08.26.08
Financial Fraud Claimed at Microsoft; Microsoft Paid Microsoft Witness to Shut Up
The following old article is hugely damaging and we are fortunate to have found a copy of it in the Web Archive. It vanished from the Seattle Weekly.
This article, which is titled “Microfraud?”, provides a testimony from a Microsoft insider who claims financial fraud. Interestingly enough (but not so surprisingly), Microsoft paid him a fortune to go away, keep quiet, and for the terms of the settlement not to be disclosed (recall Iowa and Caldera for similar examples).
Here are the opening paragraphs from this article.
THE ALLEGATIONS WERE shocking: For years, Microsoft has systematically distorted its profit figures in an effort to consistently beat Wall Street expectations and keep its stock price steadily rising. The false reports would violate SEC regulations, and amount to outright fraud.
More shocking was the source of the allegations: Microsoft’s chief of internal audits, Charlie Pancerzewski, who reported directly to the company’s chief financial officer.
Most shocking of all was what happened to Pancerzewski when he reported the suspicious bookkeeping to his supervisors, Microsoft CFO Mike Brown and chief operating officer Bob Herbold, in the spring of 1995. Soon afterward, Pancerzewski—who for nearly five years had received stellar performance evaluations—received his first-ever unsatisfactory one, and was eventually forced to resign.
Two months ago, Microsoft quietly settled a lawsuit containing these allegations, filed in 1997 by Pancerzewski under the Whistleblowers Protection Act. The auditor claimed he was wrongfully terminated after telling his supervisors that Microsoft might be breaking securities and tax laws. The lawsuit made its tortuous way through several rounds of pretrial motions until last fall, when US District Judge Carolyn Dimmick denied Microsoft’s final plea for summary judgment, finding credible evidence that Microsoft may have violated SEC rules, as Pancerzewski alleged. Shortly thereafter, Microsoft and Pancerzewski settled out of court. Terms of the agreement were sealed, but one source who claims familiarity with the case says that Microsoft paid Pancerzewski $4 million.
Microsoft is claimed to have lost $18 billion in 1998. That is another article that magically vanished, but we managed to find a copy.
More recently, one financial manager from Microsoft was prosecuted for embezzlement [1, 2, 3]. If the legal system is functional, more Microsoft employees might need to be put in prison and it goes all the way to the top (managers). One of them ended up jailed about a month ago. There are other examples, such as Robert Bach, a Microsoft chief who was accused of inside-trading [1, 2]. There was never a trail, but there sure was evidece.
Novell, for that matter, is no saint, either. Novell too is said to be cooking its books, but the SEC does not see it.
There is a lot of investigation to do on this, and we shall continue to do it. Please post any corrections you may have so that we don’t make improper accusations. █
Highlight: Novell was the first to acknowledge that Microsoft FUD tactics had substance. Novell then used anti-Linux FUD to market itself. 
Highlight: Xandros let Microsoft make patent claims and brag about (paid-for) OOXML support. 
Highlight: Linspire's CEO not only fell into Microsoft arms, but he also assisted the company's attack on GNU/Linux. 
Highlight: Microsoft craves pseudo (proprietary) standards and gets its way using proxies and influence which it buys. 
Highlight: The invasion into the open source world is intended to leave Linux companies neglected, due to financial incentives from Microsoft. 
Analysis: Xen, an open source hypervisor, possibly fell victim to Microsoft's aggressive (and stealthy) acquisition-by-proxy strategy.
julian67 said,
August 26, 2008 at 9:49 pm
The page referenced hasn’t vanished at all.
It’s available at http://www.seattleweekly.com/1999-01-06/news/microfraud.php and dates from 1999. I accessed it without difficulty.
It relates that most of the allegations were proven unfounded “Judge Dimmick threw out most of Pancerzewski’s allegations (including the European tax issue and a separate age discrimination claim) for lack of evidence, but left it for the trial to determine the truth of his charge that Microsoft fraudulently “borrowed” from its cash reserves in relatively lean reporting periods and hoarded cash in the reserves during fatter times, in order to give a more orderly appearance to its earning pattern.”
No report of any resulting adjudication is made.
Cypress said,
August 26, 2008 at 11:44 pm
Excellent article. It’s nice to see that people don’t forget and that not everything can be buried and forgotten.
Sander Marechal said,
August 27, 2008 at 1:52 am
Roy, please do what Eric S. Raymond did.
Make a copy of those relevant articles. Then publish the article here *in full* but with enough of your own comments mixed in that it falls entirely under fair use. See the Halloween FAQ at http://www.catb.org/~esr/halloween/faq.html point “Would you please make un-annotated versions available?”.
If external articles are important then it’s worth making copies. It keeps the information from disappearing from under our feet.
Roy Schestowitz said,
August 27, 2008 at 11:46 am
Update: in USENET, Rex Ballard has posted the following response:
Message-ID: <d7e98c92-d352-4e27-a4f9-179712da3ad3@26g2000hsk.googlegroups.com>
From: Rex Ballard <rex.ballard@gmail.com>
Newsgroups: comp.os.linux.advocacy
Subject: Re: [Old] Microsoft is a Financial Fraud (Like Enron), Says Top Microsofter!
Date: Wed, 27 Aug 2008 09:29:48 -0700 (PDT)
> Microfraud?
> ,—-[ Quote ]
> | THE ALLEGATIONS WERE shocking: For years, Microsoft has systematically
> | distorted its profit figures in an effort to consistently beat Wall Street
> | expectations and keep its stock price steadily rising. The false reports
> | would violate SEC regulations, and amount to outright fraud.
This wasn’t such a big surprise, but the Clinton Administration wasn’t
interested in investigating securities fraud that publicly. They
understood that even the RUMOR of an SEC investigation could trigger
panic around that stock, then that industry, and finally the entire
market.
The Bush administration put Harvey Pitt in charge of the SEC, and
Harvey wanted to make a name for himself by initiating a bunch of very
public investigations of former Bush supporters who didn’t come
through for George W Bush when needed. The offenses were often less
than 1% but the public investigation triggered panic selling that
crashed 98% of the value of the stock, with WorldCom investors left
with nothing, over a 1% irregularity.
But the Bush Administration had zero interest in prosecuting
Microsoft, who had made a number of political contributions, AND a
number of contributions to charities suggested by Carl Rove and Jack
Abramhov. Microsoft could have inflated it’s numbers by 25% but Bush
wasn’t even going to enforce the actual judgement against Microsoft
that they already had. Microsoft’s executives admitted under oath, in
depositions, and in email divulged during discovery that they
routinely engaged in fraud, extortion, blackmail, sabotage, and
obstruction of justice, but the Bush Administration felt “Companies
should have a right to profit from their innovations”. McCain has
made an identical statement - I wonder how much Microsoft gave to the
“streight talk express” and it’s puppet charities, and whether McCain
is aware of how owned he is.
Even though there have been something like 9,000 complaints against
Microsoft and specific anticompetitive business practices, the DOJ has
packed the “Technical committee” with Micrososft friendly members, so
they don’t see anything wrong. And the DOJ itself tries to overrule
several other states and say “There’s not a problem”.
> | More shocking was the source of the allegations: Microsoft’s chief of
> | internal audits, Charlie Pancerzewski, who reported directly to the company’s
> | chief financial officer.
And he reported the irregularities back in 1997, when nobody cared.
> | Most shocking of all was what happened to Pancerzewski when he reported the
> | suspicious bookkeeping to his supervisors, Microsoft CFO Mike Brown and chief
> | operating officer Bob Herbold, in the spring of 1995. Soon afterward,
> | Pancerzewski—who for nearly five years had received stellar performance
> | evaluations—received his first-ever unsatisfactory one, and was eventually
> | forced to resign.
Yep. Microsoft was probably the leader in that corporate disease that
made examples of a few
“trouble-makers” who “weren’t team players” and “didn’t have the
company religion”. It’s a good
way to keep the others who know about the “little problem” from
getting any “dangerous ideas”.
> | Two months ago, Microsoft quietly settled a lawsuit containing these
> | allegations, filed in 1997 by Pancerzewski under the Whistleblowers
> | Protection Act. The auditor claimed he was wrongfully terminated after
> | telling his supervisors that Microsoft might be breaking securities and tax
> | laws. The lawsuit made its tortuous way through several rounds of pretrial
> | motions until last fall, when US District Judge Carolyn Dimmick denied
> | Microsoft’s final plea for summary judgment, finding credible evidence that
> | Microsoft may have violated SEC rules, as Pancerzewski alleged. Shortly
> | thereafter, Microsoft and Pancerzewski settled out of court. Terms of the
> | agreement were sealed, but one source who claims familiarity with the case
> | says that Microsoft paid Pancerzewski $4 million.
Typical Microsoft tactic. Try to get a preliminary judgement, and if
the judge gives
you a clearly unfavorable ruling suggests further investigation, they
bury the case
by offering a settlement, having the records sealed, and barring the
other party from
testifying against Microsoft.
> http://web.archive.org/web/20070308032343rn_2/www.seattleweekly.com/1...
> Why was this article removed last year? Why was the man paid 4 million to keep
> is mouth shut? This is hugely damaging! It’s a smoking gun.
> Another thing to point to when people ask: “why is Microsoft a criminal
> organisation?”
>
> Recent:
> Ex-Microsoft Manager Sentenced for Fraud
> http://www.hardocp.com/news.html?news=MzM3NjYsLCxoZW50aHVzaWFzdCwsLDE=
>
> Ex-Microsoft Manager Pleads Guilty, Sentenced For Embezzlement
> http://www.crn.com/software/209400603
Notice how quickly the federal prosecutors went after the ex manager
who was defrauding Microsoft. In the plea-bargain, she got 22 months,
and just under $1 million in settlements.
The 22 months may have helped her get into “club fed” and the actual
amount might have been $1 million minus her own legal fees.
> Ex-Microsoft manager ordered to prison
> http://www.upi.com/Business_News/2008/07/19/Ex-Microsoft_manager_orde...
>
> Ex-Microsoft manager jailed for $1m fraud
> http://www.vnunet.com/vnunet/news/2222135/microsoft-manager-jailed-1m...
>
> Ex-Microsoft Manager Gets 22 Months for Fraud
> http://www.pcworld.com/businesscenter/article/148642/exmicrosoft_mana...
>
> Ex-Microsoft boss sentenced
> http://seattlepi.nwsource.com/business/371393_msftcourt19.html
>
> Former Microsoft Manager Gets 2 Years In Jail
> http://news.portalit.net/fullnews_former-microsoft-manager-gets-2-yea...
> Kirkland woman senteced to 22 months, ordered to repay nearly $1 million, for
> embezzlement scheme
> http://www.pnwlocalnews.com/news/25634819.html
Wow, mess with Microsoft and your punishment will make LOTS of papers
- message, don’t mess with Microsoft, they will mess you up.