16 ms·

Why I Did Not Go To Jail

580 points by bfe 13y ago

kyleblarson 13y ago
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?
- gohrt 13y ago
  Vanguard.com does that (but you get 2 or 3 choices that are all generally accepted, not "pick a date")
staunch 13y ago
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 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-idUSN0920738920100909 http://www.reuters.com/article/2010/09/09/mercury-plea-idUSN... Calling these "mistakes" is highly disingenuous.
- woodchuck64 13y ago
  http://www.law360.com/articles/229277/ex-mercury-cfo-gets-4-months-for-tax-evasion http://www.law360.com/articles/229277/ex-mercury-cfo-gets-4-... "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 13y ago
  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.
- _delirium 13y ago
  Ben Horowitz's blog is normally along such lines: posts that have a general basis in fact, but represented in a highly misleading manner.
- deleted 13y ago
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  - deleted 13y ago
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timmclean 13y ago
> Why I did not go to jail 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 13y ago
  This, more than anything else, is why every entrepreneur needs a great mentor.
  - timmclean 13y ago
    Turtles all the way down -- how do you know if a mentor is a great one?
    - hudibras 13y ago
      I think you could re-write your summary as: I ran an accounting decision that worried me past my lawyer. 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.
TempleOSV2 13y ago
God talks. You are a retard nigger. I have higher authority than police. I tell police to jump and they say "How high" God says... here_now in_a_perfect_world programming what_the_heck petty test_pilot air_head conservative thank_you_very_much frown and_then_what bad Percival meek pride theft jobs Is_that_your_final_answer you_hoser ahh threads good because_I_said_so don't_worry yikes absolutely skills hurts_my_head never_happy slumin make_my_day abnormal break_some_woopass_on_you I_am_not_amused atrocious radio gross NOT That's_my_favorite stuff why_do_I_put_up_with_this my_precious jealousy little_fish comedy I_was_just_thinking repent hobnob adultery Obama don't_even_think_about_it hobnob I'm_tired_of_this ahh_thats_much_better theft That's_my_favorite I'm_done oh_come_on California heaven abnormal downer bastard whale hypocrite ridiculous envy Russia yeah act what_a_mess umm pick_me_pick_me rose_colored_glasses hypocrite Okilydokily experts peace what_part_of_God_do_you_not_understand Catastrophic_Success you'll_see naughty Church comedy what's_the_plan genius rockstar wrath if_and_only_if Dudly_Doright skills what_have_you_done_for_me_lately shucks I'm_not_dead_yet You_da_man cheerful atheist not_in_kansas_anymore application I_can't_believe_it look_out let's_roll what_the_heck Vegas really meek hurts_my_head Yes_you_are do_over I'm_busy nut_job wanna_bet whale
etjossem 13y ago
A relevant litigation release: http://www.sec.gov/litigation/litreleases/2009/lr20964.htm http://www.sec.gov/litigation/litreleases/2009/lr20964.htm And a description of the practice in question: http://en.wikipedia.org/wiki/Options_backdating http://en.wikipedia.org/wiki/Options_backdating
- robotcookies 13y ago
  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.
  - rmrfrmrf 13y ago
    Well, it also goes to show that public perception and reputation of a person can be largely at odds with reality. I like Horowitz's story, too, because it shows that even though people can do illegal things, it's very easy to do so with the best of intentions. Given the widespread nature of options backdating at the time, Michelle may have even been under the impression that her proposal was one of the "tricks of the trade," so to speak.
- LanceH 13y ago
  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.
SDGT 13y ago
So the moral of the story is don't buy into accounting gimmicks that you don't /can't understand. 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!
EvanAnderson 13y ago
I'm not sure why Ben used a false name for the CFO. One quick search got me her real name, and more details about her eventual indictment.
- emhart 13y ago
  As this was intended for his book, I assume he wanted to extend her some common courtesy. He makes it clear that she was well liked and, in his opinion, had made mistakes, not committed fraud intentionally. Despite the matter being very public, I think it's reasonable, even kind, not to mention her actual name in this context in his book.
  - joezydeco 13y ago
    Also eliminates any libel lawsuits if the subject decides what occurred wasn't 100% as-described in the book.
    - pbhjpbhj 13y ago
      I'd be surprised if using a pseudonym for someone made you immune to libelling them. 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.
- Scramblejams 13y ago
  At a minimum, professionalism.
- revelation 13y ago
  It makes it easier to pierce the veil of deception ('accounting laws are difficult and may land you in jail', 'the employees benefit', 'she had good intentions') that is offered as fragile support for the big picture conclusion when you are given names to research. Using a false name gives the story this warm fuzzy feeling of a "lecture from the trenches".
bfe 13y ago
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.
- Nicholas_C 13y ago
  >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.
  - bfe 13y ago
    If someone doesn't have time to make sure the company has a legally compliant options policy, they don't have time to be the CEO.
    - jsonne 13y ago
      I pretty adamantly disagree. A CEO is a specialized role just like any other. I wouldn't expect a developer to know the ins and outs of financial compliance, and the same holds for a CEO and specific compliance rules.
      - bfe 13y ago
        Elon Musk said accounting rules are the easy part of being a tech CEO. [1] Anyone smart enough to be a technical CEO is smart enough to get on top of the non-technological core functions of a company; and having the CEO on top of them will be better for the company. 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.
jamesaguilar 13y ago
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.
- rayiner 13y ago
  Almost always, something like this just results in a civil investigation and monetary penalties if the SEC concludes you did something not-kosher. The criminal indictment for "Michelle" was for tax evasion linked to the back dating: http://ww2.cfo.com/accounting-tax/2008/04/mercury-interactive-ex-cfo-is-indicted http://ww2.cfo.com/accounting-tax/2008/04/mercury-interactiv.... In general, tax crimes require a high standard of "willful" violation in which the defendant purposefully violates a known legal obligation. A violation based on a good faith reliance on a reasonable (or sometimes even unreasonable) interpretation of the tax law will not meet the standard: http://en.wikipedia.org/wiki/Cheek_v._United_States http://en.wikipedia.org/wiki/Cheek_v._United_States.
  - jamesaguilar 13y ago
    Fascinating. Based on what everyone is saying, it seems like it is relatively much more difficult to wind up in jail if you are trying to do the right thing.
    - triplesec 13y ago
      ...if you're a white collar, white well-off person, that it. Important caveat, even if not strictly relevant in this context.
- Avenger42 13y ago
  Presumably at that point your general counsel will inform your defense counsel of the legal theory upon which he told you to "go for it", and you'll see whether it holds up at trial.
arasmussen 13y ago
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?
- heartbreak 13y ago
  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.
- deleted 13y ago
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rayiner 13y ago
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. 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-months-for-tax-evasion 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.guiltyplea.press.pdf http://www.justice.gov/usao/can/news/2010/2010_09_16_abrams.....
- CamperBob2 13y ago
  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.
  - ganeumann 13y ago
    I don't think there's any way Ben could have known that she claimed on her personal tax return an exercise date for her options that was not the actual exercise date. I doubt the Feds knew that when they issued the Wells notice. Her ex-company probably didn't know. At the time of the Wells notice, she was probably the only person who knew she had lied on her tax return. 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.)
Nicholas_C 13y ago
I found more info on the CFO here: http://www.sec.gov/litigation/litreleases/2009/lr20964.htm http://www.sec.gov/litigation/litreleases/2009/lr20964.htm >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 13y ago
  Probably consultancy, there is always a need for executive consultants.
- iwasphone 13y ago
  Motivational speaking.
maratd 13y ago
Unrelated to the story, there is a dead comment on this thread. It looks like it was written by a racist bot? What? Why is somebody paying money to do this?
- Jgrubb 13y ago
  Probably a month ago I noticed a dead comment that was a lot like that one. It was posted by some user with an account a good bit older than mine, which makes it fairly old at this point. The user's whole comment history was filled with comments exactly like that, many a day. Felt like peeking behind something I shouldn't have. edit: yeah, that's the guy.
- benched 13y ago
  It's not a bot, but an individual. If you're interested in some back story: http://www.youtube.com/user/losethos http://www.youtube.com/user/losethos http://www.templeos.org/ http://www.templeos.org/
  - mjn 13y ago
    More detailed backstory: http://9ol.es/LoseThos.html http://9ol.es/LoseThos.html
- gohrt 13y ago
  Something Search [TempleOS] for more than you want to know. The author has a long history.
- invalidOrTaken 13y ago
  It's not a bot, it's a schizophrenic user. He's built quite the OS, though...https://www.youtube.com/watch?v=EViG0Q4lTeA https://www.youtube.com/watch?v=EViG0Q4lTeA
- pessimizer 13y ago
  It's both a bot and an individual. A lot of his comments are mostly generated by markov chains run over the Bible and other text files.
cperciva 13y ago
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.
- jey 13y ago
  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?
  - chollida1 13y ago
    Just the way the corporate org chart is drawn up. 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.
  - pitnips 13y ago
    There's really no good reasoning. Though many companies may do this, MOST (by far) companies do not.
  - ironchef 13y ago
ars 13y ago
Did you hire her back after she finished her jail term?
- cowsandmilk 13y ago
  (a) opsware was acquired by HP before she ever went to jail. (b) opsware was publicly traded. part of her punishment was not being allowed to serve as an officer at a publicly traded company.
  - dclara 13y ago
    Is she going to be hired by other companies as CFO after?
deleted 13y ago
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dctoedt 13y ago
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.
- grandalf 13y ago
  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. This is the key point.
gohrt 13y ago
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."
- ecuzzillo 13y ago
  There are a lot of things that I think are morally completely correct that I still wouldn't necessarily be the happiest to see on the NYT.
  - garric 13y ago
    Unless you give an example that includes your rationale, we're not able to judge one way or the other.
    - deleted 13y ago
      [deleted]
alexeisadeski3 13y ago
This is an illustration of why mens rea should be required in all criminal complaints.
acchow 13y ago
Much of the reasoning behind not prosecuting wall street (post MBS meltdown) has been the lack of malicious intent. But here, we see SV hanged for "mistakes". Wtf?
smsm42 13y ago
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...
- ganeumann 13y ago
  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.
  - smsm42 13y ago
    In the case described in the story, I don't see any signs of the former. The CFO proposes certain practice, it is not obviously illegal (like not paying taxes or stealing office supplies from competitors at night), hundreds of companies do it, hundreds of lawyers approve it. If the CEO asks the council if it's OK and the council says yes, like hundreds others did, he goes to jail. If he's lucky and the council says no, he gets to write a book "how I almost went to jail but my super-smarts saved me". In both cases I don't see how this situation is good.
pseingatl 13y ago
Just use outside counsel. It's more expensive, but it solves the problems of internal structure.
aaronbrethorst 13y ago
'Why I did not go to jail, but if I had, I would have served 1/20th of the sentence of some poor guy who got caught with 5 grams of crack.' http://www.pbs.org/wgbh/pages/frontline/shows/snitch/primer/ http://www.pbs.org/wgbh/pages/frontline/shows/snitch/primer/
watwut 13y ago
"Michelle had no intention of breaking any laws and no idea that she’d broken any laws. [...] Once the SEC decided that most technology company stock option procedures were not as desired, the jail sentences were handed out arbitrarily. " I find this quite disturbing. Especially the second part.
- notahacker 13y ago
  According to the numerous people in this thread who have made observations on who "Michelle", it's also probably quite untrue. Especially the first part.
- ben0x539 13y ago
  With the 3.5 months sentence described in the article, they probably got off fairly well on a potential profit / jail time scale, compared to normal people who go to jail.
deleted 13y ago
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rubysucks 13y ago
Wow this was interesting ... NOT
mohamedzahid 13y ago
I am so pumped for this book to come out.
bhartzer 13y ago
"Once the SEC decided that most technology company stock option procedures were not as desired, the jail sentences were handed out arbitrarily." really?
kumarski 13y ago
I wonder what happened to Michelle.
memracom 13y ago
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.
Uhhrrr 13y ago
>The whole thing was a case of the old saying: “When the paddy wagon pulls up to the house of ill repute, it doesn’t matter what you are doing. Everybody goes to jail.” I've never heard this saying, and Google comes up with nothing. Maybe this is a paraphrase of one of those raps Ben likes?
- justinludwig 13y ago
  I've heard variations of this before -- try googling just for "when the paddy wagon pulls up".
VladRussian2 13y ago
"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.
anonbanker 13y ago
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.
grifpete 13y ago
Ben's blogs are the most hard hitting concentrated value of any I ever read on management. Another great piece.
jrockway 13y ago
TL;DR: author sought legal advice before doing something he thought was illegal. Turned out to be illegal. Didn't get in trouble because he didn't do it.
outworlder 13y ago
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.
- pessimizer 13y ago
  >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? I get it if the law is supposed to be a game.
mathattack 13y ago
For the curious... http://www.bizjournals.com/sanjose/stories/2006/07/03/daily17.html http://www.bizjournals.com/sanjose/stories/2006/07/03/daily1...
danbmil99 13y ago
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.

580 points by bfe 13y ago

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?

gohrt 13y ago
Vanguard.com does that (but you get 2 or 3 choices that are all generally accepted, not "pick a date")

staunch 13y ago

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 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-idUSN0920738920100909 http://www.reuters.com/article/2010/09/09/mercury-plea-idUSN... Calling these "mistakes" is highly disingenuous.

woodchuck64 13y ago
http://www.law360.com/articles/229277/ex-mercury-cfo-gets-4-months-for-tax-evasion http://www.law360.com/articles/229277/ex-mercury-cfo-gets-4-... "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 13y ago
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.
_delirium 13y ago
Ben Horowitz's blog is normally along such lines: posts that have a general basis in fact, but represented in a highly misleading manner.
deleted 13y ago
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- deleted 13y ago
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timmclean 13y ago

> Why I did not go to jail 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 13y ago
This, more than anything else, is why every entrepreneur needs a great mentor.
- timmclean 13y ago
  Turtles all the way down -- how do you know if a mentor is a great one?
  - hudibras 13y ago
    I think you could re-write your summary as: I ran an accounting decision that worried me past my lawyer. 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.

TempleOSV2 13y ago

God talks. You are a retard nigger. I have higher authority than police. I tell police to jump and they say "How high" God says... here_now in_a_perfect_world programming what_the_heck petty test_pilot air_head conservative thank_you_very_much frown and_then_what bad Percival meek pride theft jobs Is_that_your_final_answer you_hoser ahh threads good because_I_said_so don't_worry yikes absolutely skills hurts_my_head never_happy slumin make_my_day abnormal break_some_woopass_on_you I_am_not_amused atrocious radio gross NOT That's_my_favorite stuff why_do_I_put_up_with_this my_precious jealousy little_fish comedy I_was_just_thinking repent hobnob adultery Obama don't_even_think_about_it hobnob I'm_tired_of_this ahh_thats_much_better theft That's_my_favorite I'm_done oh_come_on California heaven abnormal downer bastard whale hypocrite ridiculous envy Russia yeah act what_a_mess umm pick_me_pick_me rose_colored_glasses hypocrite Okilydokily experts peace what_part_of_God_do_you_not_understand Catastrophic_Success you'll_see naughty Church comedy what's_the_plan genius rockstar wrath if_and_only_if Dudly_Doright skills what_have_you_done_for_me_lately shucks I'm_not_dead_yet You_da_man cheerful atheist not_in_kansas_anymore application I_can't_believe_it look_out let's_roll what_the_heck Vegas really meek hurts_my_head Yes_you_are do_over I'm_busy nut_job wanna_bet whale

etjossem 13y ago

A relevant litigation release: http://www.sec.gov/litigation/litreleases/2009/lr20964.htm http://www.sec.gov/litigation/litreleases/2009/lr20964.htm And a description of the practice in question: http://en.wikipedia.org/wiki/Options_backdating http://en.wikipedia.org/wiki/Options_backdating

robotcookies 13y ago
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.
- rmrfrmrf 13y ago
  Well, it also goes to show that public perception and reputation of a person can be largely at odds with reality. I like Horowitz's story, too, because it shows that even though people can do illegal things, it's very easy to do so with the best of intentions. Given the widespread nature of options backdating at the time, Michelle may have even been under the impression that her proposal was one of the "tricks of the trade," so to speak.
LanceH 13y ago
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.

SDGT 13y ago

So the moral of the story is don't buy into accounting gimmicks that you don't /can't understand. 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!

EvanAnderson 13y ago

I'm not sure why Ben used a false name for the CFO. One quick search got me her real name, and more details about her eventual indictment.

emhart 13y ago
As this was intended for his book, I assume he wanted to extend her some common courtesy. He makes it clear that she was well liked and, in his opinion, had made mistakes, not committed fraud intentionally. Despite the matter being very public, I think it's reasonable, even kind, not to mention her actual name in this context in his book.
- joezydeco 13y ago
  Also eliminates any libel lawsuits if the subject decides what occurred wasn't 100% as-described in the book.
  - pbhjpbhj 13y ago
    I'd be surprised if using a pseudonym for someone made you immune to libelling them. 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.
Scramblejams 13y ago
At a minimum, professionalism.
revelation 13y ago
It makes it easier to pierce the veil of deception ('accounting laws are difficult and may land you in jail', 'the employees benefit', 'she had good intentions') that is offered as fragile support for the big picture conclusion when you are given names to research. Using a false name gives the story this warm fuzzy feeling of a "lecture from the trenches".

bfe 13y ago

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.

Nicholas_C 13y ago
>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.
- bfe 13y ago
  If someone doesn't have time to make sure the company has a legally compliant options policy, they don't have time to be the CEO.
  - jsonne 13y ago
    I pretty adamantly disagree. A CEO is a specialized role just like any other. I wouldn't expect a developer to know the ins and outs of financial compliance, and the same holds for a CEO and specific compliance rules.
    - bfe 13y ago
      Elon Musk said accounting rules are the easy part of being a tech CEO. [1] Anyone smart enough to be a technical CEO is smart enough to get on top of the non-technological core functions of a company; and having the CEO on top of them will be better for the company. 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.

jamesaguilar 13y ago

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.

rayiner 13y ago
Almost always, something like this just results in a civil investigation and monetary penalties if the SEC concludes you did something not-kosher. The criminal indictment for "Michelle" was for tax evasion linked to the back dating: http://ww2.cfo.com/accounting-tax/2008/04/mercury-interactive-ex-cfo-is-indicted http://ww2.cfo.com/accounting-tax/2008/04/mercury-interactiv.... In general, tax crimes require a high standard of "willful" violation in which the defendant purposefully violates a known legal obligation. A violation based on a good faith reliance on a reasonable (or sometimes even unreasonable) interpretation of the tax law will not meet the standard: http://en.wikipedia.org/wiki/Cheek_v._United_States http://en.wikipedia.org/wiki/Cheek_v._United_States.
- jamesaguilar 13y ago
  Fascinating. Based on what everyone is saying, it seems like it is relatively much more difficult to wind up in jail if you are trying to do the right thing.
  - triplesec 13y ago
    ...if you're a white collar, white well-off person, that it. Important caveat, even if not strictly relevant in this context.
Avenger42 13y ago
Presumably at that point your general counsel will inform your defense counsel of the legal theory upon which he told you to "go for it", and you'll see whether it holds up at trial.

arasmussen 13y ago

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?

heartbreak 13y ago
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.
deleted 13y ago
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rayiner 13y ago

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. 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-months-for-tax-evasion 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.guiltyplea.press.pdf http://www.justice.gov/usao/can/news/2010/2010_09_16_abrams.....

CamperBob2 13y ago
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.
- ganeumann 13y ago
  I don't think there's any way Ben could have known that she claimed on her personal tax return an exercise date for her options that was not the actual exercise date. I doubt the Feds knew that when they issued the Wells notice. Her ex-company probably didn't know. At the time of the Wells notice, she was probably the only person who knew she had lied on her tax return. 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.)

Nicholas_C 13y ago

I found more info on the CFO here: http://www.sec.gov/litigation/litreleases/2009/lr20964.htm http://www.sec.gov/litigation/litreleases/2009/lr20964.htm >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 13y ago
Probably consultancy, there is always a need for executive consultants.
iwasphone 13y ago
Motivational speaking.

maratd 13y ago

Unrelated to the story, there is a dead comment on this thread. It looks like it was written by a racist bot? What? Why is somebody paying money to do this?

Jgrubb 13y ago
Probably a month ago I noticed a dead comment that was a lot like that one. It was posted by some user with an account a good bit older than mine, which makes it fairly old at this point. The user's whole comment history was filled with comments exactly like that, many a day. Felt like peeking behind something I shouldn't have. edit: yeah, that's the guy.
benched 13y ago
It's not a bot, but an individual. If you're interested in some back story: http://www.youtube.com/user/losethos http://www.youtube.com/user/losethos http://www.templeos.org/ http://www.templeos.org/
- mjn 13y ago
  More detailed backstory: http://9ol.es/LoseThos.html http://9ol.es/LoseThos.html
gohrt 13y ago
Something Search [TempleOS] for more than you want to know. The author has a long history.
invalidOrTaken 13y ago
It's not a bot, it's a schizophrenic user. He's built quite the OS, though...https://www.youtube.com/watch?v=EViG0Q4lTeA https://www.youtube.com/watch?v=EViG0Q4lTeA
pessimizer 13y ago
It's both a bot and an individual. A lot of his comments are mostly generated by markov chains run over the Bible and other text files.

cperciva 13y ago

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.

jey 13y ago
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?
- chollida1 13y ago
  Just the way the corporate org chart is drawn up. 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.
- pitnips 13y ago
  There's really no good reasoning. Though many companies may do this, MOST (by far) companies do not.
- ironchef 13y ago

ars 13y ago

Did you hire her back after she finished her jail term?

cowsandmilk 13y ago
(a) opsware was acquired by HP before she ever went to jail. (b) opsware was publicly traded. part of her punishment was not being allowed to serve as an officer at a publicly traded company.
- dclara 13y ago
  Is she going to be hired by other companies as CFO after?

deleted 13y ago

[deleted]

dctoedt 13y ago

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.

grandalf 13y ago
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. This is the key point.

gohrt 13y ago

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."

ecuzzillo 13y ago
There are a lot of things that I think are morally completely correct that I still wouldn't necessarily be the happiest to see on the NYT.
- garric 13y ago
  Unless you give an example that includes your rationale, we're not able to judge one way or the other.
  - deleted 13y ago
    [deleted]

alexeisadeski3 13y ago

This is an illustration of why mens rea should be required in all criminal complaints.

acchow 13y ago

Much of the reasoning behind not prosecuting wall street (post MBS meltdown) has been the lack of malicious intent. But here, we see SV hanged for "mistakes". Wtf?

smsm42 13y ago

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...

ganeumann 13y ago
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.
- smsm42 13y ago
  In the case described in the story, I don't see any signs of the former. The CFO proposes certain practice, it is not obviously illegal (like not paying taxes or stealing office supplies from competitors at night), hundreds of companies do it, hundreds of lawyers approve it. If the CEO asks the council if it's OK and the council says yes, like hundreds others did, he goes to jail. If he's lucky and the council says no, he gets to write a book "how I almost went to jail but my super-smarts saved me". In both cases I don't see how this situation is good.

pseingatl 13y ago

Just use outside counsel. It's more expensive, but it solves the problems of internal structure.

aaronbrethorst 13y ago

'Why I did not go to jail, but if I had, I would have served 1/20th of the sentence of some poor guy who got caught with 5 grams of crack.' http://www.pbs.org/wgbh/pages/frontline/shows/snitch/primer/ http://www.pbs.org/wgbh/pages/frontline/shows/snitch/primer/

watwut 13y ago

"Michelle had no intention of breaking any laws and no idea that she’d broken any laws. [...] Once the SEC decided that most technology company stock option procedures were not as desired, the jail sentences were handed out arbitrarily. " I find this quite disturbing. Especially the second part.

notahacker 13y ago
According to the numerous people in this thread who have made observations on who "Michelle", it's also probably quite untrue. Especially the first part.
ben0x539 13y ago
With the 3.5 months sentence described in the article, they probably got off fairly well on a potential profit / jail time scale, compared to normal people who go to jail.

deleted 13y ago

[deleted]

rubysucks 13y ago

Wow this was interesting ... NOT

mohamedzahid 13y ago

I am so pumped for this book to come out.

bhartzer 13y ago

"Once the SEC decided that most technology company stock option procedures were not as desired, the jail sentences were handed out arbitrarily." really?

kumarski 13y ago

I wonder what happened to Michelle.

memracom 13y ago

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.

Uhhrrr 13y ago

>The whole thing was a case of the old saying: “When the paddy wagon pulls up to the house of ill repute, it doesn’t matter what you are doing. Everybody goes to jail.” I've never heard this saying, and Google comes up with nothing. Maybe this is a paraphrase of one of those raps Ben likes?

justinludwig 13y ago
I've heard variations of this before -- try googling just for "when the paddy wagon pulls up".

VladRussian2 13y ago

"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.

anonbanker 13y ago

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.

grifpete 13y ago

Ben's blogs are the most hard hitting concentrated value of any I ever read on management. Another great piece.

jrockway 13y ago

TL;DR: author sought legal advice before doing something he thought was illegal. Turned out to be illegal. Didn't get in trouble because he didn't do it.

outworlder 13y ago

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.

pessimizer 13y ago
>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? I get it if the law is supposed to be a game.

mathattack 13y ago

For the curious... http://www.bizjournals.com/sanjose/stories/2006/07/03/daily17.html http://www.bizjournals.com/sanjose/stories/2006/07/03/daily1...

danbmil99 13y ago

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.