09.01.08

Gemini version available ♊︎

Novell’s Stock Options Scandal Just Weeks Before Deal with Microsoft

Posted in America, Finance, Fraud, GNU/Linux, IBM, Microsoft, Novell, SCO, SLES/SLED at 5:05 am by Dr. Roy Schestowitz

A couple of days ago we wrote about alleged fraud at Novell. Having been taken to task, we hereby provide a more detailed analysis. It is difficult to find full articles because it dates back to early days of Novell SUSE, but we do our best nonetheless.

Here are some more details (than the last time) about Novell’s settlement in the class action lawsuit over securities fraud. Novell was never cleared and according to this article, “In its stipulation to the settlement, Novell said it had agreed to end the case in order to avoid further “protracted and expensive” litigation.” There is a little more information here and here.

A three-judge federal appellate panel on Tuesday ordered a drastically trimmed version of a long-running shareholders’ securities fraud lawsuit against Novell back to a Salt Lake City courtroom. In their unanimous decision, Judges Carlos F. Lucero,

Other bits of text such as this, this and this seem to suggest that proof was not sufficient.

In the securities fraud context, a plaintiff is held to a strict standard of pleading. Id. at 1124. Traditionally, plaintiffs alleging securities fraud had to meet the heightened pleading requirement of Rule 9(b)….

 

Grossman alleged violations of §§ 10(b) and 20(a) of the Securities Exchange Act and common law fraud arising out of a seven percent decline in the price of Novell stock after the company announced disappointing earnings for the third quarter of its 1994 fiscal year. The District Court granted Novell’s motion to dismiss, ruling that Plaintiff had failed to allege a materially misleading statement or omission, that Novell had disclosed the risks of the merger, and that Plaintiff had not pled fraud with sufficient particularity.

At the time, it was not known that that Novell would report accounting errors a few years later. We’ll come to this in a moment.

Some time later, the following article from Law.com showed up. LaSala quit Novell several months ago, but the following story is interesting.

Last month, Novell gave LaSala a $350,000 bonus for “exceptional contributions” to the business — even as the company remained in the middle of an internal investigation into backdating that was launched in August.

Novell CEO Jack Messman and Chief Financial Officer Joseph Tibbetts Jr. both stepped down in June. The company said the departures had nothing to do with Novell’s ongoing backdating investigation. In 2002, Messman was the sole member of the company’s stock option grant committee for nonemployees, according to an SEC filing, a structure found at other companies under the backdating cloud, like Brocade Communications.

[...]

Journalist Pamela Jones, editor of Groklaw, a blog that closely follows open-source intellectual property disputes, mused that LaSala’s bonus was likely “related to the recent Microsoft deal.”

“Novell views the Microsoft partnership as a plus,” Jones wrote in an e-mail. “They may well feel that whoever worked on the deal deserves recognition. I don’t know if Mr. LaSala was involved, but it seems likely that the general counsel would be.”

[...]

Last fall The Recorder reported that Novell board members, including Sonsini, granted themselves stock options at dates other than the company’s annual meeting in 1997, 1999 and 2001. The 1999 grant came near a 17-month low in Novell’s stock price. The out-of-cycle grants practice deviated from shareholder-approved guidelines, but the board cited a 1991 stock plan for the authority to make the grants.

A Wilson Sonsini spokeswoman said at the time that Sonsini never exercised his 1999 grant.

The text speaks about Sonsini, which CNN wrote about in the context of scandals just after the deal with Microsoft.

Because Sonsini was on Brocade’s audit committee one year, he has also been named as a defendant in private class-action suits. Sonsini was on the board of Novell (Charts) too, which has initiated a voluntary audit of its options practices. Like all Novell directors, Sonsini received options himself. He never exercised his, according to a firm spokesperson, and they expired three months after he left the board in 2002. Sonsini declines to discuss either Novell or Brocade.

There is no ‘smoking gun’ here, but the vicinity to those scandals does not fare well.

One thing that was covered before is Novell's financial struggles just before the deal with Microsoft and throughout negotiations with them. Here is an article about it. Mind the date.

Novell Dogged by Delisting, Default Issues

[...]

Novell is not alone in the stock options scandal that has put more than 60 other public companies under scrutiny by the Securities and Exchange Commission in recent months.

Both of the issues at hand, however, have further hurt the company’s lagging stock price and likely shaken clients of the second largest Linux vendor, Yankee Group Senior Analyst Laura DiDio told LinuxInsider.

“Anytime you get a delisting notice from Nasdaq it’s a big red flag,” she said. “It’s worrisome. It’s got to be worrisome to the customers, and that’s the big thing.”

So says a Microsoft shill (also ally of SCO), who works at the Microsoft-Yankee Group [1, 2]. We already know the routine [1, 2].

Sadly, also quoted is The Gartner Group, which is equally biased [1, 2, 3]. The entire article seems composed of these unreliable perspectives, which seems irresponsible for the writer, Jay Lyman, who now works in the 451 Group. It’s careless to just quote people that are close to Microsoft and even paid by Microsoft. At the time, Novell was also competing against Microsoft.

From around the same time, the following article can also be pulled. Novell was checking for backdating and therefore it seemed to have concealed its records.

Novell was only able to post preliminary fiscal third-quarter results Tuesday because it’s hired outside legal counsel to review its past stock option practices for indications of backdating, so the results it put out, it said, don’t reflect any adjustments that may have to be made.

More of the same from USA Today:

At high-tech firm Novell, for instance, a dozen current and former directors approved and backdated an unknown number of grants from 1997 to 2003 to inflate stock profits for officers and directors, according to a shareholders’ lawsuit.

Former Novell CEO and chairman Jack Messman left the firm last summer, and Novell has hired a law firm to investigate its backdating practices. The company says it may restate its financial statements and faces possible delisting from the Nasdaq Stock Market.

Here also:

Novell’s move comes as the SEC continues to widen its probe into potentially fraudulent stock options practices occurring now or in the past at U.S. companies and related to the backdating of options. By timing the granting of options to a low point in a company’s stock, an options recipient could buy shares cheaply and then resell them for a greater profit once the vendor’s share price rose.

Finally, we have covered this one before. It’s about stock option errors at Novell, lasting for about 10 years. Matt Aslett covered this also. it came after the settlement.

To conclude, what may have happened here is that Novell cooked its books in order stay on its feet. At the same time, it explored a deal with Microsoft that would inject hundreds of millions of dollars into the company. Maybe this was desperately needed.

Novell changed a lot since itsdeal with Microsoft. They were more careful the following year and watch how, according to The Wall Street Journal, Novell shifted its report from 2006 (before the Microsoft cash infusion) and published it in 2007 after selling some Microsoft SUSE coupons.

Bruce Lowry, a company spokesman, declined to say what the letters concerned, except that they were accounting-focused. Dana Russell, chief financial officer, said in a statement that the earnings release was postponed in “an abundance of caution” and “we look forward to completing our dialogue with the SEC.”

Novell delayed filing the 2006 annual report until May 2007 because of an internal investigation of whether its employees received backdated stock options.

One has to wonder what it is that Bruce Lowry saw, which made his escape Novell.

Just one week before the Microsoft deal, the following article shows up: Novell Board Gets Hit With Third Derivative Suit About Backdating

Reader trmanco has found the article after some discussions in the IRC channel. Sonsini is mentioned again.

The complaint focuses on options Novell board members gave themselves in October 1999, which came in addition to their regularly scheduled options. The “strike price” of the grants was a 17-month low. Filed by San Diego’s Lerach Coughlin Stoia Geller Rudman & Robbins, the suit also accuses the current top managers and board of directors and former CEO and chief financial officer of fraudulent accounting from 1999 to 2006.

The alleged backdating “has wreaked hundreds of millions of dollars of damages on Novell,” according to the suit.

[...]

A Wilson Sonsini spokeswoman noted Sonsini never exercised his October 1999 grant.

Again: this was published just one week before announcing the cash infusion from Microsoft. Was it a sellout of desperation, which came about because Novell was’nt buoyed by an acquisition of S.u.S.E., despite financial help from IBM?

TAKING STOCK Big news from Novell. The business-software company announced that it will acquire German Linux developer SuSE Linux AG for $210 million in cash. That’s not all — Novell added that IBM plans to invest $50 million in its stock, a big thumbs up from Big Blue. NOVL stock shot up more than 21 percent to $7.33, while IBM lost 54 cents to $89.14.

More on the events from the following year (including SCO) can be found here.

Novell is no angel and we wish to show this. Going further into the past, you can find Novell bribes.

The new chief of technology at the state Department of Children & Families resigned late Tuesday after agency officials learned he had been faulted by officials at a previous job in Ohio for accepting gifts from a technology company that had won a $1.9 million contract.

John R. Hurd was also criticized in a separate investigation by the Ohio Inspector General’s Office for appearing in several advertisements for the company, Novell, and allowing the company to run endorsements by him on its website.

Here is a similar story, which does not necessarily involve Novell. It’s the Salt Lake Olympics (winter games) scandal.

Reeling from a still-unfolding scandal involving charges that Utah won the right to host the Games by showering cash, gifts and other financial favors on International Olympic Committee (IOC) members and their families, this prosperous and booming city nestled against the Wasatch Mountains is undergoing a kind of civic and psychic crisis. “Utahans are very ashamed of what they are seeing…”

Some more details about it here:

In the early to mid-1990s, Utah by almost every economic indicator was on an express elevator. In the peak year of 1994, employment grew by 6.2 percent. Hundreds of high-tech firms led by giants such as Novell, WordPerfect and Iomega sprouted and grew along the Wasatch Front from Ogden to Provo, attracting a flood of migrants from other states. Two years ago, Nation’s Business magazine honored the Salt Lake City-Provo area as the No. 1 large metropolitan area to start and build a business.

So, what can be said about Novell? Is it really trustworthy? Does it seem like a company which in a good shape?

Share in other sites/networks: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Reddit
  • email

Decor ᶃ Gemini Space

Below is a Web proxy. We recommend getting a Gemini client/browser.

Black/white/grey bullet button This post is also available in Gemini over at this address (requires a Gemini client/browser to open).

Decor ✐ Cross-references

Black/white/grey bullet button Pages that cross-reference this one, if any exist, are listed below or will be listed below over time.

Decor ▢ Respond and Discuss

Black/white/grey bullet button If you liked this post, consider subscribing to the RSS feed or join us now at the IRC channels.

DecorWhat Else is New


  1. EPO Dislikes Science and Scientists

    The EPO's management has become like a corrupt political party with blind faith in money and monopolies (or monopoly money); it has lost sight of its original goals and at this moment it serves to exacerbate an awful pandemic, as the video above explains



  2. Links 1/12/2021: LibreOffice 7.3 Beta, Krita 5.0, Julia 1.7

    Links for the day



  3. Links 1/12/2021: NixOS 21.11 Released

    Links for the day



  4. IRC Proceedings: Tuesday, November 30, 2021

    IRC logs for Tuesday, November 30, 2021



  5. Links 1/12/2021: Tux Paint 0.9.27 and WordPress 5.9 Beta

    Links for the day



  6. [Meme] EPO Administrative Council Believing EPO-Bribed 'Media' (IAM Still Shilling and Lying for Cash)

    IAM continues to do what brings money from EPO management and Team UPC, never mind if it is being disputed by the patent examiners themselves



  7. The EPO's Mythical “Gap” Has Been Found and It's Bonuses for People Who Use Pure Fiction to Steal From Patent Examiners

    The phony president who has the audacity to claim there's a budget gap is issuing millions of euros for his enablers to enjoy; weeks ahead of the next meeting of national delegates the Central Staff Committee (CSC) tells them: "Events show that the delegations’ concerns about functional allowances have materialised. The lack of transparency and inflation of the budget envelope gives rise to the suspicion that high management is pursuing a policy of self-service at the expense of EPO staff, which is difficult to reconcile with the Office’s claimed cost-saving policy, and to the detriment of the whole Organisation."



  8. Video: Making the Internet a Better Place for People, Not Megacorporations

    Following that earlier list of suggested improvements for a freedom-respecting Internet, here's a video and outline



  9. Links 30/11/2021: KDE Plasma 5.23.4, 4MLinux 38.0, Long GitHub Downtime, and Microsoft's CEO Selling Away Shares

    Links for the day



  10. A Concise Manifesto For Freedom-Respecting Internet

    An informal list of considerations to make when reshaping the Internet to better serve people, not a few corporations that are mostly military contractors subsidised by the American taxpayers



  11. Freenode.net Becomes a 'Reddit Clone' and Freenode IRC is Back to Old Configurations After Flushing Down Decades' Worth of User/Channel Data and Locking/Shutting Out Longtime Users

    Freenode is having another go; after “chits” and “jobs” (among many other ideas) have clearly failed, and following the change of daemon (resulting in massive loss of data and even security issues associated with impersonation) as well as pointless rebrand as “Joseon”, the domain Freenode.net becomes something completely different and the IRC network reopens to all



  12. Jack Dorsey's Decision is a Wake-up Call: Social Control Media is Just a Toxic Bubble

    The state of the World Wide Web (reliability, preservation, accessibility, compatibility etc.) was worsened a lot more than a decade ago; with social control media that’s nowadays just a pile of JavaScript programs we’re basically seeing the Web gradually turning into another Adobe Flash (but this time they tell us it’s a “standard”), exacerbating an already-oversized ‘bubble economy’ where companies operate at a loss while claiming to be worth hundreds of billions (USD) and generally serve imperialistic objectives by means of manipulation like surveillance, selective curation, and censorship



  13. IRC Proceedings: Monday, November 29, 2021

    IRC logs for Monday, November 29, 2021



  14. Links 29/11/2021: NuTyX 21.10.5 and CrossOver 21.1.0

    Links for the day



  15. This Apt Has Super Dumbass Powers. Linus Sebastian and Pop_OS!

    Guest post by Ryan, reprinted with permission



  16. [Meme] Trying to Appease Provocateurs and Borderline Trolls

    GNU/Linux isn’t just a clone of Microsoft Windows and it oughtn’t be a clone of Microsoft Windows, either; some people set themselves up for failure, maybe by intention



  17. Centralised Git Hosting Has a Business Model Which is Hostile Towards Developers' Interests (in Microsoft's Case, It's an Attack on Reciprocal Licensing and Persistent Manipulation)

    Spying, censoring, and abusing projects/developers/users are among the perks Microsoft found in GitHub; the E.E.E.-styled takeover is being misused for perception manipulation and even racism, so projects really need to take control of their hosting (outsourcing is risky and very expensive in the long run)



  18. Links 29/11/2021: FWUPD's 'Best Known Configuration' and Glimpse at OpenZFS 3.0

    Links for the day



  19. President Biden Wants to Put Microsofter in Charge of the Patent Office, Soon to Penalise Patent Applicants Who Don't Use Microsoft's Proprietary Formats

    The tradition of GAFAM or GIAFAM inside the USPTO carries on (e.g. Kappos and Lee; Kappos lobbies for Microsoft and IBM, whereas Lee now works for Amazon/Bezos after a career at Google); it's hard to believe anymore that the USPTO exists to serve innovators rather than aggressive monopolists, shielding their territory by patent threats (lawsuits or worse aggression) and cross-licensing that's akin to a cartel



  20. Microsoft GitHub Exposé — Part VIII — Mr. Graveley's Long Career Serving Microsoft's Agenda (Before Hiring by Microsoft to Work on GitHub's GPL Violations Machine)

    Balabhadra (Alex) Graveley was promoting .NET (or Mono) since his young days; his current job at Microsoft is consistent with past harms to GNU/Linux, basically pushing undesirable (except to Microsoft) things to GNU/Linux users; Tomboy used to be the main reason for distro ISOs to include Mono



  21. Dr. Andy Farnell on Teaching Cybersecurity in an Age of 'Fake Security'

    By Dr. Andy Farnell



  22. IRC Proceedings: Sunday, November 28, 2021

    IRC logs for Sunday, November 28, 2021



  23. Links 29/11/2021: Linux 5.16 RC3 and Lots of Patent Catch-up

    Links for the day



  24. By 2022 0% of 'News' Coverage About Patents Will Be Actual Journalism (Patent Litigation Sector Has Hijacked the World Wide Web to Disseminate Self-Promotional Misinformation)

    Finding news about the EPO is almost impossible because today’s so-called ‘news’ sites are in the pockets of Benoît Battistelli, António Campinos, and their cohorts who turned the EPO into a hub of litigation, not science; this is part of an international (worldwide) problem because financial resources for journalism have run out, and so the vacuum is filled/replaced almost entirely by Public Relations (PR) and marketing



  25. Trying to Appease Those Who Never Liked Free Software or Those Who Blindly Loved All Patent Monopolies to Begin With

    It’s crystal clear that trying to appease everyone, all the time, is impossible; in the case of the EPO, for example, we hope that exposing Team Battistelli/Campinos helps raise awareness of the harms of patent maximalism, and when speaking about Free software — whilst occasionally bashing the alternatives (proprietary) — we hope to convince more people to join the “Good Fight”



  26. Links 28/11/2021: Laravel 8.73 Released, GitHub Offline for Hours

    Links for the day



  27. IRC Proceedings: Saturday, November 27, 2021

    IRC logs for Saturday, November 27, 2021



  28. Links 27/11/2021: Nvidia’s DLSS Hype and Why GNU/Linux Matters

    Links for the day



  29. [Meme] Linus Gabriel Sebastian Takes GNU/Linux for a (Tail)'Spin'

    If you’re trying to prove that GNU/Linux is NOT Windows, then “haha! Well done…”



  30. GNU/Linux is for Freedom and It'll Gain Many Users When (or Where) People Understand What Software (or Computing) Freedom Means

    Software that respects people's freedom (and by extension privacy as well) is an alluring proposition; those who choose to try GNU/Linux for the wrong reasons are likely the wrong target audience for advocates


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

Recent Posts