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. Links 20/9/2014: GNOME 3.13.92, Android L

    Links for the day



  2. Scanning Patent Troll Implodes; Is the Podcasting Patent Troll Next?

    MPHJ loses and Personal Audio LLC perhaps wins for the last time since software patents are quickly losing legitimacy in the United States



  3. If CAFC is Not Above the Law, Then it Should be Shut Down Now

    A long series of abuses in CAFC may as well suggest that this court has become broken beyond repair



  4. The Latest From Microsoft Patent Trolls and Patent Partners

    Microsoft-linked and Linux-hostile trolls continue their relentless attacks (albeit with little or no success) while patents as a weapon lose their teeth owing to a Supreme Court ruling



  5. Microsoft Proves That Its Massive Layoffs Are Not About Nokia

    Microsoft is laying off a lot of employees who have nothing at all to do with Nokia



  6. Links 19/9/2014: Another Red Hat Acquisition, Netflix Dumps Microsoft Silverlight and Brings DRM to WWW

    Links for the day



  7. Links 18/9/2014: Windows Copying GNU/Linux, Germany Moves to Security

    Links for the day



  8. Web Site 'Patent Progress' Now Officially 'Powered by CCIA' (FRAND Proponent, Microsoft Front)

    After talking a job at CCIA, "Patent Progress" and its chief author should be treated as dubious on real patent progress



  9. Articles About the Death of Software Patents in the United States

    Recent coverage of software patents and their demise in their country of origin, where even proponents of software patents are giving up



  10. The Death of Software Patents is Already Killing Some Major Patent Trolls

    VirnetX seems to be the latest victim of the demise of software patents in the United States



  11. More Microsoft Layoffs

    More Microsoft layoffs go ahead as the company is unable to compete



  12. ODF on the Rise

    Milestones for OpenDocument Format (ODF) and the launch of FixMyDocuments



  13. Links 17/9/2014: CoreOS, ChromeOS, and systemd

    Links for the day



  14. Italy is Cracking Down on Microsoft's Monopoly Abuse While Gradually Moving to GNU/Linux

    Italy is not only moving to Free/Open Source software but also to GNU/Linux while at the same time barring Microsoft from forcibly tying Windows to new PCs



  15. OpenSUSE's 'Assurances' Are Classic MBA School Hogwash

    OpenSUSE is not part of any commitment, except for SUSE's; the impact of the Novell/SUSE acquisition casts uncertainty on the project's future



  16. Links 16/9/2014: Firefox OS Smartphones in Bangladesh, “Treasure Map” of the Internet

    Links for the day



  17. The United Kingdom Should Dump Microsoft For the Sake of National Security

    The UK has issues of Microsoft dependency and Windows viruses; its migration to Free software and GNU/Linux is not fast enough to guard its autonomy in the age of digital imperialism



  18. CBS Hires Even More Microsoft Staff to Cover Microsoft Matters

    CBS continues to be infested with Microsoft staff past and present (this time Dave Johnson) and the bias in output is quite revealing



  19. Microsoft Has Just Killed Minecraft for GNU/Linux and the Possibility of Free/Open Source Releases

    Persson sells out to Microsoft and lets the abusive monopolist destroy the popular cross-platform game that a community has been built around



  20. Another Reason to Boycott Intel UEFI

    More anti-competitive aspects are revealed inside UEFI, which helps merginalise GNU/Linux



  21. Quick Mention: Novell and SUSE Passed to Microsoft's 'Partner of the Year', Microsoft Focus

    Novell is changing hands again, and falling into the hands of even more Microsoft-friendly actors



  22. Links 16/9/2014: Linux 3.17 RC5, KDE Frameworks 5.2.0

    Links for the day



  23. Željko Topić, Benoît Battistelli, and the European Patent Office (EPO): Part II

    Part II of our look into the EPO appointment of Željko Topić and other matters showing the dubious integrity of the EPO



  24. Links 14/9/2014: Android-based Watches Earn Optimism

    Links for the day



  25. Links 14/9/2014: Eucalyptus Devoured

    Links for the day



  26. Links 11/9/2014: Linux Toilet Project, Linux-Based Wheelchair Project

    Links for the day



  27. Links 10/9/2014: Brian Stevens in Google, Ubuntu 14.10 Expectations

    Links for the day



  28. Links 9/9/2014: Hating/Loving Linux, Android Aplenty

    Links for the day



  29. Links 8/9/2014: Linux 3.17 RC 4, Switzerland Welcoming Snowden

    Links for the day



  30. Suspicion of High-Level Corruption at the European Patent Office (EPO): Part I

    The European Patent Office (EPO) Vice-President has a background of corruption and his appointment to the EPO too is believed to be reliant on systemic corruption


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