First, when we started the company, Marc and I agreed that the company’s General Counsel would always report directly to me. This is different than in many technology companies where the General Counsel reports to the Chief Financial Officer.
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.
A few years ago I was approached by a headhunter for a publicly-traded software company about coming on as their general counsel. We had lunch to talk about it; my prior experience in that role was a good match for what they needed.
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.
For companies covered by Sarbanes-Oxley there are circumstances where the General Counsel is legally required to escalate an issue to the board of directors, or a subcommittee of it. That's going to be difficult and awkward if he normally reports to the CEO. So while there are pros and cons to a plural versus unitary executive, at least for public companies, it makes a lot of sense to have the GC report to the board or a specific committee.
What's the supposed rationale for the General Counsel reporting to the CFO in the first place? Isn't a General Counsel supposed to be "general" and not only concerned with financial issues?
I bit OT, but I saw something similar once where the head of QA reported to the director of development. So the guy in charge of QA's annual raise/bonus/etc was himself compensated based on hitting release deadlines. I wonder how people here would have set that up differently.
What I take from this story is that the financial law is so complex and unapproachable one can not reliably navigate it without landing in jail, even being a seasoned professional. The author's council could have given him "yes" answer as easily as "no" answer - many other lawyers obviously did since 200 companies got "yes" answers from their councils. And he'd never known anything was wrong. Basically, one can become a criminal not only without knowing he's doing anything wrong, but even without a theoretical way of finding it out - unless you survey all the lawyers you can find, you can not know if a yes from your lawyer would land you in jail or not, and you have no chance of understanding the law even if you spend years studying it - ultimately, the only thing that matters is the word of the enforcers on how they understand it.
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...
The premise that the author would've landed in jail for implementing the backdating scheme is flawed. His CFO went to jail, but because in the process of choosing favorable dates for backdating her stock options, she ended up deliberately misstating her income for certain years on her tax returns.
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.
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.
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.
There's a big difference between going to your general counsel and asking "Is this legal?" and going to your accountants and saying "Find me a way to make this legal enough." I think the options-backdating was an example of the latter.
> financial law is so complex and unapproachable one can not reliably navigate it without landing in jail, even being a seasoned professional.
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.
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.
or "How I Hired a White Collar Criminal And Avoided Jail"
"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
"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."
It's all politics. It's phrased as a "mistake" because anything more would admit to being aware of the fraud, regardless of whether or not that's the case.
This looks one of those cases that could have gone like this:
"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."
Just as it's hard to tell if someone's a good coder without yourself being a good coder, it's hard to tell if an attorney or financial expert is giving you good advice without seeking for yourself a basic understanding of the legal or financial issues. A good attorney or financial expert will help you understand the issues enough for yourself to see why their evaluation makes sense. It's not good enough to just completely outsource responsibility to someone else.
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.
One red flag in this case is that the CFO referred to PwC, a major accounting firm that her former company paid for some advice, as a reason why everything was OK. This amounts to "trust me" because you have no access to the terms under which PwC was retained by the other company and no idea who actually examined the options accounting or under what circumstances. Shady dealing is often obscured by appeals to a higher power.
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.
>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."
I think the problem arises when you're a CEO/Executive of a company and don't have time to do this yourself.
1. Backdating stock options per se is not what's the legal problem -- it's that failing to account correctly for the resulting compensation charges ("comp charges") can result in materially-false filings with the SEC.
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.
Backdating stock options per se is not what's the legal problem -- it's that failing to account correctly for the resulting compensation charges ("comp charges") can result in materially-false filings with the SEC.
> 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.
Accounting compliance is serious business, for the simple reason that when irregularities cause a company to restate its books and tens of millions of dollars just vanish, it can be very difficult to tell the difference between honest mistake and purposeful manipulation.
True, and I don't understand why he wouldn't have brought that up. When he wrote
"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."
... he made it sound like he threw an innocent (as in "until proven guilty") and valued employee under the bus at the first sign of trouble. The way he recounts the story, it doesn't sound like he had a good reason to do that at the time. He went out of his way to make Abrams sound like a victim, even at his own expense, when that apparently wasn't the case at all.
I really enjoyed reading this story. Now imagine being in this situation if you don't have a Jordan: you've got this super reputable head of finance who implemented this great option granting process at another huge company (PwC in this case) that was approved by their accounting team, how do you figure out if the process is legit? Where do you find people like Jordan?
The accounting practice was not implemented at PwC. Mercury Interactive, then a client of PwC, is the "huge company" in question. PwC simply approved of it.
Just curious. Suppose you did your due diligence, asked your general counsel, and they said, "It's within the law, go for it." Then, acting on their advice, you did the same thing this person did. Would you go to jail for the same amount of time in both cases?
E: Name removed to protect the accused, although it's thin protection indeed considering her name is disclosed elsewhere in this thread.
From reading the first release, it sounds like the penalties imposed was for more than just the stock options thing described by Horowitz. It also describes fraudulent disclosures about backlog of sales and structuring fraudulent loans. So it's not necessarily the case that Horowitz would have had to serve jail time if he had gone along with his cfo's proposal (although he would likely have had to pay back his gains and possibly fines).
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.
What is described here doesn't sound strictly illegal.
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.
This might be a naive viewpoint, but I don't see how this could be viewed as legal. If I as a retail investor in equity or equity options in a company was approached by my broker and asked what day in the past I would like to use for my cost basis calculation, that would sound pretty fishy. Why should it be different for inside holders?
Stay away from mirroring PWC policies unless all your executive officers have a degree in commerce, finance, and law. Because you'll need all three to get out of the fraud charges you'll be slapped with.
The reader is invited to do some research into what companies PWC has done accounting for.
What boils my blood is this woman going to jail for doing something that was accepted practice and approved by PwC, where seemingly no criminal intent existed.
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.
"In my reference checking, at least a dozen investors told me that they made far more money when the numbers disappointed than when the company outperformed, because they trusted Michelle when she said that things were not worse than they appeared and bought on the dips."
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.
That was an excellent article. One of the best that I have read recently about company management. Of course to get the full impact you need to do a lot of reading between the lines, but Ben does us the favor of leaving some broad hints. This really does have the flavor of a manager skillfully navigating the business through shark-infested waters, and IMHO, that is exactly the job of senior management. Including CTOs. While a CTO may not have direct responsibility for legal and accounting issues, they need to be fully aware of what their colleagues are up to, because, as Ben pointed out, another executive might be subverting the law in pursuit of some number. If that is happening and the CTO does not notice it and call their colleagues on that type of behavior then the CTO is complicit and will at minimum get fired, and could even go to jail.
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.
The weirdest thing here is that, mistakes or not, these law violations gives someone jail time.
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.
>The proper way to make it right is to apply monetary penalties (eg. fines).
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?
[+] [-] cperciva|12 years ago|reply
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.
[+] [-] dctoedt|12 years ago|reply
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.
[+] [-] bradleyjg|12 years ago|reply
[+] [-] jey|12 years ago|reply
[+] [-] pjungwir|12 years ago|reply
[+] [-] pbreit|12 years ago|reply
[+] [-] mathattack|12 years ago|reply
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.
[+] [-] leoc|12 years ago|reply
[+] [-] smsm42|12 years ago|reply
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...
[+] [-] rayiner|12 years ago|reply
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.
[+] [-] Negitivefrags|12 years ago|reply
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.
[+] [-] ganeumann|12 years ago|reply
[+] [-] morganw|12 years ago|reply
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.
[+] [-] jeffdavis|12 years ago|reply
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.
[+] [-] staunch|12 years ago|reply
"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.
[+] [-] woodchuck64|12 years ago|reply
"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."
[+] [-] Lifescape|12 years ago|reply
[+] [-] _delirium|12 years ago|reply
[+] [-] unknown|12 years ago|reply
[deleted]
[+] [-] gohrt|12 years ago|reply
"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."
[+] [-] bfe|12 years ago|reply
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.
[+] [-] memracom|12 years ago|reply
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.
[+] [-] Nicholas_C|12 years ago|reply
I think the problem arises when you're a CEO/Executive of a company and don't have time to do this yourself.
[+] [-] dctoedt|12 years ago|reply
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.
[+] [-] grandalf|12 years ago|reply
This is the key point.
[+] [-] einhverfr|12 years ago|reply
See Arthur Anderson and Enron...
[+] [-] rayiner|12 years ago|reply
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.....
[+] [-] CamperBob2|12 years ago|reply
[+] [-] arasmussen|12 years ago|reply
[+] [-] heartbreak|12 years ago|reply
[+] [-] unknown|12 years ago|reply
[deleted]
[+] [-] SDGT|12 years ago|reply
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!
[+] [-] jamesaguilar|12 years ago|reply
E: Name removed to protect the accused, although it's thin protection indeed considering her name is disclosed elsewhere in this thread.
[+] [-] etjossem|12 years ago|reply
http://www.sec.gov/litigation/litreleases/2009/lr20964.htm
And a description of the practice in question:
http://en.wikipedia.org/wiki/Options_backdating
[+] [-] robotcookies|12 years ago|reply
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.
[+] [-] LanceH|12 years ago|reply
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.
[+] [-] aaronbrethorst|12 years ago|reply
http://www.pbs.org/wgbh/pages/frontline/shows/snitch/primer/
[+] [-] timmclean|12 years ago|reply
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?
[+] [-] enjo|12 years ago|reply
[+] [-] kyleblarson|12 years ago|reply
[+] [-] gohrt|12 years ago|reply
[+] [-] anonbanker|12 years ago|reply
The reader is invited to do some research into what companies PWC has done accounting for.
[+] [-] danbmil99|12 years ago|reply
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.
[+] [-] VladRussian2|12 years ago|reply
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.
[+] [-] memracom|12 years ago|reply
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.
[+] [-] Nicholas_C|12 years ago|reply
>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?
[+] [-] Aloha|12 years ago|reply
[+] [-] iwasphone|12 years ago|reply
[+] [-] outworlder|12 years ago|reply
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.
[+] [-] pessimizer|12 years ago|reply
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.