EditorsAbout the SiteComes vs. MicrosoftUsing This Web SiteSite ArchivesCredibility IndexOOXMLOpenDocumentPatentsNovellNews DigestSite NewsRSS

08.26.08

Financial Fraud Claimed at Microsoft; Microsoft Paid Microsoft Witness to Shut Up

Posted in Finance, Fraud, Microsoft at 6:28 am by Dr. Roy Schestowitz

The following old article is hugely damaging and we are fortunate to have found a copy of it in the Web Archive. It vanished from the Seattle Weekly.

This article, which is titled “Microfraud?”, provides a testimony from a Microsoft insider who claims financial fraud. Interestingly enough (but not so surprisingly), Microsoft paid him a fortune to go away, keep quiet, and for the terms of the settlement not to be disclosed (recall Iowa and Caldera for similar examples).

Here are the opening paragraphs from this article.

THE ALLEGATIONS WERE shocking: For years, Microsoft has systematically distorted its profit figures in an effort to consistently beat Wall Street expectations and keep its stock price steadily rising. The false reports would violate SEC regulations, and amount to outright fraud.

More shocking was the source of the allegations: Microsoft’s chief of internal audits, Charlie Pancerzewski, who reported directly to the company’s chief financial officer.

Most shocking of all was what happened to Pancerzewski when he reported the suspicious bookkeeping to his supervisors, Microsoft CFO Mike Brown and chief operating officer Bob Herbold, in the spring of 1995. Soon afterward, Pancerzewski—who for nearly five years had received stellar performance evaluations—received his first-ever unsatisfactory one, and was eventually forced to resign.

Two months ago, Microsoft quietly settled a lawsuit containing these allegations, filed in 1997 by Pancerzewski under the Whistleblowers Protection Act. The auditor claimed he was wrongfully terminated after telling his supervisors that Microsoft might be breaking securities and tax laws. The lawsuit made its tortuous way through several rounds of pretrial motions until last fall, when US District Judge Carolyn Dimmick denied Microsoft’s final plea for summary judgment, finding credible evidence that Microsoft may have violated SEC rules, as Pancerzewski alleged. Shortly thereafter, Microsoft and Pancerzewski settled out of court. Terms of the agreement were sealed, but one source who claims familiarity with the case says that Microsoft paid Pancerzewski $4 million.

Microsoft is claimed to have lost $18 billion in 1998. That is another article that magically vanished, but we managed to find a copy.

More recently, one financial manager from Microsoft was prosecuted for embezzlement [1, 2, 3]. If the legal system is functional, more Microsoft employees might need to be put in prison and it goes all the way to the top (managers). One of them ended up jailed about a month ago. There are other examples, such as Robert Bach, a Microsoft chief who was accused of inside-trading [1, 2]. There was never a trail, but there sure was evidece.

Novell, for that matter, is no saint, either. Novell too is said to be cooking its books, but the SEC does not see it.

There is a lot of investigation to do on this, and we shall continue to do it. Please post any corrections you may have so that we don’t make improper accusations.

Share this post: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • Reddit
  • co.mments
  • DZone
  • email
  • Google Bookmarks
  • LinkedIn
  • NewsVine
  • Print
  • Technorati
  • TwitThis
  • Facebook

If you liked this post, consider subscribing to the RSS feed or join us now at the IRC channels.

Pages that cross-reference this one

4 Comments

  1. julian67 said,

    August 26, 2008 at 9:49 pm

    Gravatar

    The page referenced hasn’t vanished at all.

    It’s available at http://www.seattleweekly.com/1999-01-06/news/microfraud.php and dates from 1999. I accessed it without difficulty.

    It relates that most of the allegations were proven unfounded “Judge Dimmick threw out most of Pancerzewski’s allegations (including the European tax issue and a separate age discrimination claim) for lack of evidence, but left it for the trial to determine the truth of his charge that Microsoft fraudulently “borrowed” from its cash reserves in relatively lean reporting periods and hoarded cash in the reserves during fatter times, in order to give a more orderly appearance to its earning pattern.”

    No report of any resulting adjudication is made.

  2. Cypress said,

    August 26, 2008 at 11:44 pm

    Gravatar

    Excellent article. It’s nice to see that people don’t forget and that not everything can be buried and forgotten. :)

  3. Sander Marechal said,

    August 27, 2008 at 1:52 am

    Gravatar

    Roy, please do what Eric S. Raymond did.

    Make a copy of those relevant articles. Then publish the article here *in full* but with enough of your own comments mixed in that it falls entirely under fair use. See the Halloween FAQ at http://www.catb.org/~esr/halloween/faq.html point “Would you please make un-annotated versions available?”.

    If external articles are important then it’s worth making copies. It keeps the information from disappearing from under our feet.

  4. Roy Schestowitz said,

    August 27, 2008 at 11:46 am

    Gravatar

    Update: in USENET, Rex Ballard has posted the following response:


    Message-ID: <d7e98c92-d352-4e27-a4f9-179712da3ad3@26g2000hsk.googlegroups.com>
    From: Rex Ballard <rex.ballard@gmail.com>
    Newsgroups: comp.os.linux.advocacy
    Subject: Re: [Old] Microsoft is a Financial Fraud (Like Enron), Says Top Microsofter!
    Date: Wed, 27 Aug 2008 09:29:48 -0700 (PDT)

    > Microfraud?
    > ,—-[ Quote ]
    > | THE ALLEGATIONS WERE shocking: For years, Microsoft has systematically
    > | distorted its profit figures in an effort to consistently beat Wall Street
    > | expectations and keep its stock price steadily rising. The false reports
    > | would violate SEC regulations, and amount to outright fraud.

    This wasn’t such a big surprise, but the Clinton Administration wasn’t
    interested in investigating securities fraud that publicly. They
    understood that even the RUMOR of an SEC investigation could trigger
    panic around that stock, then that industry, and finally the entire
    market.

    The Bush administration put Harvey Pitt in charge of the SEC, and
    Harvey wanted to make a name for himself by initiating a bunch of very
    public investigations of former Bush supporters who didn’t come
    through for George W Bush when needed. The offenses were often less
    than 1% but the public investigation triggered panic selling that
    crashed 98% of the value of the stock, with WorldCom investors left
    with nothing, over a 1% irregularity.

    But the Bush Administration had zero interest in prosecuting
    Microsoft, who had made a number of political contributions, AND a
    number of contributions to charities suggested by Carl Rove and Jack
    Abramhov. Microsoft could have inflated it’s numbers by 25% but Bush
    wasn’t even going to enforce the actual judgement against Microsoft
    that they already had. Microsoft’s executives admitted under oath, in
    depositions, and in email divulged during discovery that they
    routinely engaged in fraud, extortion, blackmail, sabotage, and
    obstruction of justice, but the Bush Administration felt “Companies
    should have a right to profit from their innovations”. McCain has
    made an identical statement – I wonder how much Microsoft gave to the
    “streight talk express” and it’s puppet charities, and whether McCain
    is aware of how owned he is.

    Even though there have been something like 9,000 complaints against
    Microsoft and specific anticompetitive business practices, the DOJ has
    packed the “Technical committee” with Micrososft friendly members, so
    they don’t see anything wrong. And the DOJ itself tries to overrule
    several other states and say “There’s not a problem”.

    > | More shocking was the source of the allegations: Microsoft’s chief of
    > | internal audits, Charlie Pancerzewski, who reported directly to the company’s
    > | chief financial officer.

    And he reported the irregularities back in 1997, when nobody cared.

    > | Most shocking of all was what happened to Pancerzewski when he reported the
    > | suspicious bookkeeping to his supervisors, Microsoft CFO Mike Brown and chief
    > | operating officer Bob Herbold, in the spring of 1995. Soon afterward,
    > | Pancerzewski—who for nearly five years had received stellar performance
    > | evaluations—received his first-ever unsatisfactory one, and was eventually
    > | forced to resign.

    Yep. Microsoft was probably the leader in that corporate disease that
    made examples of a few
    “trouble-makers” who “weren’t team players” and “didn’t have the
    company religion”. It’s a good
    way to keep the others who know about the “little problem” from
    getting any “dangerous ideas”.

    > | Two months ago, Microsoft quietly settled a lawsuit containing these
    > | allegations, filed in 1997 by Pancerzewski under the Whistleblowers
    > | Protection Act. The auditor claimed he was wrongfully terminated after
    > | telling his supervisors that Microsoft might be breaking securities and tax
    > | laws. The lawsuit made its tortuous way through several rounds of pretrial
    > | motions until last fall, when US District Judge Carolyn Dimmick denied
    > | Microsoft’s final plea for summary judgment, finding credible evidence that
    > | Microsoft may have violated SEC rules, as Pancerzewski alleged. Shortly
    > | thereafter, Microsoft and Pancerzewski settled out of court. Terms of the
    > | agreement were sealed, but one source who claims familiarity with the case
    > | says that Microsoft paid Pancerzewski $4 million.

    Typical Microsoft tactic. Try to get a preliminary judgement, and if
    the judge gives
    you a clearly unfavorable ruling suggests further investigation, they
    bury the case
    by offering a settlement, having the records sealed, and barring the
    other party from
    testifying against Microsoft.

    > http://web.archive.org/web/20070308032343rn_2/www.seattleweekly.com/1

    > Why was this article removed last year? Why was the man paid 4 million to keep
    > is mouth shut? This is hugely damaging! It’s a smoking gun.

    > Another thing to point to when people ask: “why is Microsoft a criminal
    > organisation?”
    >
    > Recent:

    > Ex-Microsoft Manager Sentenced for Fraud
    > http://www.hardocp.com/news.html?news=MzM3NjYsLCxoZW50aHVzaWFzdCwsLDE=
    >
    > Ex-Microsoft Manager Pleads Guilty, Sentenced For Embezzlement
    > http://www.crn.com/software/209400603

    Notice how quickly the federal prosecutors went after the ex manager
    who was defrauding Microsoft. In the plea-bargain, she got 22 months,
    and just under $1 million in settlements.
    The 22 months may have helped her get into “club fed” and the actual
    amount might have been $1 million minus her own legal fees.

    > Ex-Microsoft manager ordered to prison
    > http://www.upi.com/Business_News/2008/07/19/Ex-Microsoft_manager_orde
    >
    > Ex-Microsoft manager jailed for $1m fraud
    > http://www.vnunet.com/vnunet/news/2222135/microsoft-manager-jailed-1m
    >
    > Ex-Microsoft Manager Gets 22 Months for Fraud
    > http://www.pcworld.com/businesscenter/article/148642/exmicrosoft_mana
    >
    > Ex-Microsoft boss sentenced
    > http://seattlepi.nwsource.com/business/371393_msftcourt19.html
    >
    > Former Microsoft Manager Gets 2 Years In Jail
    > http://news.portalit.net/fullnews_former-microsoft-manager-gets-2-yea

    > Kirkland woman senteced to 22 months, ordered to repay nearly $1 million, for
    > embezzlement scheme
    > http://www.pnwlocalnews.com/news/25634819.html

    Wow, mess with Microsoft and your punishment will make LOTS of papers
    - message, don’t mess with Microsoft, they will mess you up.

What Else is New


  1. Patent Scope at the EPO is Totally Out of Control, UPC Will Make Things Worse

    A look at the practical issues with the EPO, where patent scope and litigation scope have been vastly extended so as to benefit multinational corporations and possibly patent trolls



  2. Links 26/5/2015: Reviews of Kubuntu 15.04, Linux 4.1 RC5

    Links for the day



  3. Süddeutsche Zeitung Says Talking Helps While EPO Management Back-stabs Other Side of the Table

    German media gives the impression that there is peace and harmony now that Benoît Battistelli and his circle of power speaks to staff, but nothing is said about simultaneous (albeit covert) attacks against that staff



  4. Large Corporations Call the Shots in US Patent Reform

    A reminder of where we stand on the issue of patent 'reform' in the US and who is controlling or shaping it



  5. Microsoft Puts Proprietary Windows and Hyper-V Inside the Free Software-Centric OpenStack

    OpenStack, which celebrates rapid growth in this month's event in Canada, is facing a proprietarisation threat from Microsoft



  6. Microsoft's Secret Lobbying, Bullying, and the Long History of Blackmailing Politicians Around the World

    British media covers Microsoft's abuse in the UK, but there are many similar incidents, and not just in the UK



  7. Frankfurter Allgemeine Zeitung on Benoît Battistelli and Four EPO Suicides

    German press article from April 2015 (with translations)



  8. Links 24/5/2015: CrossOver 14.1.3, NTFS-3G Vulnerability

    Links for the day



  9. Links 23/5/2015: Fedora 22 to May 26th, Netflix in SteamOS

    Links for the day



  10. The Patents Production 'Industry' (Patent Lawyers) Still Fights Hard to Salvage Software Patents

    A review of recent writings about software patents and patents on business methods in the United States, demonstrating that patent lawyers have gotten very vocal and sneaky (trying to evade the rules)



  11. Patents as a Marketing Strategy: USPTO Now Part of the Advertising Industry

    The existence of publicity patents, or patents whose sole purpose is to advertise some products, serves to discredit the US patent office, which was originally set up to promote science and technology



  12. Microsoft Blackmails and Extorts British Politicians Over Open Standards and Free Software-Leaning Policies

    Microsoft's digital imperialism in the UK getting defended using blackmail, reminding a lot of Brits that Microsoft is just as evil as ever before



  13. Microsoft Gives Another Bug a Name, This Time Logjam™

    The Microsoft crowd is good only at marketing, even when it comes to small bugs in software



  14. Links 22/5/2015: Fedora 22 Final Release is Near, Canonical IPO Considered

    Links for the day



  15. More Utter Shame Unveiled at Battistelli's EPO: Intimidation Tactics With Help From 'Control Risks'

    The unaccountable thugs who run the EPO have hired London-based spooks to help silence their opposition and their critics



  16. GNU/Linux Still Under Attack From Apple and Microsoft, Patents Remain the Weapon of Choice

    A timely reminder of the importance of patent matters, for they are being used to eliminate the zero-cost advantage of Free/libre software and make it more proprietary, privacy-infringing, and user-hostile (as a result of blackmail)



  17. Gartner Group and NASSCOM: Will Lie for FUD, on Behalf of Microsoft and Proprietary Software

    Some of the latest arguments against Free/libre software turn out to be arriving from couriers of Microsoft and its agenda



  18. Windows is a Franchise in Demise, Don't Believe the Hype

    Ongoing propaganda about Vista 10, 'cloud', and other buzzwords or brands are put in perspective



  19. Links 21/5/2015: Fedora 22 RC2, CERN Chooses OpenStack

    Links for the day



  20. Microsoft is Again Showing Its Hatred of Free/Open Source Software by Lobbying the Indian Government to Drop a Rational National Policy

    Microsoft decides to attack Free/Open Source software (FOSS) in India, where the corporate media is very much complicit in misleading the public



  21. Links 20/5/2015: Containers, OpenStack, and EXT4 Corruption

    Links for the day



  22. The PATENT Act, Distraction of Trolls, and Lobbying for Software Patents by Protectionists

    Only large corporations and their lawyers are able to formally change the US patent system through public officials and politicians, despite recent rulings from very high courts



  23. Corporate Media and Friends of Microsoft Are Still Lying About the Cost of Vista 10

    In a desperate effort to beat operating systems that are Free (libre) and free (gratis), such as GNU/Linux or Android, Microsoft shores up the illusion of 'free' (gratis) Windows



  24. Links 19/5/2015: Linux 4.1 RC4, Thunderbird 31.7.0, OpenStack Event

    Links for the day



  25. Links 18/5/2015: Russia Chooses Jolla, Many New Distro Releases, Meizu Devices

    Links for the day



  26. Even Converting an Image to Greyscale is Now a Patent

    Simple mathematics becoming patented as Fujifilm claims 'ownership' of photographic conversion to greyscale



  27. Grooming of the World's Biggest Patent Troll, Nathan Myhrvold of Microsoft and Intellectual Ventures

    UCLA and Microsoft-linked media are framing big thugs as heroes, doing a great disservice to both academia and journalism



  28. The EPO's Fight to Bring Software Patents Into Europe is One Step Closer to a 'Victory' (for Multinationals)

    Opposition to the Unified Patent Court (UPC) is being crushed and Italy is one of the latest actors to have fallen in the battle



  29. Microsoft's 'Former' Staff Continues With His Anti-Google Rhetoric at CBS

    A Microsoft intern, who has moved on to journalism, is still showing his affinity for Microsoft with apologetics and spin



  30. More of Microsoft's False Claims About Cost of Vista 10 and More Layoffs

    Vista 10 is still being marketed using lies and Microsoft may be going down the same route as Nokia


CoPilotCo

RSS 64x64RSS Feed: subscribe to the RSS feed for regular updates

Home iconSite Wiki: You can improve this site by helping the extension of the site's content

Home iconSite Home: Background about the site and some key features in the front page

Chat iconIRC Channel: Come and chat with us in real time

CoPilotCo

Recent Posts