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SEC, Stock Options & Silicon Valley

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10/18/2006

I've been waiting for an Austrian who actually understands the accounting legalities to explain all this but no one has, so consider this an invitation. Tech companies have been buffeted by a round of stock options scandals. The media coverage has been a bit confusing but the irregularities have something to do with backdating stock options to a point when the stock price was low to maximize the value of the options. (What is confusing is that this in itself doesn't seem to be illegal. The problems have to do with "proper disclosure").

These stock options problems have hit top tech companies hard. The CEOs of McAfee and CNet have resigned. The former CFO of Apple is also gone (and some seem to want CEO Steve Jobs to step down which Apple shareholders definitely don't want). "The stock option practices of at least 135 companies are under government investigation or internal review."

Here are some reasons (from this article) that I'm suspicious that this rash of problems has less to do with an outbreak of unethical behavior in Silicon Valley and probably more to do with some political witch hunt:

  • "A federal government task force looking for evidence of stock option malfeasance is now based in San Francisco."
  • "Companies that cooperate with the government and take steps to clean up their books have the best chance of avoiding legal trouble, said Eumi Choi, a federal prosecutor who is chairing the task force."
  • "...the stock option-induced departures of [CNet SEO] Bonnie and [McAfee CEO] Samenuk 'are like red meat for prosecutors and regulators,' Koenig said."

Famed sci-fi writer and longtime tech columnist Jerry Pournelle had this to say on the recent This Week in Tech (TWiT) podcast: "Notice who benefits out of all of this. The bloody government. [These companies are] paying fines. The purpose of the government is to collect money and spend it on government employees. That's what it does."

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