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Why I Did Not Go To Jail

bhorowitz.com

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Re: Why I Did Not Go To Jail

#151

Post by Shinkei »

Negitivefrags wrote: post #144
smsm42 wrote: post #51

What I take from this story is that the financial law is so complex and unapproachable one can not reliably navigate it without landing in jail, even being a seasoned professional. The author's council could have given him "yes" answer as easily as "no" answer - many other lawyers obviously did since 200 companies got "yes" answers from their councils. And he'd never known anything was wrong. Basically, one can becom…

It's like living in the same apartment with alcoholic gorilla prone to random outbursts of violence. One day it eats too much of fermented fruit and you're toast. And you have no way of knowing when it happens. Maybe you'll get lucky and you'll be out that day. Maybe you won't. That's pretty much it. I remember not feeling any sympathy for my friends who ran in to tax problems. It's easy to assume that this stuff is…

As a funny example, I read the 1040 instructions each year and some interesting points are included regarding "claiming kidnapped children" and "whale captains deducting specific expenses." If they are devoting time to these sections in the general instructions, then it's gotten out of hand.

Re: Why I Did Not Go To Jail

#152

Post by einhverfr »

derekp7 wrote: post #102
ZachPruckowski wrote: post #77

Earlier quoted context omitted.

The CEO in the linked piece didn't need to get down into the weeds of the accounting laws, he just needs to know to get a second (outside/unbiased) opinion on anything that smells even faintly and remotely fishy that he's signing off on, and he needs to keep a general eye on principal/agent problems or conflicts of interest in the people he manages.

And he needs to know that the outside opinion is actually the same opinion that would be shared by a potential prosecutor / judge / jury. And he needs to have enough intuition to know that something smells fishy. And that it is a bad fishy smell, not a good fishy smell.

A lot of this comes down to two things:

1. Having a good grounding in accounting basics, and

2. Having enough accounting knowledge beyond the basics to have a discussion with accountants and lawyers regarding best accounting practices.

Re: Why I Did Not Go To Jail

#153

Post by einhverfr »

RockyMcNuts wrote: post #105
smsm42 wrote: post #75

Earlier quoted context omitted.

In the case described in the story, I don't see any signs of the former. The CFO proposes certain practice, it is not obviously illegal (like not paying taxes or stealing office supplies from competitors at night), hundreds of companies do it, hundreds of lawyers approve it. If the CEO asks the council if it's OK and the council says yes, like hundreds others did, he goes to jail. If he's lucky and the council says n…

hmmh... a manager changing the date on a contract after the fact so it generates more money for him/her is actually pretty obviously a red flag. Kudos to Ben for doing the right thing. If the government couldn't prove beyond a reasonable doubt to a jury that it was wrong, she wouldn't have gone to jail. (Not saying innocent people never go to jail, but it's not like she was an indigent defendant, she had a lot of res…

If the contract is to create another contract effective at a specific date based on what makes more money for the employee, that raises no red flags in my mind from a legal perspective or an accounting principles perspective.

Unfortunately those are not the only things at issue. One key thing involved is uniformity from an investor's perspective and I think that's where the idea runs off the rails.

Re: Why I Did Not Go To Jail

#154

Post by deong »

smsm42 wrote: post #140
deong wrote: post #123

Earlier quoted context omitted.

I'm not sure that conclusion is warranted. Here's what we know: 1. Loads of companies were doing it. 2. When this company wanted to do it, their counsel said it was illegal, so they didn't. Given those facts, we can't say that the other 200 companies were simply flummoxed by a too-complex regulatory framework. They may just have well had their own meetings and said, "This looks fishy, but everyone else is doing it, a…

I'm not saying it was arbitrary from regulator's side. I am saying it would be arbitrary for you because you won't know if you're in the wrong or not. >>> but when you're making C-level salaries, I'm sorry but you're expected to figure out if you're committing a crime or not. I'm not sure how it has anything to do with the salary. I'm sure whichever lawyers OKed this practice - and I would find it very hard to believ…

The "arbitrary" I was referring to was from the article -- a direct quote from Horowitz.

I'm saying that if knowing things like the legal requirements for running a company isn't expected to be part of your job, then you should pay someone a hell of a lot less to do the job than most executives are paid. If you just want someone to wing it, give me a call -- I'll work for probably 10% of the salary.

It's not that the salary is compensation for the possibility of going to jail. It's that compensation correlates with responsibility. If you hire a programmer for $250,000 a year, you damn well expect him or her to be better, more responsible, and more independent than one you're paying $50,000 a year. If not, then what are you paying 5x as much for? So if I hire a CFO at say, $3.5 million a year plus stock options and all the other perks (that's Google's CFO compensation at the moment), what am I paying for if I can't assume that they won't have bothered to figure out the accounting laws?

Also, you're assuming that companies would be innocent, unknowing participants here. That's an assumption that, very often, turns out to be false when we have occasion to check. I don't think all those valley companies thought they were allowed to enter into those wage-dampening agreements, but they still did it. I don't think that was an honest mistake or misunderstanding of the law. I don't think Enron, Tyco, Global Crossing, AIG, and a million other examples thought they were shining beacons of moral virtue victimized by a complicated legal system either. People, and by extension corporations, will quite often break or at least flirt with breaking the law in exchange for money. You're asking me to just take your word for it -- sort of a "well obviously we didn't mean to do anything wrong" defense. It isn't obvious.

Re: Why I Did Not Go To Jail

#155

Post by einhverfr »

dctoedt wrote: post #40

1. Backdating stock options per se is not what's the legal problem -- it's that failing to account correctly for the resulting compensation charges ("comp charges") can result in materially-false filings with the SEC. 2. It's a different problem as far as the internal politics are concerned. When a company properly records such comp charges in its financial statements, can depress a company's financial results and wi…

> Finally, let's not forget that outside accounting- and law firms are motivated to keep their clients happy, to be perceived as team players, and ultimately to get hired for repeat business.

See Arthur Anderson and Enron...

Re: Why I Did Not Go To Jail

#156

Post by triplesec »

memracom wrote: post #118
chubot wrote: post #109

Earlier quoted context omitted.

Not to be cynical, but isn't this why "consulting firms" exist? Part of their job is to just some "reputable" outside justification for something someone internally wants to do anyway. It's to cover their ass. When there are mass layoffs, they hire "consultants". Because nobody inside wants to really take responsibility for the decision. It's better politically to have it come from some "outside objective analysis" (…

The way you describe it they are the worst sort of consultants. I once worked on a project that a big 5 consulting firm was charging 1.7 million to deliver. After 6 months, a tech savvy guy convinced the CEO to hire me for 3 months to sort everything out. I came in, had systems up and running partially (but delivering useful results) in 2 weeks. Then I spent the rest of the 3 months delivering every deliverable that…

Hint us a company name, please! want to find the stories

Re: Why I Did Not Go To Jail

#157

Post by triplesec »

cgio wrote: post #125
memracom wrote: post #118

Earlier quoted context omitted.

The way you describe it they are the worst sort of consultants. I once worked on a project that a big 5 consulting firm was charging 1.7 million to deliver. After 6 months, a tech savvy guy convinced the CEO to hire me for 3 months to sort everything out. I came in, had systems up and running partially (but delivering useful results) in 2 weeks. Then I spent the rest of the 3 months delivering every deliverable that…

I once went into a project where the runtime for a complex financial calculation (as complex as it can be) was 8 to 10 hers. In 2 weeks it was 37 seconds and working perfectly. When the CFO took me for dinner, I told him that 90% of the work was the old implementation, which set the right concepts, and I merely did an optimisation. Many times, the first take is not optimal, but I always try to appreciate the input I…

I hope you charged accordingly!

Re: Why I Did Not Go To Jail

#158

Post by triplesec »

jamesaguilar wrote: post #64
rayiner wrote: post #17

Earlier quoted context omitted.

Almost always, something like this just results in a civil investigation and monetary penalties if the SEC concludes you did something not-kosher. The criminal indictment for "Michelle" was for tax evasion linked to the back dating: http://ww2.cfo.com/accounting-tax/2008/04/mercury-interactiv... . In general, tax crimes require a high standard of "willful" violation in which the defendant purposefully violates a know…

Fascinating. Based on what everyone is saying, it seems like it is relatively much more difficult to wind up in jail if you are trying to do the right thing.

...if you're a white collar, white well-off person, that it. Important caveat, even if not strictly relevant in this context.

Re: Why I Did Not Go To Jail

#159

Post by outworlder »

The weirdest thing here is that, mistakes or not, these law violations gives someone jail time.

Come on! At most, it caused monetary damages. The proper way to make it right is to apply monetary penalties (eg. fines). What's the reasoning behind locking up someone for that? It is not like the general public is being physically harmed, so 'Michelle' should not have to be physically restricted.

Besides, depending on the amount, a fine can set someone back for way more than 3 months. The cost-benefic analysis will make her thing twice next time.

Re: Why I Did Not Go To Jail

#160

Post by ben0x539 »

watwut wrote: post #62

"Michelle had no intention of breaking any laws and no idea that she’d broken any laws. [...] Once the SEC decided that most technology company stock option procedures were not as desired, the jail sentences were handed out arbitrarily. " I find this quite disturbing. Especially the second part.

With the 3.5 months sentence described in the article, they probably got off fairly well on a potential profit / jail time scale, compared to normal people who go to jail.
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