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

09.01.08

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 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

What Else is New


  1. Links 26/3/2017: Debian Project Leader Elections, SecureDrop and Alexandre Oliva FSF Winners

    Links for the day



  2. His Master's Voice, Jesper Kongstad, Blocks Discussion of Investigative and Disciplinary Procedures at the EPO

    The Chairman of the Administrative Council of the European Patent Organisation is actively preventing not just the dismissal of Battistelli but also discussion of Battistelli's abuses



  3. Heiko Maas and the State of Germany Viewed as Increasingly Complicit in EPO Scandals and Toxic UPC Agenda

    It is becoming hard if not impossible to interpret silence and inaction from Maas as a form of endorsement for everything the EPO has been doing, with the German delegates displaying more of that apathy which in itself constitutes a form of complicity



  4. With IP Kat Coverage of EPO Scandals Coming to an End (Officially), Techrights and The Register Remain to Cover New Developments

    One final post about the end of Merpel’s EPO coverage, which is unfortunate but understandable given the EPO’s track record attacking the media, including blogs like IP Kat, sites of patent stakeholders, and even so-called media partners



  5. Everyone, Including Patent Law Firms, Will Suffer From the Demise of the EPO

    Concerns about quality of patents granted by the EPO (EPs) are publicly raised by industry/EPO insiders, albeit in an anonymous fashion



  6. Yes, Battistelli's Ban on EPO Strikes (or Severe Limitation Thereof) is a Violation of Human Rights

    Battistelli has curtailed even the right to strike, yet anonymous cowards attempt to blame the staff (as in patent examiners) for not going out of their way to engage in 'unauthorised' strikes (entailing dismissal)



  7. Even the EPO's Administrative Council No Longer Trusts Its Chairman, Battistelli's 'Chinchilla' Jesper Kongstad

    Kongstad's protection of Battistelli, whom he is supposed to oversee, stretches to the point where national representatives (delegates) are being misinformed



  8. Thanks to Merpel, the World Knows EPO Scandals a Lot Better, But It's a Shame That IP Kat Helped UPC

    A look back at Merpel's final post about EPO scandals and the looming threat of the UPC, which UPC opportunists such as Bristows LLP still try hard to make a reality, exploiting bogus (hastily-granted) patents for endless litigation all around Europe



  9. EPO Critics Threatened by Self-Censorship, Comment Censorship, and a Growing Threat to Anonymity

    Putting in perspective the campaign for justice at the EPO, which to a large degree relies on whistleblowers and thus depends a great deal on freedom of the press, freedom of speech, and anonymity



  10. Links 25/3/2017: Maru OS 0.4, C++17 Complete

    Links for the day



  11. Judge and Justice Bashing in the United States, EPC Bashing at the EPO

    Enforcement of the law based on constitutional grounds and based on the European Patent Convention (EPC) in an age of retribution and insults -- sometimes even libel -- against judges



  12. Looking for EPO Nepotism? Forget About Jouve and Look Closely at Europatis Instead.

    Debates about the contract of Jouve with the EPO overlook the elephants in the room, which include companies that are established and run by former EPO chiefs and enjoy a relationship with the EPO



  13. Depressing EPO News: Attacks on Staff, Attacks on Life, Brain Drain, Patents on Life, Patent Trolls Come to Germany, and Spain Being Misled

    A roundup of the latest developments at the EPO combined with feedback from insiders, who are not tolerating their misguided and increasingly abusive management



  14. It Certainly Looks Like Microsoft is Already Siccing Its Patent Trolls, Including Intellectual Ventures, on Companies That Use Linux (Until They Pay 'Protection' Money)

    News about Intellectual Ventures and Finjan Holdings (Microsoft-funded patent trolls) reinforces our allegations -- not mere suspicions anymore -- that Microsoft would 'punish' companies that are not paying subscription fees (hosting) or royalties (patent tax) to Microsoft and are thus in some sense 'indebted' to Microsoft



  15. Links 24/3/2017: Microsoft Aggression, Eudyptula Challenge Status Report

    Links for the day



  16. Bernhard Rapkay, Former MEP and Rapporteur on Unitary Patent, Shoots Down UPC Hopes While UPC Hopefuls Recognise That Spain Isn't Interested Either

    Germany, the UK and Spain remain massive barriers to the UPC -- all this in spite of misleading reports and fake news which attempted to make politicians believe otherwise (for political leverage, by means of dirty lobbying contingent upon misinformation)



  17. Links 23/3/2017: Qt 5.9 Beta, Gluster Storage 3.2

    Links for the day



  18. The Administrative Council of the European Patent Organisation Has Just Buried an Innocent Judge That Battistelli Does Not Like

    An innocent judge (never proven guilty of anything, only publicly defamed with help from Team Battistelli and dubious 'intelligence' gathering) is one of the forgotten casualties of the latest meeting of the Administrative Council (AC), which has become growingly complicit rather than a mere bystander at a 'crime' scene



  19. Nepotism at the European Patent Office and Suspicious Absence of Tenders for Big Projects

    Carte blanche is a French term which now perfectly describes the symptoms encountered in the European Patent Office, more so once led by a lot of French people (Battistelli and his friends)



  20. “Terror” Patent Office Bemoans Terror, Spreads Lies

    Response to some of the latest utterances from the European Patent Office, where patently untruthful claims have rapidly become the norm



  21. China Seems to be Using Patents to Push Foreign Companies Out of China, in the Same Way It Infamously Uses Censorship

    Chinese patent policies are harming competition from abroad, e.g. Japan and the US, and US patent policy is being shaped by its higher courts, albeit not yet effectively combating the element that's destroying productive companies (besieged by patent trolls)



  22. 22,000 Blog Posts

    A special number is reached again, marking another milestone for the site



  23. The EPO is Lying to Its Own Staff About ILO and Endless (Over 2 Years) EPO Mistrials

    The creative writing skills of some spinners who work for Battistelli would have staff believe that all is fine and dandy at the EPO and ILO is dealing effectively with staff complaints about the EPO (even if several years too late)



  24. EPO’s Georg Weber Continues Horrifying Trend of EPO Promoting Software Patents in Defiance of Directive, EPC, and Common Sense

    The EPO's promotion of software patents, even out in the open, is an insult to the notion that the EPO is adhering to or is bound by the rules upon which it maintains its conditional monopoly



  25. Protectionism v Sharing: How the US Supreme Court Decides Patent Cases

    As the US Supreme Court (SCOTUS) starts delivering some decisions we take stock of what's to come regarding patents



  26. Links 22/3/2017: GNOME 3.24, Wine-Staging 2.4 Released

    Links for the day



  27. The Battistelli Regime, With Its Endless Scandals, Threatens to Crash the Unitary Patent (UPC), Stakeholders Concerned

    The disdain and the growing impatience have become a huge liability not just to Battistelli but to the European Patent Office (EPO) as a whole



  28. The Photos the EPO Absolutely Doesn't Want the Public to See: Battistelli is Building a Palace Using Stakeholders' Money

    The Office is scrambling to hide evidence of its out-of-control spendings, which will leave the EPO out of money when the backlog is eliminated by many erroneous grants (or rejections)



  29. In the US Patent System, Evolved Tricks for Bypassing Invalidations of Software Patents and Getting Them Granted by the USPTO

    A roundup of news about patents in the US and how the patent microcosm attempts to patent software in spite of Alice (high-impact SCOTUS decision from 2014)



  30. “Then They Came For Me—And There Was No One Left To Speak For Me.”

    The decreasing number of people who cover EPO scandals (partly due to fear, or Battistelli's notorious "reign of terror") and a cause for hope, as well as a call for help


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