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. Microsoft Technology Crashes Financial Markets, Again

    SunGard, which is a Microsoft shop, is clearly failing to provide what it calls mission-ciriticaal [sic] solutions



  2. Alice v. CLS Bank (Alice/§101) Comes to Squash Software Patents Even in Eastern District of Texas

    The crackdown on software patents is coming along nicely and the Alice case is now being utilised even in the capital of patent trolls



  3. Apple's Patent Cases Against Android Are Falling Apart, as Acknowledged Even by the Anti-Android Lobby





  4. Links 29/8/2015: NetworkManager 1.0.6, Systemd Merges “su” Command Replacement

    Links for the day



  5. Microsoft Loves Linux to Death and Still Tries to Kill GNU/Linux

    Microsoft's relentless attacks on GNU/Linux and Free software in general (even if it runs on Windows) are so evident that claims of 'love' remain laughable at best (if not infuriating)



  6. Censorship, Self-Censorship and Intimidation Now the Modus Operandi at EPO

    The European Patent Office has ceased even trying to pretend that it respects human rights, including the right to free speech



  7. Patent Practitioners: "The Unitary Patent Might be Able to Open the Floodgates for Software Patents in Europe"

    The EPO-backed Unitary Patent scheme threatens to bring software patents to Europe and along with them a lot of patent trolls from all around the world (especially the United States)



  8. Microsoft Lies About Vista 10 and Increases Microsoft Surveillance (Even Beyond Vista 10 and Into Android, Vista 7/8)

    Windows surveillance expands retroactively, making its way into platforms other than Windows and also expanding to predecessors of Vista 10



  9. Another Suicide at the EPO, Fifth by Our Count

    Yet another EPO member of staff has just committed suicide, leading to the inevitable question: how many people need to die before Battistelli and his minions are out of the Office for good?



  10. Links 27/8/2015: ownCloud Desktop Client 2.0, Red Hat Downgraded

    Links for the day



  11. Microsoft-connected Mesosphere Threatens to Eliminate Free Software in the Datacentre

    Hiding behind a misleading 'open' label while actually backed by Microsoft (and based on new rumours may join Microsoft), Mesosphere wishes to eradicate Free and back doors-free software in large datacentres hosting a lot of physical and virtual servers



  12. Microsoft Aggression Against GNU/Linux Amid Vista 10's Failure

    A look at the recent assault on GNU/Linux in Munich and the likely cause for this assault (in such a timely fashion, too)



  13. Message to LinuxCon Regarding Microsoft: “It is Necessary to Get Behind Someone in Order to Stab Them in the Back.” -Sir Humphrey Appleby

    Jim Zemlin, executive director of the Linux Foundation, helps Microsoft gain influence in the Foundation after payments are received



  14. Market Share Estimates Confirm That Vista 10 Failed in a Major Way

    Confirmatory evidence that Vista 10 is failing in the market about a month after its much-hyped (paid coverage) release



  15. When Microsoft, the Master of Patent Trolls, Complains About Trolls

    Possibly the world's biggest patent abuser and monopolist, which also creates many patent trolls (including by far the biggest one), takes on a far smaller abuser in Court



  16. Letter Signed by Two German Officials Becomes a Microsoft Weapon of Propaganda

    Microsoft and its minions refuse to leave Munich alone, even though the vast majority in Munich are perfectly happy with Free/libre software



  17. Links 25/8/2015: Linux Kernel 4.2 Final RC, KDE Ships Plasma 5.4.0

    Links for the day



  18. Sabine Pfeiler and Otto Seidl Should Take Note as Russia -- Like China -- is in the Process of Banning Microsoft Windows for Security Reasons

    A look at a strange suggestion, signed by Sabine Pfeiler and Otto Seidl, who suggest going back to Microsoft which is basically a spyware company now



  19. Microsoft Windows Leads to Espionage and Blackmail: Latest Examples

    Another news overview, detailing high-profile examples of high-cost Windows deployments (including the cost of litigation and settlement)



  20. Links 23/8/2015: BcacheFS Benchmarks, Blackphone 2

    Links for the day



  21. Links 22/8/2015: Chromebook Gains, GNOME 3.18 Clues

    Links for the day



  22. Alice v. CLS Bank (the Alice Case/§101) Continues to Crush Software Patents in the United States

    Patent scope in the United States continues to be narrowed down as more software patents get their wings clipped



  23. Company of Hype and 'Fanbois' Continues Its Patent Attacks on Android/Linux

    Apple's attacks on Android (using bogus patents) may be soon be escalated to the US Supreme Court (SCOTUS)



  24. EPO Corruption of Patent Boundaries: Business Methods and Algorithms Patented

    How the European Patent Office (EPO) not only turns a blind eye to European law while patenting or granting patents on software but also openly advocates this now



  25. Who's Obsessing Over Patent Trolls in Latest 'Reform' Efforts? Larger Patent Trolls Such as Xerox

    Response to claims that the patent problem is being tackled by focusing on patent trolls and their favourite courts in the Eastern District of Texas



  26. Links 20/8/2015: Fedora 24 Plans, Ubuntu Phones in India

    Links for the day



  27. Blackmail and Lies From the Press and the Government of New Zealand Attempt to Sell to the Public a Deal That Broadens Patent Scope

    Corporate conquest or takeover of New Zealand culminates in empty promises from government officials and blackmail against citizens of New Zealand, especially the country's dairy industry



  28. Vista 10 Turns PCs Into Zombies: Microsoft to Remotely Delete Software From Windows, Like Amazon Deleted Books From Kindle

    Microsoft allows itself to remotely delete software from Vista 10 (not just Microsoft's software), as revealed by the mainstream media not too long after the failed launch (poor adoption so far)



  29. Black Duck Still Destroying, Lying, Rewriting History

    Black Duck is still carrying water for Microsoft and pretends to be working for 'Open Source', despite doing it much harm and doing nothing that is actually Open Source



  30. Ashley Madison Disaster Apparently the Fault of Microsoft Windows

    New reports serve to show that Ashley Madison's data which got leaked includes complete dump of corporate Windows passwords


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