Why I Did Not Go To Jail
bhorowitz.com
bhorowitz.com
This needs to be in bold 72-point font. Corporate behaviour aligns with corporate structure, and if the General Counsel is subordinate to the Chief Financial Officer, complying with the law will inevitably be secondary to making money.
If you want to avoid jail time, you should either have General Counsel reporting to the CEO or General Counsel / Chief Legal Officer appointed by and reporting to the board.
Some companies have every C level executive reporting to the CEO.
Some CEO's are big picture people and focus on external issues. This means that the company would usually have most functions reporting to the COO.
Sometimes it just makes sense to have a group report to an executive. Consider Groupon, its largest expense is marketing so it might make sense to have the Chief Marketing officer report to the CFO. It can also make sense for financial companies to have the Counsel report to the CFO as they would be doing primarily financial related duties, like compliance.
General Counsel is a special case as its a bit of an oddball case for companies where its not a core function and will often report to the COO.
IT can often be like the general counsel where it's not viewed as a core function or PnL center and thus report to another C level executive like the CFO or COO.
this is THE classic example of corporate sociopathy. unfortunately its still the way a lot of companies do business.
The story in the article is a great example, I don't think the CFO thought that she was breaking the law. It was a practice that she had engaged in previously, it was vetted by a big-5 accounting firm, and benefited the employees. The CFO was widely respected in the industry -- this wasn't some flimflam person or sociopath.
When your attorney works for someone else, that other party becomes the client. If you, as a CEO (or an individual) are ultimately accountable for the outcome of your decisions, you want the attorney working for YOU, so that you get unfiltered information to drive decisions.
regarding that CFO from the linked article though, the federal prosecutor seemed to believe she was a criminal, and proved it enough that a jury agreed also and she eventually served jail time. we're not mind readers so we don't know how she felt about her actions, but honestly, it kinda looks to me like she really was a low level sociopath. just because she was surrounded by people who reinforced and validated her behavior doesn't mean she was acting morally.
I'd say the exact opposite. If the GC is spending most of his time making sure that the CFO isn't doing anything illegal, the GC needs to report to anyone other than the CFO.
Fortunately I/T seems to be on it way out, though regrettably slowly.
I am referring to "I/T" as a corporate computing function within the company, a function which often hiders rather than accelerates the business.
I/T typically picks technologies which are easier for I/T. Hence there's a corporate standardization on one mail system, one OS; very strict upgrade cycles etc. This kind of made sense in an earlier era when computing wasn't really integrated into the business processes -- people would be "on email" and if the icons changed an expensive "training program" had to be rolled out because the majority of working people had a passive aggressive learned helplessness towards computers.
What happened is that people became more savvy and worked around I/T. First it was the PC: the appeal of the Apple II was that you could buy one, add a copy of Visicalc, plunk it down on your desk, and get work done without dealing with those assholes in I/T. I/T (this is before CIOs etc) fought back (just look at magazines like Datamation from the 1980s to see; I am not exaggerating) and took control of the PC infrastructure. Around 2000 departments would start to put in wifi access points and local file servers under secretaries' desks to just get work done. I/T again was seen as a barrier.
Nowadays I/T is freaking out about "BYOD" because people wouldn't put up with the crappy company-issued blackberries etc. But it is making business more efficient and humane.
You could see the nails entering the coffin for a long time, but these things take time. When I was at MIT in the 1980s I would get a laugh when I would run across a piece of literature from MIT's I/T department about the computing crucial capabilities they provided to MIT -- because they had nothing to do with the systems we depended on in the research labs which were mature and two generations beyond what I/T offered. And even now, heavily computer-intensive businesses often have disjoint departments and technologies for their customer-facing work and their internal systems (a few huge products like Oracle are rare exceptions).
However, that's not because that's what we wanted to do. That's because someone had the bright idea to bring a paper to the CEO, and he said "We can't just have everyone accessing every damned file!!!"
Believe me, it's just as rough being the enforcer as it is being the one being enforced!
However, I think we'll need people to fix computers, update the servers, and wake up at 2AM to put a fan in the server room ;)
Yes, I'd say that from a governance perspective the ideal situation is to have a GC or CLO reporting directly to the board. In startups the board doesn't necessarily do as much governing as they normally would, though, especially in the case of a founder-CEO; in such a case of a dysfunctional board, having the GC report to the actual nexus of decision-making (aka the CEO) might work better.
The search for a general counsel, though, had been commissioned by the CFO, who was politically powerful within the company, and who wanted the GC to report to him. I told the headhunter that, especially because this was a public company, in my view the job would have to report either directly to the board, or to the CEO with a dotted line to the board; I explained why.
The headhunter said he thought that would be a problem but would check. He later let me know that what I'd said had killed the CFO's interest in me. I later saw in the paper that they'd hired someone else, who was reporting to the CFO. Best of luck to them.
This isn't OT at all since most HN readers won't be CEOs of publicly traded companies. Your situation is far more common.
A good guide for this is how the FDA manages Good Manufacturing Practice (similar to ISO 9000 except focused on, you know getting shit done instead of getting hung up on the process). One important part is the distribution of responsibility. They get extremely upset by situations like the one you describe specifically because of the possibility of undue influence on the results. Manufacturing, R&D, QA and QC have to be organized to ensure proper independence.
(Which also means if you hear about scummy behaviour from a drug company: that flows from the top).
-d
PS: little known fact: the FDA has armed enforcement personnel who WILL storm through the door in some cases where they believe fraud could be involved in endangering people. I know of cases of this on the pharma side at least -- the food side may be more lax.
The larger the group of people, the more the structure of that group rather than the moral makeup of its members determines that group's behaviour.
One of the huge problems in an unregulated stock market is that you have people exaggerating their financial position either because they aren't doing due diligence or because they are lying. Investors (including workers paid in stock options) have no way to evaluate the claims, and so you get exaggerated claims, false advertising in efforts to raise money, etc. We give some deference to those only seeking investment from small pools of friends or family, or those seeking help from venture capitalists who are presumed to be able to spot irregularities themselves, but on the stock market this is considered dangerous.
The second problem has to do with the convenience of stock analysts but is a related problem. The analyst always has less information than the CFO of the company he is analysing. Differences in ways of accounting lead to distorting effects as analysts read into them more of a difference than is justified by the facts. The stock market thus breeds a need for uniformity of accounting standards that small, locally supported and financed businesses do not need.
The result are things we call "securities law" which always includes "following the best practices from the relevant accounting organizations" (i.e. IASB or FASB depending on where you are).
Do the right thing is sufficient, on the other hand, if the business is a small one serving local markets and invested in by local individuals. It breaks down quite a bit as one tries to scale up.
What happens when the head of risk management and head of compliance report to business unit heads rather than functional lines? (See most big banks)
What happens when the local partner can overrule national standards committees? (See Arthur Andersen)
If the watcher reports to the watched, you're just going through the motions. Very informative.
It's like living in the same apartment with alcoholic gorilla prone to random outbursts of violence. One day it eats too much of fermented fruit and you're toast. And you have no way of knowing when it happens. Maybe you'll get lucky and you'll be out that day. Maybe you won't.
If I had code that is that bad and unpredictable and nobody knew if it would work or not except by seeking an opinion of a soothsayer which nobody can validate until it's too late, and it would be prone to random catastrophic failures which nobody can predict or find out why they happened, even seasoned professionals, I'd say not even refactor it. Just bury it and start from the design up again and redo the whole thing. That's pretty much the financial code we have now, as far as I can see. Good thing I have to deal just with segfaults and buffer overruns...
Someone decided that this individual needed to be made into an example and go to jail for some nominal amount of time. Period.
Go to trial, and they would find some statement made in hours of interrogation that wasn't 100% accurate, and convict her of lying to a Federal officer.
Unfortunately those are not the only things at issue. One key thing involved is uniformity from an investor's perspective and I think that's where the idea runs off the rails.
1. Loads of companies were doing it. 2. When this company wanted to do it, their counsel said it was illegal, so they didn't.
Given those facts, we can't say that the other 200 companies were simply flummoxed by a too-complex regulatory framework. They may just have well had their own meetings and said, "This looks fishy, but everyone else is doing it, and we get more money." Or maybe they did no due diligence at all, and just did it anyway. Once caught, obviously many people would claim an honest misunderstanding, whether or not there was one.
Frankly, I'm skeptical of the whole, "the jail sentences were handed out arbitrarily" angle. It seems the opposite of arbitrary -- the person who instituted an illegal policy in multiple companies was punished. The law may be complex, but when you're making C-level salaries, I'm sorry but you're expected to figure out if you're committing a crime or not.
>>> but when you're making C-level salaries, I'm sorry but you're expected to figure out if you're committing a crime or not.
I'm not sure how it has anything to do with the salary. I'm sure whichever lawyers OKed this practice - and I would find it very hard to believe hundreds of companies would just decide to wing it without asking a lawyer - I'm sure they were paid enough. They just thought it'd be OK, but they were wrong. How the salary helps to deal with that? Unless you're claiming the salary is just compensation for the possibility of being jailed for something you have no idea you were doing wrong. In which case I'd prefer a system with more transparent laws and lower CEO salaries.
I'm saying that if knowing things like the legal requirements for running a company isn't expected to be part of your job, then you should pay someone a hell of a lot less to do the job than most executives are paid. If you just want someone to wing it, give me a call -- I'll work for probably 10% of the salary.
It's not that the salary is compensation for the possibility of going to jail. It's that compensation correlates with responsibility. If you hire a programmer for $250,000 a year, you damn well expect him or her to be better, more responsible, and more independent than one you're paying $50,000 a year. If not, then what are you paying 5x as much for? So if I hire a CFO at say, $3.5 million a year plus stock options and all the other perks (that's Google's CFO compensation at the moment), what am I paying for if I can't assume that they won't have bothered to figure out the accounting laws?
Also, you're assuming that companies would be innocent, unknowing participants here. That's an assumption that, very often, turns out to be false when we have occasion to check. I don't think all those valley companies thought they were allowed to enter into those wage-dampening agreements, but they still did it. I don't think that was an honest mistake or misunderstanding of the law. I don't think Enron, Tyco, Global Crossing, AIG, and a million other examples thought they were shining beacons of moral virtue victimized by a complicated legal system either. People, and by extension corporations, will quite often break or at least flirt with breaking the law in exchange for money. You're asking me to just take your word for it -- sort of a "well obviously we didn't mean to do anything wrong" defense. It isn't obvious.
>>> what am I paying for if I can't assume that they won't have bothered to figure out the accounting laws?
Again, that's what I am talking about - I think it would be much better if the laws were such that you don't have to hire 3.5 mln/year CFO and still not be sure if that all won't end up in trouble.
>>> . I don't think all those valley companies thought they were allowed to enter into those wage-dampening agreements, but they still did it.
That is entirely different topic, but I see you presume you have the right to tell companies how they should pay the workers. I have no idea where that came from to you, and if you do, you're the part of the problem. That is exactly the reason why these laws are so bad and convoluted - because everybody wants to pull a bit of it to their side and carve a little loophole in the law to add a bit more power to himself. I want to be paid more (no matter I'm already paid well into six figures and am in one of the best paid professions in the world) - so I want a law that tells the companies to pay me more. Then the company comes and makes their private law that makes a loophole for them so they don't have to. And then you come and carve another little loophole for yourself. And pretty soon you need a 3.5mln/year professional to figure out what your employees should be paid, and you still get sued for millions because apparently some bureaucrat disagrees.
I think you're exaggerating the complexity of the legal system to attempt to support a point that doesn't warrant support. In the article, Horowitz took the proposal to his company's legal counsel, and quite quickly, counsel came back with, "this proposal is illegal". It's not impossible to determine that -- it was actually determined correctly in the real world.
On the wage agreement issue, here's a quote from the recent Pando Daily article (http://pando.com/2014/01/23/the-techtopus-how-silicon-valley...) regarding Eric Schmidt:
"Later that year, Schmidt instructed his Sr VP for Business Operation Shona Brown to keep the pact a secret and only share information “verbally, since I don’t want to create a paper trail over which we can be sued later?"
This isn't a case of a company honestly trying to follow the law and being victimized. Schmidt knew that he was opening Google up to legal action, and he did it anyway because it saved him huge amounts of money.
If these companies think the laws are bad, it's not like large corporations have no political power. They're free to buy as many votes as they always do and get them changed. Until that happens, they can suck it up and abide by the anti-trust laws in force in the country they've chosen to incorporate in.
>>> This isn't a case of a company honestly trying to follow the law
First of all, this is not the case that we were discussing - it has very little to do with financial law. Secondly, in current climate, where companies can be sued for basically anything, given they have enough money to be attractive targets, of course that makes executives to try and minimize the exposure. Even though company is supposed to be able to choose their worker's pay as they please, obviously it is not so - the populist politicians want to mess with it to get themselves elected. And thus a savvy executive would certainly not want to make it too easy for them. It turns into an adversarial game, and the results are not good for anyone.
>>> If these companies think the laws are bad, it's not like large corporations have no political power. They're free to buy as many votes as they always do and get them changed.
That's what they are doing. That's where the regulatory capture comes from. As a result, the law becomes more and more complex, as each company and each interest group carves a loophole in the law for themselves and pours millions into buying off politicians. As a result, we get completely corrupt politicians, the law that is trying to serve a thousand of special interests and no longer has any connection to what was the original purpose of the law - to protect people's rights, huge barriers of entry to the competition, billions spent on political squabbles instead of doing something productive (think about how many people one could feed and clothe for the cost of one election campaign) and ultimately the consumers and taxpayers paying for all this baloney. And you response essentially is - if you don't like how we do it in America, GTFO? Is this really the best you can do?
Good thing we have more than just a blog post on the options backdating scandal, as it's a well-known scandal
https://en.m.wikipedia.org/wiki/Options_backdating#Overview_...
http://usatoday30.usatoday.com/money/companies/regulation/20...
Options backdating was a big fucking deal a few years ago.
The CFO proposes certain practice, it is not obviously illegal (like not paying taxes or stealing office supplies from competitors at night)
It's not obviously illegal to lie about the date on which you granted an employee his/her options?
But for a publicly traded company, backdating may change the financials presented to investors unless the math is done and the changed numbers are explicitly presented.
By and large, people do not go to jail for simply picking the wrong plausible interpretation of tax or accounting law. There's even a Supreme Court case about this: http://en.wikipedia.org/wiki/Cheek_v._United_States ("The Court held that an actual good-faith belief that one is not violating the tax law, based on a misunderstanding caused by the complexity of the tax law, negates willfulness, even if that belief is irrational or unreasonable.")
With something like backdating, you're essentially going around saying that something happened on one date (the options grant), when it actually happened on some other date. While that may be kosher for the purposes of accounting, and PWC or E&Y will happily sign off on that, it doesn't mean that those assertions are thus okay in any other context. And that's not a subtle legal gotcha, it should be plainly obvious.
Now, the part where backdating is hidden from the people who have to have control over the matters - like shareholders - is another matter. That is violation of trust, embezzling and fraud. But I see no sign of it in the story we were told - I see no sign that the dating that was proposed were to be hidden from workers or shareholders.
Basically, she said on her tax return that she had exercised her options on April 4, 2001, when not only had she not done that, but she hadn't yet met the requirements for being able to exercise her options at that time. This is not being burned by some esoteric rule where she checked Box A when she should've checked Box B. She filed a tax return that said something happened on a certain date that not only didn't happen on that date, but couldn't happen on that date.
That's why Horowitz's premise is false. He wouldn't have gone to jail for implementing the same backdating scheme. Tons of companies did it, very few went to jail, and those who did went to jail because they let the backdating fiction cause them to either lie on their tax returns or commit affirmative fraud on investors.
Also: to make a more general point--companies are entitled to compensate executives in whatever manner the shareholders will tolerate, but public companies aren't entitled to be deceptive about it. That was the problem with backdating: while the process itself was legal from an accounting standpoint, the fact that it was built on a fiction made it easy to cross the line into outright deception. The wikipedia article actually has a great sentence that captures the whole situation: http://en.wikipedia.org/wiki/Options_backdating ("To be legal, backdating must be clearly communicated to the company shareholders, properly reflected in earnings, and properly reflected in tax calculations.")
Because this story was written by a liar and/or idiot.
Option accounting law is simple and clear. Market value – exercise price = loss taken by shareholders. This goes in the quarterly report so the shareholders know how much they spent on employee compensation.
The financial planner "Michelle" was trying to simply not report the cost, to fraudently make the numbers look better. This is one of the oldest frauds in the book. Frankly I am amazed she did not get multiple life sentences for her crimes.
The story author falsely tried to make it look like some sort of terrifying subtlety, an accounting landmine that nearly blew off his leg. It is not. Every responsible accountant would start shitting kittens if confronted with this fraud in their company.
Edit: From other comments, the story was not even about the actual crimes. So the author is not an idiot, but manufacturing a scare story Daily Mail style.
It's difficult to take this opinion seriously when the comment author is so unread about the law that they don't know the difference between "council" and "counsel"! It's a very strong opinion which is devoid of any learning or context whatsoever -- has the author never heard of Arthur Andersen?
What would you conclude?
In this case, coupled with your exceptionally unsophisticated understanding of the law, and not even a passing familiarity with the issue at hand, I'm more inclined to believe that you didn't actually know the difference until it was pointed out to you. I mean, you said in your comment that it doesn't seem "obviously illegal" to lie about the date when an option was granted. I don't think you even understand what options backdating is, or what was happening in the accounting world at that time. You just seem like a guy who wants to complain that government is arbitrary. Your only evidence for this is that a reasonable CFO would have looked at other CFOs and copied their behavior, therefore nobody could possibly be held responsible.
Don't you think it's incumbent on someone who takes these positions to demonstrate that they understand why the law requires proper dating of options, or FFS why income tax exists even, as your proposals have very broad reaching implications?
Nice distraction though, are you a politician? They're really good at the whole "all sizzle and no steak" thing.
The CFO of the little company I worked for in the mid&late 90's said her colleagues were calling FAS 123 (draft in 1993, revised in 2004) stock option accounting guidelines from FASB the "aircraft carrier" document because of its size. The PDF http://www.fasb.org/pdf/fas123.pdf is only a little over 100 pages, but it's some dense dense stuff and I'd guess 10x that length has been written in interpretations.
That's pretty much it.
I remember not feeling any sympathy for my friends who ran in to tax problems. It's easy to assume that this stuff is well understood and it must be their fault for failing to do it properly.
What I found out later is that even if you make every effort to pay your tax correctly, you will still get screwed eventually.
Provisional tax law, for example, requires literally knowing the future to avoid penalties.
I'm in New Zealand and I thought it was complex here. Then I encountered the US tax system. Holy crap!
Even hiring expensive US accountants our company still managed to get a 20k fine out of nowhere for reasons I don't understand. Supposedly this is being appealed and our accountant assures us that we will get the fine rescinded, but there you go.
A change in the benefits to employees that doesn't result in a corresponding adjustment to the books raises a red flag to me, and I'm not an expert at all.
The author was probably giving too much benefit of the doubt to his former CFO. She was probably being a bit lazy and probably tried to be a bit too clever. I'm not saying the cleverness was greed; it may be as simple as wanting to feel like she could really contribute something to the company beyond what an ordinary CFO could do.
But accountants are supposed to be above that. Accounting regulations are there to protect investors from a million kinds of cleverness that have proved disastrous over the past few thousand years.
My only complaint is that the government itself is not held to the same standard of accounting.
"On May 31, 2007, the Commission charged Abrams and three other former senior Mercury officers with perpetrating a fraudulent and deceptive scheme from 1997 to 2005 to award themselves and other Mercury employees undisclosed, secret compensation by backdating stock option grants and failing to record hundreds of millions of dollars of compensation expense. The Commission's complaint alleges that during this period certain of these executives, including Abrams, backdated stock option exercises, made fraudulent disclosures concerning Mercury's "backlog" of sales revenues to manage its reported earnings, and structured fraudulent loans for option exercises by overseas employees to avoid recording expenses." -- http://www.sec.gov/litigation/litreleases/2009/lr20964.htm
"Federal prosecutors obtained an indictment against Abrams in 2008 for income tax evasion and aiding in the preparation of false tax returns." -- http://www.reuters.com/article/2010/09/09/mercury-plea-idUSN...
Calling these "mistakes" is highly disingenuous.
"Noting that criminal tax evasion cases are relatively rare, prosecutors called Abrams' crime "a disturbingly familiar case of a wealthy defendant manipulating a system to gain more money."
"Someone proposed an idea that was perhaps technically legal, but obviously failed the sniff test of ethics and spirit of the law. I reminded her of what I repeatedly tell our staff at welcome/training meetings: At this company, we do what is right, for our employees, our customers, our investors, and the public. We don't mislead one to help another. We don't waste time splitting hairs about whether something smells bad or is totally rotten. If we're not proud enough of an action to want to see it on the cover of the New York Times, we just don't do it."
Always do and trust own analysis (with an attorney or expert you trust when needed) instead of falling for the lure of "it's fine with these other experts so it should be fine for us." That's a recipe for a herd mentality random walk through and across the gray areas of the matter.
I think the problem arises when you're a CEO/Executive of a company and don't have time to do this yourself.
1. From memory; it was on video and I can't find a text reference now; in reference to SpaceX already using strict enough accounting controls to be Sarbanes-Oxley compliant even though it's a private company, IIRC.
Also, while Tesla and SpaceX are great, I'm not sure I'd unquestioningly accept every word Elon Musk says as absolute fact.
1. Having a good grounding in accounting basics, and
2. Having enough accounting knowledge beyond the basics to have a discussion with accountants and lawyers regarding best accounting practices.
If you run into this in your own company you should be suspicious and try to get the company to hire an independent expert to review the situation, which is exactly what Ben did. For an expert to be truly independent they need to be retained by someone outside the group under suspicion.
Suspicion is not a bad thing as long as you deal with it promptly. Dealing with it clarifies the situation and removes the suspicion, one way or another.
When there are mass layoffs, they hire "consultants". Because nobody inside wants to really take responsibility for the decision. It's better politically to have it come from some "outside objective analysis" (of course there is not such thing, and outsiders are often the worst people to make such decisions.)
Note how Ben Horowitz did not just farm out the decisions to a prestigious consulting firm but gave it to a guy that he knew and who he had carefully checked out in order to know that he was trustworthy.
2. It's a different problem as far as the internal politics are concerned. When a company properly records such comp charges in its financial statements, can depress a company's financial results and with it the stock price. Hence, there's an incentive to avoid recording such charges if at all possible.
3. Now consider the interest groups / constituencies and their incentives:
+ Employees, sometimes vociferously, want the lowest strike prices they can get for their stock options -- that can be especially true for executives who have big grants -- and they want the stock price to be as high as possible (hence they're not wild about recording comp charges).
+ Board members would like to keep employees happy, especially executives, and of course themselves and their fellow board members, if they can. Issuing options with an in-the-money strike price can often appear to be a cost-free way of promoting general happiness.
+ On the other hand, the constituencies that have a strong interest in strict legal compliance -- mainly the law and finance departments -- are often weaker politically than the ones who want the low strike price and the high stock price.
As a result, there can be a lot of subtle pressure on a CFO. Employees and even senior executives can say, "look, doing this in-the-money option grant, without recording a comp charge, is OK with our audit firm and with our outside counsel --- what's your problem? Why shouldn't we rely on them?"
(The unstated subtext being, they're the experts, not you, and we like their answer better than yours.)
Finally, let's not forget that outside accounting- and law firms are motivated to keep their clients happy, to be perceived as team players, and ultimately to get hired for repeat business. They definitely have incentives to tell clients what they want to hear if they can possibly do so. Stir in the fact that when these professionals can come up with "creative" ways to make their clients happy, they gain in reputation with other potential clients and with their professional peers.
All this means that the company's senior executives and its compensation and audit committees need to be willing and able to stand up to the pressures the other way. That's been made easier by the news reports of people going to jail and being permanently barred from serving as officers or directors of public companies.
This is the key point.
See Arthur Anderson and Enron...
That said, there is a bit more to the story than revealed in the article. From what I can tell, the criminal charges and jail time was for income tax evasion in connection with the backdating of stock options: http://www.law360.com/articles/229277/ex-mercury-cfo-gets-4-.... Specifically, the process of her backdating her options resulted in her filing tax returns understating her income: http://www.justice.gov/usao/can/news/2010/2010_09_16_abrams.....
"The SEC issued Michelle a Wells notice, a letter
stating that it planned to recommend enforcement action
against her personally. It was not an indictment, but it
was a formal investigation, and it would be very
distracting. I had to ask her to step down."
And, though it sounds silly after the whole stock option backdating brouhaha, many people did not seem to think that these practices were illegal at the time. Even Steve Jobs was accused of it (though never charged.) United Health Group, KB Home, Brocade, and Monster Worldwide all had executives who were found to have broken the law on backdating. It's possible these executives did not think the practice was illegal (maybe because their accountants had told them it wasn't) and likely they thought that it was a law not enforced (because it had not been enforced until the WSJ brought the practice to light in 2006.)
If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.
On another note:
Holy shit Terry is back with a new account.
I've missed you Terry!
E: Name removed to protect the accused, although it's thin protection indeed considering her name is disclosed elsewhere in this thread.
http://www.sec.gov/litigation/litreleases/2009/lr20964.htm
And a description of the practice in question:
It is my understanding that most of the options violations (of various forms) stem from not carrying the options as the liabilities they are. It was usually pricing them at zero cost until exercised as many companies did, or backdating them and drastically changing their value.
When I first read the blog, it certainly sounded like the SEC being overly harsh over a mistake made by a good CFO. But reading the release makes me think there was more to it than that. It's possible this is the reason why that excerpt wasn't published in his book.
http://www.pbs.org/wgbh/pages/frontline/shows/snitch/primer/
Summary: I ran an accounting decision that worried me past my excellent lawyer.
This makes me wonder, as someone with little legal experience, how can we find lawyers who are truly great at what they do?
There might be a bit of hagiography of the GC in the original story based on what Ben now knows could have happened. For all we know, the illegality of the scheme could have been glaringly obvious to any lawyer.
The reader is invited to do some research into what companies PWC has done accounting for.
Laws that are that opaque, where interpretation and enforcement can change at the whim of regulators and their bosses, are not morally justifiable. IIRC Steve Jobs did the same thing at Apple and they (predictably) got a slap on the wrist.
When this was going on I was running a small public co. and our counsel (outside but on BOD) was dead-set against any options dating shenanigans, despite what others were doing, so I guess I agree with OP's main point -- that having the right reporting structure can save your ass.
anybody sees any wrong here? Beside private hush-hush, there seems to be the same pattern - like with backdating of options - of optimizing interests of some selected "closer than arm reach" group at the expense of general shareholder population of that company.
Taking public money in any form, comes with obligations to play fair, and however much you may disagree with the laws or the people who made those laws, they are the current standard for whether or not someone is playing fair.
>Abrams [the CFO in Ben's article] Also to be Barred from Serving as an Officer and Director of a Public Company
I wonder what people who get caught up in these sort of things do afterwards?
Come on! At most, it caused monetary damages. The proper way to make it right is to apply monetary penalties (eg. fines). What's the reasoning behind locking up someone for that? It is not like the general public is being physically harmed, so 'Michelle' should not have to be physically restricted.
Besides, depending on the amount, a fine can set someone back for way more than 3 months. The cost-benefic analysis will make her thing twice next time.
What's the reasoning behind that? In-kind punishment? If somebody runs over a family with a car, should their family be run over by a car? If someone rapes, should they be punished with rape?
I get it if the law is supposed to be a game.
But here, we see SV hanged for "mistakes". Wtf?
really?
Made up example:
"I once met a president of the USA, he was called Carrick O'Barmy [name changed to protect the innocent] he was snorting crack of a toilet seat at the time" ... doesn't look like it would if printed as a truth, but was really a lie, mean I would get off scott-free unless the context was clearly parody (or as here labelled as a fiction).
IANAL of course, nor even a USA citizen.
It looks like it was written by a racist bot? What? Why is somebody paying money to do this?
edit: yeah, that's the guy.
I find this quite disturbing. Especially the second part.
I've never heard this saying, and Google comes up with nothing. Maybe this is a paraphrase of one of those raps Ben likes?
http://www.bizjournals.com/sanjose/stories/2006/07/03/daily1...
(b) opsware was publicly traded. part of her punishment was not being allowed to serve as an officer at a publicly traded company.