This is a good piece, but I want to quibble with some of the conclusions.
> The whole thing was a case of the old saying: “When the paddy wagon pulls up to the house of ill repute, it doesn’t matter what you are doing. Everybody goes to jail.”
How does this apply? Sounds like the opposite - those who had not engaged in the illegal practices were unaffected.
> Once the SEC decided that most technology company stock option procedures were not as desired, the jail sentences were handed out arbitrarily.
That's just not how it works, at least not for white-collar defendants who can afford a proper defence.
There's also something to be said about this story being followed immediately by a pitch to sign up for a16z's crypto newsletter....
> How does this apply? Sounds like the opposite - those who had not engaged in the illegal practices were unaffected.
I can see your point but I think on careful reading of the author's interpretation of events that old adage does (kind of) fit. The author is asserting that, while he doesn't know the details of other things that may have happened at the CFO's prior company, he believes in regard to dating stock options specifically, the CFO (Michelle) did not intend to break the law or know that she broke the law.
He's basing this on both his personal experience of Michelle's high integrity and honesty and the fact experienced investors who'd known her for a long time all had the same opinion. There's also the context that hundreds of other companies ran afoul of the same interpretation issue of that complex directive. It's hard to imagine all those finance teams, accountants and auditors were knowingly breaking that law and risking prosecution.
So, he's using this event as a cautionary tale of which the moral is "While you may have no intention of breaking the law, it can creep in in subtle ways without you knowing. Therefore, implement conservative governance practices and stick to them." Unfortunately, the actual event he's citing isn't an ideal instance to illustrate his point because Michelle did get caught up in the broader enforcement action. There's another missing bit of context he didn't share (or that may have been cut in editing). Having worked adjacent to the finance dept in a very large publicly-held tech company, I know that once the SEC and/or IRS come in to look at something, they tend to look at everything (or a lot of things) while they are there.
The company I was at also had some exposure on the options dating issue but no one was prosecuted or went to jail (the company probably just paid some fines). Having worked there for a decade and knowing the CEO and key execs very well, I'm confident there was zero intent or knowledge that they'd done anything wrong. This company had a culture that was almost manic about 'never skating even close to the edge' on any ethical or legal issue - and it wasn't just lip service - I saw it in action many times.
So, the author probably feels similarly that Michelle wasn't ethically in the wrong regarding options dating specifically but once the 'paddy wagon' arrived to investigate that, a full audit uncovered other unrelated things which she also may not have been aware were wrong and it added up to enough to file charges. There's also a general feeling in public corporation finance circles that the regulatory environment is so complex and often unclear that literally every large public corp is always in violation of something - despite their best efforts not to be. Usually this just resulted in fines when caught in a random audit but in the past decade congress has added personal criminal liability to an increasing number of these policies. Some hardening of certain penalties was justified to punish egregious instances of intentional fraud (ie Enron, Elizabeth Holmes) but, IMHO, it kept going and got excessive, ultimately going too far in some cases fueled by 'tough on corporations' political grandstanding. Now it's more possible than ever for founders, CEOs and corporate officers who have no intention of breaking the law to end up getting prosecuted if they aren't very careful, hence the cautionary tale.
> he believes in regard to dating stock options specifically, the CFO (Michelle) did not intend to break the law or know that she broke the law.
I do not doubt that she did not intend to break the law. But it sounds like she did not exercise sufficient due diligence, just assuming it was okay because PWC said so and no-one in law enforcement had noticed, yet.
> Therefore, implement conservative governance practices and stick to them." Unfortunately, the actual event he's citing isn't an ideal instance to illustrate...
I think it's a great illustration - the author's company was unaffected, because their governance practices successfully prevented them from engaging in illegal behaviour! Thats great for the company, its investors, its board, etc.
> IMHO, it kept going and got excessive, ultimately going too far in some cases fueled by 'tough on corporations' political grandstanding.
Can you cite some specific laws that you think are too easy to run afoul of by accident? Some laws specifically cite intent as a requirement for them to have been violated, but many do not, and that's never seen as a problem for laws that affect non-white-collar defendants.
> it sounds like she did not exercise sufficient due diligence, just assuming it was okay because PWC said so
Agreed. There was a time when having a big five certified accounting firm explicitly sign off on a practice was generally considered sufficient due diligence. That's no longer always true.
> I think it's a great illustration
I meant Michelle's prior company but wasn't clear enough. What made the prior company not a great example was being a mix of not ethically guilty on the options dating but (probably) also doing some other stuff that was worse (going beyond 'not careful' to sloppy and maybe actually shady).
> Can you cite some specific laws that you think are too easy to run afoul of by accident?
Not off the top of my head. I'm not in finance. My understanding of this is from some "shop talk over beers" type conversations I had a few years ago with senior finance execs and the chief legal officer of a large publicly-held tech company. Among this group the consensus was that some better regs had been needed but that the pendulum was swinging too far the other direction to the extent it was starting to make some parts of their jobs combinatorially complex to stay in compliance. To be clear, I never got the sense they felt the chances were high that ethically innocent finance people could be prosecuted over honest mistakes but more like it was going from as rare as being struck by lightning to being something real to worry about.
While an interesting perspective, this HN article is a poster child for how not to resurrect old blog posts.
Initially, I was not sure how much credibility to give this because there were no corroborating records for the time period specified.
All the important identifiers to corroborate were largely removed or missing, yet another sign we are one step closer to living in a world of Neil Stephenson's Anathem.
The blog claims to be from 2014, but it most definitely is not archived at that time period for the article linked.
IA shows it first showed up in 2023. There is no reference link from a prior domain where it might have previously been archived.
While the events referenced did occur sometime between 2002, and Sharlene P. Abrams resigned in 2006, and accepted a guilty plea agreement later. All that indicates this (without having her name) were similar news articles with dead links (but description summary cache ironically still somewhat intact), which were not archived, and there is only one surviving article around 2016 from a journalist, William Alden, that I then tracked back across domains to the link below that was actually archived and corroborating on the dealbook link.
Aside from this there was very little record this post actually existed at that time.
In practice, a single corroborating document is insufficient to establish the truth of events.
Additionally, why change the name of the guilty? The indictments are a matter of public record, and Options backdating was clearly breaking the law at that time.
For those that wanted to dig into this further, you can find more information under the press releases made at the time, which are archived at the following locations. They were a real pain to find, and originate from the sole surviving corroborating article by Alden, a single trail of bread crumbs.
> The whole thing was a case of the old saying: “When the paddy wagon pulls up to the house of ill repute, it doesn’t matter what you are doing. Everybody goes to jail.”
How does this apply? Sounds like the opposite - those who had not engaged in the illegal practices were unaffected.
> Once the SEC decided that most technology company stock option procedures were not as desired, the jail sentences were handed out arbitrarily.
That's just not how it works, at least not for white-collar defendants who can afford a proper defence.
There's also something to be said about this story being followed immediately by a pitch to sign up for a16z's crypto newsletter....
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