08.30.08
Novell and Fraud (Updated)
…and Paying People to Shut Up About It
Games around credit are painfully familiar to many. As background, consider Novell’s serious financial issues, which may have led the company to selling its soul to Microsoft within months. In a previous post from yesterday, Novell's latest problems were highlighted. The losses continue to widen as the cash cows run thin.
Novell’s history when it comes to fraud is well documented. Consider this old report for example.
After more than seven years in the courts, Novell will spend $13.9 million to make a securities fraud class-action lawsuit go away.
Attention is needed here. Novell’s cronies were not cleared of charges; instead, they bailed out. This does not make the behaviour acceptable. According to yesterday’s article from the Register, “th[e latest] was turned into a loss of $15m for the period because of a debt write-off.”
Did anyone spot that? Yes, debt.
Novell has previously admitted — albeit in private — that it is 'cooking the books'. This indicates that not much has changed since that class-action lawsuit over fraud.
Such things might not be rare, but it does not make them justified, either. Here are a couple of examples.
Former Apple CFO, Fred Anderson, made accusations against Steve Jobs. According to Associated Press, Gene Munster of Piper Jaffray said “It gives the appearance that, ‘I had a partner in crime and it was Steve Jobs.’” Here is an article from The Register.
Apple’s Board of Directors is backing CEO Steve Jobs after former CFO Fred Anderson accused Jobs approving the company’s stock option backdating. Anderson settled civil charges against him Tuesday without admitting any guilt, but agreeing to pay back approximately $3.5m to make up for personal gains in the scandal.
Eventually, they managed to sneak away from justice, assuming these allegations were true in the first place, which is likely. Welcome the juridical system of the 21st — a system where you can commit a crime and get away with, provided you are wealthy enough and can buy people’s silence.
After presiding over a 50 percent rise in Apple’s stock over the past year, CEO Steve Jobs can afford to shrug off shareholder questions about stock option backdating and environmental policies.
Microsoft too has paid for skeptics to take their claims of fraud elsewhere. This includes a Microsoft executive that accused Microsoft of fraud. Microsoft paid money for these claims of fraud to just go away.
What about regulation? The SEC proved its impotence when it let SCO off the hook just a while before they declared their surprise bankruptcy.
Tomorrow’s IRC logs will contain a lot more information about it. This requires tidying up. Meanwhile, watch this new comment from Linux Today:
Generous Gates has yet to give away money to match the huge amounts that the Foundation saved in taxes (ie, the bill you and I pick up).
This is only the tip of the ice-berg of Generous Gates’ generosity.
http://boycottnovell.com/2008/08/13/smithers-on-massive-msft-losses
PS. Generous Gates is converting his paper money inflated wealth into safer currencies courtesy of means such as Ma’s and Pa’s savings (including their pension funds). Secrecy and tricks (such as using a nonprofit Foundation) ensure Ma and Pa buy MSFT real high, kind of like those Enron folks that bought real high, too.
PS2. Gates private investments are benefiting mightily from the Foundations’ donations. Of course, the more billionaires that participate, the more difficult it is to trace down the back-scratching.
The Gates Foundation is a sensitive subject that was covered before, e.g. here. There’s not much goodwill out there, except for in the minds of those that live in a fantasy world. The same goes for other companies and individuals, but one has to be intimately familiar and backed by verifiable proof to make the proper allegations.
Here is an old article that is also relevant. [Update: this article seems to have been pulled over a year ago, but the Internet Archive has a copy]
Microsoft’s past stock options practice poses questions
[...]
Microsoft in 1999 announced that it would end a policy of awarding options at monthly lows and said it would take a $217 million charge, though many details of that discontinued practice haven’t been widely known, The Wall Street Journal said Friday.
Those details raise questions about how Microsoft began the practice, what prompted the company to end it and whether the way the options were dated–at 30-day lows the month after they were granted–influenced other companies, it said.
If S.u.S.E. was acquired by a corrupt company, which seem true based on the citation at the top, then it can hopefully isolate and dissociate itself from Novell some time in the future. OpenSUSE could do this.
Microsoft may now be injecting money into Novell in order to keep its strategy against GNU/Linux, ODF and Free software going. Suffice to say, Novell is provably a friend of Microsoft more than it is a friend of Free software. Novell is not SUSE. It’s broader than SUSE. █
Update #2: Another comment on the article above (from the Internet Archive):
Lessons of Enron
I’m not going to jump on the microsucks band wagon. I would point out that if the enron scandal held any lessons for us, it should be that questionable business practices should be dealt with harshly. I wonder how many other companies are well on their way down the enron road? What will it do to the economy when the s*** finally hits the fan?
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.
Alec Baldwin said,
August 30, 2008 at 12:59 pm
Utter nonsense. Roy Cluelessowitz - Balders is back.
You demonstrate about as much understanding of business as the average door-stop.
Novell has in excess of $1bn in cash. Novell is “cooking the books, and admitted it?” Do you have any idea what the SEC Filing process was all about? And what the end result was?
Why, if all you say is true, is the share-price rising, is revenue growing, is margin from operations increasing, are investors (who would presumably have more of a clue than you) investing? All these experienced business people, must be real dumb… maybe they should listen to you, after all you sound like you have years and years of experience in business….
You’re a 9-yr old.
LOL
Roy Schestowitz said,
August 30, 2008 at 1:17 pm
A lot of businesses which claims to have money in the bank may have just borrowed it, but that’s not the point.
Start here.
Alec Baldwin said,
August 31, 2008 at 3:01 pm
This is hysterical. Are you now suggesting that the annual accounts filed by Novell and legally verified, are inventions? Are you suggesting that Novell has “borrowed” 1 BILLION Dollars?
I am crying with laughter. It’s the ultimate in FUD. It’s like saying, “I have nothing to say, so why don’t I just cast doubt on the facts with an attention-seeking tabloid-esque headline…”
Your cluelessness is apparently plumbing new depths.
Keep going Roy the Boy - you are making a fool of yourself, and becoming more of a joke as each new post arrives…
Roy Schestowitz said,
August 31, 2008 at 3:27 pm
The more I explore, the uglier it seems and I shall post a followup to this post, which will contain the latest findings.
“Alec Baldwin”, you only ever show up in this Web site when Novell is shown to be in trouble. How come?
Jose_X said,
August 31, 2008 at 10:33 pm
From what little I know, I don’t know if Novell has done anything illegal. The impression I have gotten over the years is that there are some very questionable laws in the books. Just recently the SEC(?) announced that a new method of accounting will be phased in for public companies to match international rules. It makes sense from a competitive point of view, internationally, but this would be making laws that have problems even more lax (supposedly the new methods are more lax).
>> Why, if all you say is true, is the share-price rising, is revenue growing, is margin from operations increasing, are investors (who would presumably have more of a clue than you) investing? All these experienced business people, must be real dumb… maybe they should listen to you, after all you sound like you have years and years of experience in business….
If a company was cooking the books, anything could be showing up on their reports, and share price is determined in part by this (which under the assumption would be lies).
Further share price can rise if the market generally wants that, and this can be for many reasons. For example, experience investors might feel that Novell would “get away” with whatever it was doing (at least for a while) without a problem and hence be willing to buy. Enron and Bear Sterns were very high right up to the end. Perhaps questionable practices might work during certain conditions but become too risky during others. Possible examples of varying conditions might be Microsoft maintaining their monopoly levers vs. losing them; Microsoft and Novell being called out by antitrust authorities soon vs. never; and the economy being strong or not.
Do note that NOVL dipped to it’s lowest value in years just months ago. It’s current pop still leaves it very low. Microsoft’s help might allow NOVL to rise a good amount over the next few years. Perhaps more likely however is that this help has kept it from tanking (as I think has been suggested on this site). Look at SCOX’s lawsuit. The stock had a large bounce that lasted for a couple years I think, at which point (much as NOVL looks today) it went below the price at the time of the announcement and has kept sinking to this day.
One thing Roy would like (from what I gathered from IRC conversation) is to have the rules changed to be sensible (whatever “sensible” might be). A lot of people would like that wrt public accounting rules/practices. *Some* of the “outing” on this site is to focus on the ethical issues and on the future prospects (perhaps using Novell and Microsoft as the model in cases where others do the same thing), independent of the legal situation. Companies doing business with Microsoft should know that Microsoft is most definitely not among the more ethical corps.
Buffett had this to say wrt stock options not being expensed [ http://money.cnn.com/2004/05/03/pf/buffett_qanda/index.htm in 2004 ]:
>> Already up on the soapbox, Buffett and Munger went straight into a denunciation of everyone who opposes treating stock options as an expense. To Berkshire’s bosses, it is not just a technical accounting question, but a matter of fundamental morality.
>> “Write your congresspeople giving them your views on whether options should be expensed,” said Buffett. “It was a disgrace 10 years ago when Congress bludgeoned the SEC and the [Financial] Accounting Standards Board to override FASB’s decision to expense options. It accelerated the anything-goes mentality of the 1990s.”
>>…After the audience stopped laughing, Buffett came to his point about options, “The U.S. Senate concluded that the world was flat, because their their contributors paid them enough to say the world was flat.”
>> Then Munger weighed in: “It’s worse than that. Those people who wanted to round pi to 3.2 were stupid. These people [the opponents of expensing options] are worse than stupid. They know it’s wrong and want to do it anyway.”
Problem though. I think stock options are expensed today; however, Bill Parish and others don’t like the model being used (Black Sholes). For companies like Microsoft over the past two decades, this formula would underestimate significantly the options impact on share holder wealth in the future as the options vested. See, http://boycottnovell.com/2008/08/13/smithers-on-massive-msft-losses
Microsoft also took huge advantages of something else, the so-called “Stock Options Income Tax Benefit”. While Microsoft was paying their bills without incurring expenses on their financial reports (eg, see Buffett comment above), for tax purposes, the IRS was treating it as if they were spending that money. Hence Microsoft has stellar financial reporting AND was not paying income taxes due because of huge tax breaks (eg, of some $4 to $5 billion in 1999 IIRC). If you look at their reports (eg, 1999), you see a very large tax bill, but then also this Options Benefit which in various years neutralized the taxes with left over credits for use in future years. The law allowing this is horrible and doesn’t even reward the intended recipients (young innovative high growth companies) in light of the behemoth monopolists (MS, Cisco, etc) that were stealing their thunder using extraordinary large options grants and market controls.
So we come to this: if laws were passed that allowed a few companies to (eg) print their own money, it would be legal for the time being and investors would scoop it up. Eventually the chickens might come home to roost if the laws or circumstances change.
Also, just because the laws existed doesn’t make it healthy for the nation.
Another tidbit: Microsoft plays around with risky derivatives. They have a lot of inside information on the economy because of their particular position. This allows them to play with derivatives fire and get away with it, but they will make mistakes as you can read about in this same link Roy S posted above: http://www.billparish.com/msftfraudfacts.html
[Note, the link from the Linux Today posting has an extraneous space within it so appers to be a dead link.. use this: http://boycottnovell.com/2008/08/13/smithers-on-massive-msft-losses ]
BTW, Microsoft’s minting of stock options until the last few years means there is probably a solid ceiling/resistance and/or plain old downward pressure on MSFT as these options vest/mature, at least for the duration of those options (the following article states 10 years beyond when they are vested which I think in some cases is like 7 years from when they were given out).
From http://knowledge.wharton.upenn.edu/article.cfm?articleid=825
>> ..Options are more profitable in a rapidly rising market. On the other hand, if the price fell to $50, options giving the right to buy at $75 would be worthless — “underwater” or “out of the money.” The 50 shares of stock, however, would be worth $2,500. Stock is better in a falling market.
Smart investors and market makers like to keep prices high until the very end. Most of these anticipate major news events, if not the actual dates, at least that the events and stock movements up/down are coming.
Many MSFT employees at some point are likely to be terribly disappointed. The smart ones likely jumped ship.
The business world loves to bypass government regulations. They are always pushing the limits of new financial instruments and practices to make a buck. There is just too much money to be made before the economy and gov catch up. But the hang-over usually does come in one way or other, much like the hot potato eventually burns whoever is holding it at the wrong moment. People thinking MS will be strong in 20 and 30 years (or maybe even 5) might be way off, but we’ll see.
Just like Gates did a 180 on his position on patents based on convenience, I would not be surprised if he eventually favors laws that benefit the small companies over the large.. this would be once the MS titanic was sunk and just as his B&M Foundation aided small private companies are poised to rise. [Just a guess.]
Roy Schestowitz said,
September 1, 2008 at 4:05 am
That too has happened.