Stock Options Scandal Leaves Trail of Toasted Execs
By Colleen Taylor -- EDN, October 25, 2006
The ongoing industry stock options backdating scandal has left a bevy of ousted executives in its wake. Whether they decided to voluntarily jump off what they saw as a sinking ship, or were forced by shareholders and employees to walk the plank, a number of high-ranking executives have left tech companies as questionable stock options granting practices come to light.
As the first whispers of stock options investigations began to surface this past spring, board chairman Howard Earhart and CFO John Cobb resigned from their posts at power conversion chipmaker Power Integrations Inc. when the company admitted to backdating.
In May, Vitesse Semiconductor Corp.fired its CEO, CFO and an executive VP as stock options fraud became apparent. Vitesse's former CEO Louis R. Tomasetta, CFO Yatin Mody and Eugene F. Hovanec, executive VP had been placed on administrative leave by Vitesse in April because of their involvement with issues related to the integrity of documents relating to Vitesse's stock option grant process.
The stock options situation only heated up as spring rolled into summer. Boardroom shakeups abounded as companies feverishly combed their records for stock options errors. In June, Thomas P. Dunne resigned his post as chairman of SteelCloud Inc., the turnkey server appliances, network security and infrastructure management solutions company he founded in 1987. The exit announcement came in response to the results of an investigation by the company's audit committee relating to matters associated with the attempted exercise of certain employee stock options owned by Dunne.
Also citing the stock options scandal, Geoff Tate, former CEO of Rambus Inc. from 1990 through 2005, gave notice in August of his intention to resign from its board of directors. Claiming to be simply erring on the side of caution, Semtech Corp.'s John D. "Jack" Poe said he stepped down as chairman of its board to avoid even the appearance of a conflict of interest.
The government has gotten in on punishing execs involved in illegal backdating, as well. In August, the U.S. Department of Justice charged Comverse Technology Inc.'s former CEO Jacob "Kobi" Alexander, former CFO David Kreinberg, and former general counsel William F. Sorin with orchestrating a long-running scheme to manipulate millions of stock option grants to themselves and to employees. Alexander, Krienberg and Sorin resigned from Comverse on May 1 in the midst of an internal company investigation relating to options backdating.
At Broadcom Corp., where stock options trouble has been brewing for months, William Ruehle, the company's senior VP and CFO, decided in September to "accelerate his retirement" as a result of Broadcom's ongoing equity award review.
Another former CFO, Apple Computer Inc.'s Fred Anderson, ducked out when backdating evidence surfaced. Anderson, who served as CFO from 1996 until 2004, informed the company when the results of its internal review were announced that he believed it was in Apple's best interests that he resign from its board of directors at that time.
At other companies, it seems as though some execs cut and ran well before their stock options misdeeds came to light. Altera Corp. said in a document filed with the U.S. Securities and Exchange Commission earlier this month that a former CEO and a former general counsel had been responsible for backdating options from 1996 through 2000. While the document did not name the CEO and general counsel, Rodney Smith and Wendell Bergere served in those roles during the period in question. At the same time as these accusations, the company announced the exit of its senior VP and CFO Nathan M. Sarkisian. The official spin from Altera is that Sarkisian, who is 47, retired, but the company also announced the stock options inquiry concluded there had been a material weakness in financial controls and suggested "remedial actions," including searching for a new CFO.
Similarly, KLA Tencor Corp. has very publicly attempted to wash its hands of those involved with the stock options scandal. In a statement released this month, KLA said it "has terminated all aspects of its employment relationship with Kenneth L. Schroeder, effective immediately." Schroeder was president and COO of the company from 1991 to 1999, and CEO and a member of the board of directors from 1999 through 2005—all periods during which the company has since discovered stock options backdating.
And KLA's stock options-related executive moves don't end there: Stuart J. Nichols resigned from the company when it announced the damning results of its internal stock options investigation. Nichols had been VP and general counsel of KLA since 2000. At the same time, another KLA bigwig, Kenneth Levy, founder and chairman of the board, retired as a director and employee. Levy was a member of the board since 1975, chairman of the board since 1999, and CEO from 1975 to 1997 and from mid 1998 to mid 1999.
A company's stock options misdeeds have not spelled disaster for all executives, however. The largely troubled KLA did report that its investigation revealed no involvement in the improper stock option practices by any current members of company management, including Richard P. Wallace, John H. Kispert and Jeffrey L. Hall, who became CEO, COO and CFO, respectively, in early 2006. And while consumer electronics giant Apple Computer disclosed that its CEO Steve Jobs was aware of the company's participation in illegal stock options backdating, an investigation ruled that he did not receive or otherwise benefit from these grants and was unaware of the accounting implications.
See “
Taking Stock
” for Electronic News’ full coverage of the ongoing stock options backdating scandal.
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It's amazing to me to see the boundless greed of these execs. As if their compensation packages weren't outrageously inflated as it is, they have to get EXTRA greedy. I say fire ' em all and give 'em jobs at McDonalds. The rest of the works busts it's can on a daily basis to get over. What do these overpaid underworked buffoons really do for us?
Rod Weeks - 2006-26-10 08:13:00 PDT -
Forgot walking the plank, how about having them learn to skydive, and giving them all "Polish Parachutes", they open on impact : - )
Disgusted Dave - 2006-26-10 04:45:00 PDT
