EditorsAbout the SiteComes vs. MicrosoftUsing This Web SiteSite ArchivesCredibility IndexOOXMLOpenDocumentPatentsNovellNews DigestSite NewsRSS

08.26.08

Financial Fraud Claimed at Microsoft; Microsoft Paid Microsoft Witness to Shut Up

Posted in Finance, Fraud, Microsoft at 6:28 am by Dr. Roy Schestowitz

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.

Share this post: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • Reddit
  • co.mments
  • DZone
  • email
  • Google Bookmarks
  • LinkedIn
  • NewsVine
  • Print
  • Technorati
  • TwitThis
  • Facebook

If you liked this post, consider subscribing to the RSS feed or join us now at the IRC channels.

Pages that cross-reference this one

4 Comments

  1. julian67 said,

    August 26, 2008 at 9:49 pm

    Gravatar

    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.

  2. Cypress said,

    August 26, 2008 at 11:44 pm

    Gravatar

    Excellent article. It’s nice to see that people don’t forget and that not everything can be buried and forgotten. :)

  3. Sander Marechal said,

    August 27, 2008 at 1:52 am

    Gravatar

    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.

  4. Roy Schestowitz said,

    August 27, 2008 at 11:46 am

    Gravatar

    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.

What Else is New


  1. Links 1/9/2014: Poettering on systemd, ITNews on DBMSs

    Links for the day



  2. Moving Away From Windows to GNU/Linux and the Abandonment of Windows as the Modest Proposal These Days

    Morale of GNU/Linux and an embrace of GNU/Linux is very high, despite recent propaganda from Microsoft MVPs and boosters (primarily security-themed and Munich-themed FUD)



  3. Korean Press Slams Microsoft Over Patent Extortion Against Linux/Android as New Abuses Resurface

    Harsh words from the national press of South Korea as Nokia's role in Microsoft's anti-Linux tactics becomes more apparent



  4. More Good News About Patents and Their Demise in the United States

    A roundup of news about software patents and patent trolls in the land where these thrive



  5. Links 31/8/2014: Linux 3.12.27, Akademy 2014

    Links for the day



  6. Links 30/8/2014: Jailhouse 0.1, *buntu 14.10 Beta

    Links for the day



  7. Links 28/8/2014: Many New Games, CTO of Red Hat Steps Down

    Links for the day



  8. We Are Gradually Winning the Battle Against Software Patents

    The once-elusive war on software patents is finally leading to some breakthrough and even the Federal Circuit reinforces the trend of software patents' demise



  9. Free/Open Source Software (FOSS) Companies Versus FOSS Moles (VMware, Sonatype, Xamarin)

    A look at three entities which pretend to be pro-FOSS but are actually FOSS-hostile and very much determined to replace FOSS with proprietary software



  10. Links 27/8/2014: GNU/Linux in Space, China, LinuxCon

    Links for the day



  11. FUD Against Google and FOSS Security Amid Microsoft Windows Security Blunders

    In the age of widespread fraud due to Microsoft Windows with its back doors there is an attempt to shift focus to already-fixed flaws/deficiencies in competitors of Microsoft



  12. Microsoft Spin Watch: IDG Turns to More Microsoft Propaganda, Hires Microsoft Boosters

    Media in Microsoft's pocket is telling Microsoft's lies and deceives the public for Microsoft's bottom line



  13. Microsoft's Massive Tax Evasion Becomes Better Known

    A new report about Microsoft's admission that it plays dirty tricks with tax (sometimes using moles in government) is increasing awareness of Microsoft's criminal aspects



  14. Links 25/8/2014: China's Linux Revolution Imminent

    Links for the day



  15. Links 24/8/2014: GNU/Linux Specialisation and Benchmarks

    Links for the day



  16. Links 23/8/2014: GNU/Linux Growth

    Links for the day



  17. Microsoft-Funded Attacks on Android Security and Patent/Copyright

    A look back at examples of people who smear Android and are receiving (or received) money from Microsoft



  18. Blowback in Chile and Munich After Microsoft Intervention

    Microsoft's attacks on the digital sovereignty of countries involves lobbying, corruption, an attack on standards (e.g. ODF), an attack on FOSS policies, and even an attack on accurate reporting (truth itself)



  19. The End of Microsoft is Nigh

    A look back at a tough year for Microsoft and a not-so-promising future



  20. Links 22/8/2014: Linux Foundation LFCS, LFCE

    Links for the day



  21. UPS Burned by Microsoft Windows, Gives Away Massive Number of Credit Card Details

    UPS is the latest victim of Microsoft's shoddy back door with software on top of it (Windows); attempts to blame FOSS for data compromise actually divert attention from the real culprit, which is proprietary software



  22. Microsoft's Funding of ALEC and Other Systemic Corruption

    Microsoft role in writing of laws by proxy, via groups such as ALEC



  23. Microsoft is Still Preying on British Taxpayers, Playing Politics

    Some news from the UK showing how Microsoft uses politics to extract money out of taxpayers, irrespective of their preferences



  24. Microsoft's Patent Troll Intellectual Ventures is Collapsing as 20% of Staff Laid Off

    More good news regarding the demise of patents as Microsoft's leading patent proxy is collapsing more rapidly than anyone ever imagined and software patents too are collectively doubted



  25. Links 21/8/2014: Conferences of Linux Foundation, Elephone Emerges

    Links for the day



  26. Links 20/8/2014: Linux Event, GNOME Milestone

    Links for the day



  27. Corruption Watch: Microsoft Lobbying Designed to Kill Chile's Free Software Policy and Promote Microsoft With Subsidies, More Dirty Tricks Emerge in Munich

    icrosoft is systematically attacking migrations to GNU, Linux and Free software, using dirty tricks, as always



  28. Vista 8 Such a Disaster That Even Microsoft Cannot Cope With It, Vapourware Tactics Start Early

    Microsoft's Windows-powered services are failing and Windows gets bricked by Microsoft patches, whereupon we are seeing yet more of Microsoft's vapourware tactics (focusing in imaginary, non-existent versions of Windows)



  29. On BlackBerry and Other Patent Trolls

    A roundup regarding patent trolls, starting with the bigger and latest joiner, BlackBerry's new patents apparatus



  30. Links 19/8/2014: Humble Jumbo Bundle 2 Betrayal, Mercedes-Benz Runs GNU/Linux

    Links for the day


CoPilotCo

RSS 64x64RSS Feed: subscribe to the RSS feed for regular updates

Home iconSite Wiki: You can improve this site by helping the extension of the site's content

Home iconSite Home: Background about the site and some key features in the front page

Chat iconIRC Channel: Come and chat with us in real time

CoPilotCo

Recent Posts