the facts to confuse those less familiar with the stock market that might fall for your ruse.

              Second, I never said RHAT was "great stock" per se. I was only originally responding to the original post that said there were "no viable Linux companies".

              I'm not promoting anything. I'm just pointing out some facts.

              A lot of your numbers are just wrong. RHAT has 63 cents per share in cash, with about 169 million shares outstanding. This is about 106 million dollars in cash.

              This is all irrelevant though. RHAT is putting itself in a position where they will be rolling in the money. They aren't in direct competition with MSFT at all, the are more in competition with Sun, and other Unix vendors.

              RHAT concentrates on legacy UNIX->Linux conversions. MS can continue to push their toy products for home DSL users to use, and it won't affect the people that need real servers, and it won't matter to RHAT either.
              • First off, you talk about dividends, and yet MSFT has NEVER ONCE paid a dividend.

                That's patently false. They are not currently paying dividends. That is true. In that light, then yes, my point about earnings could be misconstrued.

                I never said MS was in competition with RHAT. The stocks are good comparisons though because the markets they are in (ie software) overlap.

                The numbers I provided are straight from RHAT's MRQ reports. The links I provided clearly show that. I go by what they say they have in actual cash reserves.

                This is all irrelevant though. RHAT is putting itself in a position where they will be rolling in the money. They aren't in direct competition with MSFT at all, the are more in competition with Sun, and other Unix vendors.
                Again, didn't say they were in direct competition, just that compared to MSFT RHAT stock is not attractive.

                Red Hats business seems to be to undersell Sun and other Unix legacy vendors. That's fine. But it is tough to make a profit long term giving away software. You have yet to address that. I will help you: they hope to make money by selling services and consulting. In that areana they will be facing the mega powerhouse, IBM. That will be tough. Seriously tough. IBM is devoting resources to Linux, and with all likely hood it will be a cold-day in hell before RedHat takes a chunk of IBM's consulting business.

                RHAT concentrates on legacy UNIX->Linux conversions. MS can continue to push their toy products for home DSL users to use, and it won't affect the people that need real servers, and it won't matter to RHAT either.
                Yeah, thats great and all. You still have no addressed how RHAT will be "rolling in it". In fact, no one has ever made clear to me, from the first day till now exactly what RedHat's strategy for money making will be. Who is their competition? What market? Example customers? How many clients do they need?

                There are serious issues with RedHat right now. You dismiss them. I do not.
                • IBM wants to work with RHAT, not against them.

                  Oh, and name the declaration date of a single MSFT dividend, if my statement is so patently false.

                  A real cash dividend, not a stock split (which is not a disbursement of any sort).

                  Maybe this [] will help you.
  • This might be redundant, as I'm sure I won't be the first to say this, but, throw these assholes in prison! And not the minimum-security polo-at-9:00-lattes-at-2:30 prison - the meeting-with-Bubba-and-a-stick-in-the-washroom prison. I'm tired of all these crooked executives getting off with light slaps on the wrist. If any of us peons ever stole that much money we'd never see the light of day again, much less get to keep the money.

    Why do I get the distinct impression that no one at Enron or Andersen is going to get punished either (with the possible exception of a low-ranking scapegoat or two)?
    • I can agree with your sentiment, but I can't share your conviction that being raped in prision is appropriate punishment. Why not just really bitchslap the company and give the fine some teeth?Say like 100% of their revenue last year.

  • by Anonymous Coward
    I can say that my impression of the dot com boom was that it was of dubious legality. Having worked for a start-up web development/marketing/we-can-do-anything-and-every thing firm, I saw blatant manipulation of stock prices via public stock trading message boards and outright lies regarding profits by the CEO (he said there were some when in fact the company was bleeding red ink.)

    The company I worked for had some strange affiliations, from the seemingly normal [] to the questionable [] to the downright shady (a Las Vegas land development company whose name I thankfully forget :) ).

    I saw quite a bit there...the VP dumping his options just days before the stock crashed, unqualified people getting paid a lot of money to do nothing (myself included), and of course massive document shredding in the accounting office.

    Of course, my views on this might be slightly skewed, this all occuring in the stock market scam capital [] of the Western world...

    AC for obvious reasons.
  • Ken Lay should be poor for life.

    Let the poonishment fit the crime.
  • by acoustix ( 123925 ) on Tuesday January 22, 2002 @10:43PM (#2885923) Homepage
    if EVERYBODY were allowed to participate with an IPO.

    For some reason only "privilidged" people are allowed to buy the stock before it starts. So why do we allow the rich to get richer? Everybody should be able to buy those stocks before trading starts.

    No exceptions.
    • Do you understand what stocks are, and what an IPO is? A company is only legally allowed to sell a certain number of shares, and usually offers less than that as their initial offering...allowing everyone and their moms to buy the shares is stupid, because there's a limited number of shares to go around. That's why IPOs used to go up their first day, because more people wanted the shares than there were shares to go around.

      • Do you understand what stocks are, and what an IPO is?

        Do you know how to read?

        No where did I say that there should be an unlimited number of stocks to buy. I said that everyone should be given the chance to buy - first come first served. Why should only a select few be able to get in on the ground floor? Everybody should be given that chance.

        • Everyone is. The day of the IPO, the stock opens on the market at that price. There have been IPO's where the stock went down on the first day. The fact that someone doesn't manage to buy the stock at that price goes up is just too bad. That's how the stock market works. If everyone got to preorder IPO shares at that price, then the price would never move on the stock, thus defeating the purpose of the stock market.
    • For some reason only "privilidged" people are allowed to buy the stock before it starts. So why do we allow the rich to get richer? Everybody should be able to buy those stocks before trading starts.

      No exceptions.

      Believe me, the companies would love it if everybody could get in on the IPO at the same time, before the bell starts. Because what would really happen is everyone with a broker would place their bets before the stock 'prices.' Then the firms would raise their opening amount to what they think everyone would be willing to pay. The more people bidding, the more it goes up. Then those companies would actually profit from the huge upward swings that have accompanied these IPO's, instead of the initial buyers profiting from them.

      IPO's are handled the way they are, because most of the stock being bought is held by large organizations that will NOT sell them on the open market for a while. The investment firms set this up so that they can keep the stock price stable. But there's always those that get in on the IPO and flip the stock anyway, and that's why the opening days can be crazy for the price.
  • Gee, I wonder if the Linux-o-philes out there will whitewash VA/Linux's (as well as other "Open Source" product companies) involvement in these financial shenanigans, or come to the realization that their so-called altruistic software purveyors are just as much a bunch of stinking, corrupt money-grubbers/bottom-feeders as the rest of the "business world".

    Linux - "Linus, I Now Understand Xenophobia!"

If at first you don't succeed, you must be a programmer.