Go Directly to Jail, Do Not Pass Go

Rich Tehrani : Communications and Technology Blog - Tehrani.com
Rich Tehrani
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Go Directly to Jail, Do Not Pass Go

A disproportionate amount of fraud seems to have taken place in the telecom and technology fields over the last decade. Adelphia, Worldcom, Enron (remember they also had a bandwidth trading division) and many others have been caught and convicted over the years.

Today, one of the people involved in on the of the many stock options backdating scandals, Gregory Reyes the former CEO of Brocade Communications was sentenced to jail for 18 months and ordered to pay a large fine because of his involvement in falsifying documents.

While I hate to see a single scapegoat,  it is always a good sign when the courts show they are serious about protecting shareholders from fraudulent activity such as options backdating.

The problem in this case is that it seems virtually every tech company was deeply involved in the same activity and until recently much of these problems did not come to light.

The excuse was "Everyone else is doing it," so it must be OK.

I would be tempted to be more lenient of such arguments if the same exact excuse wasn't being used by financial firms to explain why they got involved in subprime loans which didn't make sense and complex financial instruments they obviously didn't fully understand.

The only difference is that in the financial crisis we are currently in, much of the blame rests with ratings agencies and mortgage insurers who felt the pooling of massive quantities of low quality loans would somehow equate to a high quality rating.

While I got off track a bit here... I suppose I should end by saying I am glad to see courts upholding laws and protecting shareholders. I love the technology and telecom markets which TMC serves and I am glad to see courts uphold shareholder rights and setting an example which shows unethical/illegal behavior (even if commonplace) will not be tolerated.

The integrity of the tech and telecom spaces rests in the hands of powerful company chiefs who cannot think they are above the law.


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