20050606 asloan
Allan Sloan - 


SCOTT JAGOW: Last week, the government filed charges against three former executives at a company called Comverse Technology. That's Comverse with an M, nothing to do with sneakers. This is part of the investigation into backdating stock options. That scandal's getting bigger and includes some well-known companies. Newsweek's Allan Sloan is with us. Allan, in this Comverse case, what's the story?

ALLAN SLOAN: If you look at what happened here, the government says that the three guys involved made a total of $8.4 million by having had the options backdated but they made collectively about $165 million from these options which means the part they cheated on, or what they allegedly cheated on, was only 5 percent of what they made and there's a moral in here somewhere.

JAGOW: And what do you think that is?

SLOAN: Well think of this: Here are guys who if they had played it straight, again assuming the government's charges are accurate, they would have made $156 million and they would be home-free and clear, and instead they made $165 million and they face serious prospects of losing a lot of money and in some cases possibly going to jail. It's an example of what happens when you cheat, where in the end the company did so much better I guess than they expected, that they didn't really have to cheat. They would have been very, very rich if they hadn't cheated at all. It's an example of how greed can really be stupid.

JAGOW: Well let's broaden this out for a bit. It's not just small tech companies that no one's ever heard of ensnared in this dragnet that the government is unfolding. We're talking about companies like Apple Computer, I mean they're involved in this as well.

SLOAN: Well with Apple and also with Microsoft, which is also involved with this, these are real companies and it looks to me like at Microsoft that was just a policy that somebody in personnel or somewhere did the options at the lowest price of the month that people signed up or something like that. I don't think that was malicious. In the case of Apple I think it's something similar where there was a policy. But something like Comverse, that was a whole different game.

JAGOW: Giving out these stock options and I guess backdating them was a common practice in Silicon Valley back in the heyday. Why is this coming out now?

SLOAN: It's coming out by accident. Someone at a college whose name escapes me did a study somehow figuring out statistically that his must have happened and either they called the Wall Street Journal or the Wall Street Journal called them and the Wall Street Journal started calling around and broke the story. That's why it's coming out now. It's a result of academe, you know which I normally mock of course. I sit there and laugh about business schools and laugh about academic finance but in this case academe is what's brought truth to the world and shows maybe people like me should have somewhat more respect for academe than we do.

JAGOW: Allan Sloan is the Wall Street Editor for Newsweek. In Los Angeles, I'm Scott Jagow. Thanks for listening and have a great day.