Wow. I left a company a few years ago that was doing this. It caused money to rain down on the employees that participated (I was one of them) but it sounded like something that was completely up to the company to do if they wanted, and certainly not illegal. We had to undergo repeated lectures and training on insider trading. I do have to admit that employees were buying because it was low and they knew that certain new services were going to be released and the ensuing news would drive the stock price up. It did, and let's just say quite a few people got some windfall from the temporary bump in price. Easy double-your-money. I felt like this was insider trading but everyone was doing it so I must be wrong.
Why I did not go to jail (2014)
21–30 of 151 posts
Re: Why I did not go to jail (2014)
#22White collar criminal liability in the US is absurd. Out of a political desire get the big bad rich people we have in the process turned every executive of a sufficiently complex operation into an unwitting criminal.
> Out of a political desire get the big bad rich people we have in the process turned every executive of a sufficiently complex operation into an unwitting criminal.
Yet we only saw a small number of arrests come out of the 2008 housing crisis, despite widespread fraud. The few cases that were successfully prosecuted involved 9 and 10 figure fraud operations.
At the core of the issues is the idea that ignorance of the law is no excuse. It may sound unfair that everyone can be bound by the law regardless of whether or not they understand every line, but the alternative requires that we let people off the hook for simply claiming they didn't understand the law.
In this case, the crime wasn't a simple mistake. The Michelle character in this story thought it was a creative loophole in the law that allowed her to fudge the accounting numbers in favor of the company by arbitrarily using the lowest share price of the month instead of the share price at time of issue.
This isn't the type of decision that one accidentally makes. It requires deliberate effort to search out and use the monthly low share price instead of the share price at time of issue. Ben Horowitz was fortunately skeptical, and consulted the general counsel for a proper reading of the law.
Re: Why I did not go to jail (2014)
#23White collar criminal liability in the US is absurd. Out of a political desire get the big bad rich people we have in the process turned every executive of a sufficiently complex operation into an unwitting criminal.
Wait till you hear how our criminal justice system treats poor people.
It seems terrible for everyone. Poor people get stuck with false accusations by the police, no bail, and public defenders who are either incompetent or overworked.
Rich people (or middle class founders who dream of getting rich) get to deal with incomprehensible tax and accounting laws where no one can ever really be sure that they're compliant. Ben Horowitz had the luck to receive good legal advice and the wisdom to listen to it. No doubt some others who had the latter, still went to jail for lacking the former.
How does one even reform something like this? Some kind of legibility requirement applied to all written law? Has such a proposal ever gained traction?
Re: Why I did not go to jail (2014)
#24Options backdating schemes allow additional wealth to be transferred to an options recipient from the company. In doing so, they increase the company's compensation expenses. The next question to ask is: are the increased compensation expenses created by options backdating clearly disclosed to the company's investors, or does the company misrepresent its compensation expenses to investors as being artificially low? W…
> Options backdating schemes allow additional wealth to be transferred to an options recipient from the company.
The issue is that the company is owned by shareholders.
So the wealth transfer is from shareholders, including public investors, to employees.
Re: Why I did not go to jail (2014)
#25White collar criminal liability in the US is absurd. Out of a political desire get the big bad rich people we have in the process turned every executive of a sufficiently complex operation into an unwitting criminal.
> Out of a political desire get the big bad rich people we have in the process turned every executive of a sufficiently complex operation into an unwitting criminal. Yet we only saw a small number of arrests come out of the 2008 housing crisis, despite widespread fraud. The few cases that were successfully prosecuted involved 9 and 10 figure fraud operations. At the core of the issues is the idea that ignorance of th…
Ignorance of the law is indeed not an excuse. But all that means is that it’s not a legal excuse, as in it’s literally not a defense you can raise. It says nothing about the morality of criminalizing innocent conduct.
Many regulatory crimes require no mens rea at all. And even more criminalize things that no reasonable person would expect to be a crime. Criminal punishment is supposed to be for despicable conduct, not morally innocent behavior.
Re: Why I did not go to jail (2014)
#26The pull quote from the song is an interesting choice. Lil Wayne, the other artist on the song, shot himself in the chest as a child and was saved by a cop and has actually been pretty pro-cop recently.
Re: Why I did not go to jail (2014)
#27Did the PwC auditors have skin in the game? Do they have to stand by their decision when questioned or is it just a stamp of approval?
Re: Why I did not go to jail (2014)
#28Toward the middle, referring to author's very trusted counsel: > “Ben, I’ve gone over the law six times and there’s no way that this practice is strictly within the bounds of the law. I’m not sure how PwC justified it, but I recommend against it.” Toward the end, about the CFO's sentence ostensibly for breaking the law referred to above at another company: > Once the SEC decided that most technology company stock opt…
The enforcement and form of securities laws is beyond me, but I think Ben’s point is that Michelle went to prison for a crime she didn’t know she was committing and had checked [citation needed] with PwC. I agree it’s not arbitrary, but it does seem a bit unfair.
SEC seems almost as bad as the ATF sometimes.
Re: Why I did not go to jail (2014)
#29Edit: Actually, disregard what I wrote below, a comment on an earlier HN post explains it: https://news.ycombinator.com/item?id=7193033. The CFO was really jailed for personal tax fraud, not just for her role in the backdating scandal.
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While this article is reposted every couple of years, I always feel that I'm missing something in trying to understand why the CFO went to jail.
This page from the SEC lists the huge number of companies that somehow paid a penalty or settled as part of the backdating scandal, and it's lots of big names in the tech industry. For example, the CFO of Apple at the time: https://en.wikipedia.org/wiki/Nancy_R._Heinen. However, it was really hard for me to find many people who actually ended up going to jail over their roles. So I can only conclude that either (a) the OpsWare/Mercury Interactive CFO had a really shitty lawyer, or (b) her involvement was more direct and culpable than is let on in this a17z blog post.
Re: Why I did not go to jail (2014)
#30I feel like this could be a huge break for GC Jordan. Would anyone mind helping me find him? Many others, including me, would also like to avoid jail and would compensate him for helping us do so.