Techies not immune to the lure of fraudulently easy money

The New York Times has a brief article today on a bogus tax shelter scheme apparently originated by James Clark’s essentially failed MyCFO dotcom. Yes, the Clark of Netscape and SGI fame who thought he could extend the online model into managing the wealth of his fellow New Economy multimillionaires. One tool they devised seems to have been a tax shelter which the government now claims shortchanged them by $1.8 billion.

This is small potatoes compared to the burgeoning stock options scandal, though, which has now reached the real effects stage with the release of Mercury Interactive Corp’s report on its internal investigation. This was one of the first companies put on notice by the SEC for playing games with the grant date of stock options awards to executives and so one of the first to bring the details to light.

What a mess they made! The CEO, CFO and general counsel were all fired six months ago and the company’s stock was delisted by the NASDAQ until years of financial statements were recalculated. At least $570 million dollars in profits will be subtracted from their books and have no doubt that criminal and civil charges will be forthcoming, not to mention investor lawsuits.
Mercury Interactive is far from alone–the SEC is investigating at least 55 other companies for similar practices and Microsoft and Apple have admitted to routinely using the most advantageous date within a given month to date grants for all employees. Research done by Randall Heron, an Indiana University associate professor of finance, and University of Iowa professor Erik Lie predicts the number of companies under investigation will quadruple by year’s end!

So for all of you (and by you I mean my fellow techies) who think that technologists , while hardly immune to the lure of the dollar, are driven at bottom by a desire to build cool stuff and make it available to the world I suggest you think again. How many of you had nice stock options grants in the pre-2002 boom? I did, though I didn’t use the best judgment to time sales, and I wonder if any fell into this bucket.