Silicon Valley greed: The stock option scandal spreads

June 16, 2006 | Matt Marshall | Comments | |
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corporate greed

Over the past three weeks, a large scale stock option scandal has broken out in Silicon Valley and is affecting some of its largest companies — and threatening to taint the tech industry’s image at a time when it’s fighting for policy change in Washington. Mike Langberg has the story.

At least 21 Silicon Valley companies are coping with suspicions they rigged the timing of stock options to give executives or employees a head start to paper profits. Below is a list (click to enlarge) of companies under investigation (by SEC or U.S. Attorney) or facing shareholder lawsuits, etc. Twenty of the 21 companies rank among the 150 largest companies in Silicon Valley.

In some cases, it’s pretty clear companies went over the line. Too bad. It comes just after we’d said an Enron-like debacle is unlikely to occur here. This is no Enron, but it’s revealing of the widespread culture of greed that exists here. Message to outsiders: This is not a valley of mere good-natured geeks.

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  • Ok, I am a child, is there a reason why a large VC pool could not create a private market to "IPO" ventures ready for the 'markets' but looking to avoid PUBLIC markets?
  • Tracey, there are many laws and SEC regulations that would make your suggestion highly impractical if not impossible. However, there is already something like it in the form of private investment funds, some of which are publicly traded.
  • Tried to Digg you Both to be fair

    http://digg.com/links/New_Silicon_Valley_VIP_Stock_Scandal_Unveiled_-

    ========================================
    Here is a quote from Mercury News...

    ////While some backdating may have involved nothing more than poor record-keeping, there are egregious cases in which it's very difficult to believe there wasn't deliberate cheating
    -

    This is ALSO be very sad since we are dealing with 20 companies from the largest 150 in Silicon valley

    with the many quality eBusiness solutions available - there is now, very little excuse for so-called "poor record keeping" especially by large Tech companies in Silicon Valley of all places :-(
  • anon
    As usual this is a lot more nuanced than the press reports. Anyone who has worked throughout hitech industry (not just in the valley) and other public firms, has encountered ESOPs - which give well warranted, preferential treatment to ALL employees - where the options / shares are typically purchased at the minumum share price during the duration of the past quarter, or something similar. (sadly I never had money for this - but saw it All the time)

    I am curious if some of these claims of backdating (sanctioned typically by the boards and accountants - who are not "all evil" ?), if some of the claims are merely executives complying with company programs ?

    I really take issue with the vilifying of Ken Levy.

    I never worked for him or for his fantastic firm (KLA / Tencor), but anyone in the semiconductor business with some larger # of years under the belt, knows what an up and up guy he is, in every way - either first hand or by hearing of what he does in business and as a person.

    Moreover as some might know, KLA lead the way in mask defect control / ID equipment and technology, which was not merely critical for IC yields ( ie to make semiconductor IC manufacture a business rather than a scientific curiousity ), but absolutely essential, actually critical to the Semiconductor industry, to making ANY money.

    KLA mask inspection equipment does almost ALL photomask tooling inspection at the photo-maskmakers and in wafer fabs, world wide. If the pattern tooling has pattern defects, you can get zero yield in some instances ( single die field wafer stepper lithography for example ).

    Patent protected and excellent engineering at every step of INNOVATION. Heck KLA even dominated mask inspection tools in Japan from early on, when there were not many (really not ANY) US semiconductor tools of any kind being sold to Japan, never mind KLA still dominating their market segment worldwide.

    These are not trivial accomplishments to say the least, and yes you can credit the superb business and technical leadership of Ken Levy, is my informed guess.

    I'd "love"? to hear this lunacy spread to ESOPs and similar employee share plans and then the stark reality of the claims can be seen for what it really is, and I will leave that up to the reader to think about this..... THINK ....

    The only time I think it might be worth considering prosecuting, is if regularly a firm was not making money for all stakeholders (which makes this a slippery slope indeed). And if the executives in question were short timers - ie founders and others with long service to a firm, obviously have/ deserve unusual beneficial stake in the enterprise.

    If a firm is pouring off cash / profits very nicely ( as for eg. XXX regularly does - no specific example ) then founders or long time employee stake holders deserve what is granted by the board - whether it be direct compensation or indirect which is what this backdating is all about really.

    Can one make deserving or not deserving, a viable point of law, and an illegal act?
    Seems pretty nuanced to me.

    Another point of reference is that Microsoft is apparently reviewing its practices with regards to this media stunt. Quite telling - not about MS, but about the nature of this press item.

    I can only guess when this spreads to ESOPs, what will this morph into?
    And how widespread are ESOPs ? not merely in the valley .....

    I hope I described this as clearly as possible. in some cases this is really sad.