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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

#111

Post by smsm42 »

dandelany wrote: post #89
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…

Sorry to be a nitpick, but just FYI in the case of legal advice, it's "counsel" not "council" :)

You're right, I noticed it after I wrote it that I used the wrong word but was too lazy to fix it until it was too late :) Also, the "former" should be "latter" in the post. Too late to fix that too. But I think the meaning was clear anyway.

Re: Why I Did Not Go To Jail

#112

Post by VladRussian2 »

"In my reference checking, at least a dozen investors told me that they made far more money when the numbers disappointed than when the company outperformed, because they trusted Michelle when she said that things were not worse than they appeared and bought on the dips."

anybody sees any wrong here? Beside private hush-hush, there seems to be the same pattern - like with backdating of options - of optimizing interests of some selected "closer than arm reach" group at the expense of general shareholder population of that company.

Re: Why I Did Not Go To Jail

#113

Post by VladRussian2 »

rayiner wrote: post #88
smsm42 wrote: post #79

Earlier quoted context omitted.

I'm not sure why it matters that much which day options were granted on that it is worth putting people in jail for. The company has right to compensate their workers any way they like. Including giving options for free or for any price they see fit, and doing that any day at any time. Of course, our tax code being as weird and byzantine as it is, that may mean that some ways of giving options may end up in people pa…

The articled linked in HN leaves out the actual basis of the indictment: http://www.justice.gov/usao/can/news/2010/2010_09_16_abrams.... ("In April 2002, her joint federal tax return for the tax year 2001 was filed with a Form W-2 that included a 2001 taxable income that was calculated in part on a number of her Mercury stock options being exercised on April 4, 2001. When her joint 2001 tax return was filed in April…

sounds like she was punished for a disruptive innovation - "backdating of stock options exercise". Backdating of grant is cheating at the expense of shareholders whereis backdating of exercise - at the expense of IRS :)

Re: Why I Did Not Go To Jail

#114

Post by hudibras »

timmclean wrote: post #43
enjo wrote: post #33

Earlier quoted context omitted.

This, more than anything else, is why every entrepreneur needs a great mentor.

Turtles all the way down -- how do you know if a mentor is a great one?

I think you could re-write your summary as: I ran an accounting decision that worried me past my lawyer.

There might be a bit of hagiography of the GC in the original story based on what Ben now knows could have happened. For all we know, the illegality of the scheme could have been glaringly obvious to any lawyer.

Re: Why I Did Not Go To Jail

#115

Post by anonbanker »

Stay away from mirroring PWC policies unless all your executive officers have a degree in commerce, finance, and law. Because you'll need all three to get out of the fraud charges you'll be slapped with.

The reader is invited to do some research into what companies PWC has done accounting for.

Re: Why I Did Not Go To Jail

#116

Post by rosser »

ericd wrote: post #84
cperciva wrote: post #63

Earlier quoted context omitted.

Much of what a GC will do in a Silicon Valley company is support the CFO in ensuring legal compliance for finance and accounting. In this context, it can make sense for the GC to report to the CFO. I'd say the exact opposite. If the GC is spending most of his time making sure that the CFO isn't doing anything illegal, the GC needs to report to anyone other than the CFO.

Yeah - they need to work together, but it doesn't seem like the GC should be in a position where they're being judged by the person they need to be watching. That's like the ratings agencies being paid by the banks they're supposed to be regulating...

I can't imagine how that could go wrong...

Re: Why I Did Not Go To Jail

#117

Post by Daniel_Newby »

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…

> 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.

Because this story was written by a liar and/or idiot.

Option accounting law is simple and clear. Market value – exercise price = loss taken by shareholders. This goes in the quarterly report so the shareholders know how much they spent on employee compensation.

The financial planner "Michelle" was trying to simply not report the cost, to fraudently make the numbers look better. This is one of the oldest frauds in the book. Frankly I am amazed she did not get multiple life sentences for her crimes.

The story author falsely tried to make it look like some sort of terrifying subtlety, an accounting landmine that nearly blew off his leg. It is not. Every responsible accountant would start shitting kittens if confronted with this fraud in their company.

Edit: From other comments, the story was not even about the actual crimes. So the author is not an idiot, but manufacturing a scare story Daily Mail style.

Re: Why I Did Not Go To Jail

#118

Post by memracom »

chubot wrote: post #109
memracom wrote: post #106

Earlier quoted context omitted.

One red flag in this case is that the CFO referred to PwC, a major accounting firm that her former company paid for some advice, as a reason why everything was OK. This amounts to "trust me" because you have no access to the terms under which PwC was retained by the other company and no idea who actually examined the options accounting or under what circumstances. Shady dealing is often obscured by appeals to a highe…

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 the big 5 firm was behind on. The customer refused to pay the big 5 firm's bills and took them to court to recover money already paid out. The big 5 firm settled out of court by returning all money previously paid plus 90,000 for my bill. It was one of those secret settlements which is why I am fuzzy on the details, but when I mentioned it to other people in the software development business, the stories poured out.

Note how Ben Horowitz did not just farm out the decisions to a prestigious consulting firm but gave it to a guy that he knew and who he had carefully checked out in order to know that he was trustworthy.

Re: Why I Did Not Go To Jail

#119

Post by Mtinie »

Daniel_Newby wrote: post #117
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…

> 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. Because this story was written by a liar and/or idiot. Option accounting law is simple and clear. Market value – exercise price = loss taken by shareholders. This goes in the quarterly report so the shareholders know how much they spent…

Strangely, at the time that this all occurred, there was a glut of feral kittens wandering around Mountain View. I always wondered where they had come from, but now I've got a good explanation!

Re: Why I Did Not Go To Jail

#120

Post by _delirium »

staunch wrote: post #27

or "How I Hired a White Collar Criminal And Avoided Jail" "On May 31, 2007, the Commission charged Abrams and three other former senior Mercury officers with perpetrating a fraudulent and deceptive scheme from 1997 to 2005 to award themselves and other Mercury employees undisclosed, secret compensation by backdating stock option grants and failing to record hundreds of millions of dollars of compensation expense. The…

Ben Horowitz's blog is normally along such lines: posts that have a general basis in fact, but represented in a highly misleading manner.
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