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Investment Advisor Alleges MS Financial Fraud

Roblimo posted more than 14 years ago | from the innocent-until-proven-guilty dept.

Microsoft 284

Bill Parish, of investment management firm Parish & Company, claims Microsoft's stock prices may be artifically inflated, and that MS may actually be losing money instead of generating huge profits. Parish says you haven't heard his claims before because "...Microsoft is a significant advertiser in the major media [and] it has been hard to get exposure there." Slashdot offers no opinion one way or the other on the acccuracy of Mr. Parish's allegations. Please read his report and decide for yourself.

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OK... (1)

Pope (17780) | more than 14 years ago | (#1572686)

Jeez, next thing you now he's going to go after Amazon.com for never turning a profit despite WAY inflated stock prices.
:P


Pope

No surprise (2)

Crimson Dude (95399) | more than 14 years ago | (#1572689)

I'm really not surprised. Several companies have artifically hyper-infloated values even though their business acumen has led the companies to constantly incur losses, especially in the case of certain Internet stocks like Amazon.com -- who have lost money every year it has been running, but yet still has a worth of more than $100/share. It seems to be the condition that the stock market hopes to inflate the prices of these stocks because they are being hyped so much by the media without the realization that some of them will never make a profit. Microsoft is no exception. People see it as a "safe" tech stock without taking into consideration factors in the industry that are costing MS money and probably driving profits below zero. It's almost like they are determined to bne ignorant of tech stocks.

Stock Splits (3)

Aramoro (28043) | more than 14 years ago | (#1572694)

3) Prohibit Microsoft from buying back its own stock, instituting stock splits or selling put contracts and engaging in other hedging activity for 10 years. These are tricks used to manipulate the stock price and have contributed greatly to building the financial pyramid. It might make sense to outlaw this practice all together.
Both stock buybacks and stock splits have long been considered legitimate tools for a company to use to keep stock value up for shareholders. Now the author wants to outlaw both. When successful stocks don't split, they can become unobtainable to small investors. Witness Berkshire Hathaway - the Class A stocks would require a home mortgage to purchase 1 share. I'm not sure how much of what the author is saying is true and illegal, but his solutions are throwing the baby out with the bathwater. Aramoro

DJIA (1)

coyote-san (38515) | more than 14 years ago | (#1572696)

It makes you wonder about MS's inclusion in the DJIA. These allegations are broader than those in the Michael Martinez case, but they fall into the same overall pattern. When MS's bubble bursts, it could cause a stampede effect among the investors who think the DJIA actually means something.

Slashdot is scared of M$ too (1)

toofast (20646) | more than 14 years ago | (#1572698)

Slashdot offers no opinion one way or the other on the acccuracy of Mr. Parish's allegations.

Usually the folks at Slashdot offer some sort of comment or opinion about the subject because, after all, we all DO have an opinion. Why no quirky remark about this? Is it because we are afraid that an M$ lawyer will read and sue us for twice of what we DON'T have?

Does this mean I cannot post any comments about Microsoft, and that I must be afraid of them also?

This kind of censorship only validates Microsoft's monopoly. We are scared.

NOTE to M$ Lawyers: The opinions expressed in the preceding post are those of the Author and do not necessarily affect those of Slashdot or Andover.Net.

not great work- but some valid complaints (2)

plunge (27239) | more than 14 years ago | (#1572699)

Looking over this article I'm not greatly impressed. Stock values and gaining/losing money are just too hard to gauge without an extremely rigorous model, and this guy hasn't impressed me, or mentioned much I hadn't already heard about. Many very intelligent people have serious arguments about the financial health of entire countries like China, and no one really has "the answer." But I DO know from personal experience that his complaint about the media is definately true- it's kind of sad too. It's not so much that Microsoft is a major advertiser, but rather that the econ/financial divisions of most major media outlets have lately been unapologetic "rah-rah" guys for the stock market in general, and put far too much faith in it reflecting actual economic value. It's not a conspiracy, it's just that most of these reporters are heavily invested, both personally and financially, in the very markets they review, they see everything getting better and better, and get irritated with people trying to point out dangerous bubbles or potential instability. They also don't believe that rich people would EVER be duplictitious. Oh well, the future is a crap shoot- maybe they're right. (but hey- they're not :) )

Does it matter... (1)

jd (1658) | more than 14 years ago | (#1572702)

...what the truth is? The impact will be much more important than the reality.

If investors believe Microsoft is loosing money fast, they'll pull out. Nobody'll want to be caught holding M/S stock, if it's just about to plummet.

On the other hand, if investors don't believe a word of this report, they'll keep their money in M/S stock, even if it's bleeding all over the floor.

In the financial world, perception is EVERYTHING, and Microsoft's fortunes in the last part of this year will hinge heavily on how they are perceived as doing. Nobody who matters in this really cares how they =are= doing - what they see is all.

Conspiracy?!? (2)

dgb2n (85206) | more than 14 years ago | (#1572764)

To believe the authors findings, you have to believe that all financial markets are essentially rigged through simply supply and demand. There is no doubt that the price of Micro$oft stock is driven in no small way through the demand for its shares. Mutual companies and 401K plans etc. do contribute to this continued upward pressure on the stock price. I call this DEMAND. Many stocks move without regard to the underlying financial situation in which the company finds itself. Amazon may not be the best example of this but some of the other internet startups with far less revenue and even shakier business models are prime examples.

Witness the drastic pullback in stock prices for companies that fail to meet the hype and things reverse. Any IOMEGA stockholders out there. Take a look at a 3 year stock chart and watch the stock go from 1/4 up to 30 and back down to 3 as the bubble burst. Combined with close attention and regulation from the SEC, stock markets regulate themselves. Our markets and the controls on income reporting and accuracy are the envy of the world. Check out income reporting in some emerging markets to get a feel for how bad it can be. Sorry folks this guy is a nut.

Dave
NOT a Microsoft shareholder or employee unless mutual funds count ;-)

Links to more info (3)

meersan (26609) | more than 14 years ago | (#1572766)

Microsoft Accused of Mis-using Cash Reserves [go.com] "A lawsuit quietly settled late last year alleges that Microsoft's immense cash reserves were used to manipulate its earnings reports, giving the company the appearance of steadily increasing profits and allowing it to consistently exceed Wall Street projections."

SEC Probes Microsoft Accounting [go.com] "Federal authorities are investigating Microsoft Corp.'s, practice of setting aside some of its software revenues and recognizing them later, chief financial officer Greg Maffei said on today."

Commentary regarding FASB trying to get stock options factored into financial statements [go.com] "While these represent true legal and accounting vulnerabilities to Microsoft, the company's future is so strong that the long-term picture remains strong."

Microsoft are being investigated by the SEC (1)

Paul Crowley (837) | more than 14 years ago | (#1572768)

Microsoft's accounting practices have been under scrutiny for a while now. Check for example this Seattle Times story [seattletimes.com] from July 1st about an SEC probe into alleged artificial manipulation of quarterly results.
--

Blah Blah Blah (2)

Lando (9348) | more than 14 years ago | (#1572770)

Somehow this reminds me of the guy that claimed that he could get a lot more ip addresses out of the current IPv4. He showed a lot of figures, mathmatics, and poor writing skills. This article seems to be the same. "Microsoft is bad because it has too much money, sell your stock now"

WTF??? Article doesn't show any facts or show proof of facts, just makes assertions and tries to show it's valid by associating itself with prominent figures.. No Dice.

Lando

Speculative Indeed (2)

dreamchaser (49529) | more than 14 years ago | (#1572772)

The report does indeed seem to include a lot of speculation, and I have not been able to verify all of the facts. Regardless, the types of things that are alleged are done by many companies, for various, often less-than-ethical reasons.

The bottom line is usually 'what goes around comes around'. -IF- MS is really crossing the line with regards to how they cook the books, it will catch up with them.

'Creative accounting' is used by most major corporations, Billy G didn't invent it.

hehe (1)

GC (19160) | more than 14 years ago | (#1572775)

The Higher they go, the harder they'll fall.

Inflate, Inflate!!

Of course, this is completely dependent on the claims of the above article...

Not too smart (0)

Anonymous Coward | more than 14 years ago | (#1572778)

Not the kind of thing that Slashdot should be publishing. Especially with an IPO pending. It sounds like Slashdot is trying to influence MS's stock price. I think the SEC should see this. I may have to send them a little note.

stock options (0)

Anonymous Coward | more than 14 years ago | (#1572781)

There is general problem with how companies have to account for stock options given to employees. If it was done as a normal person would expect you would see a lot of high tech companies in the red.

Re:stock markets are so much fun! (1)

plunge (27239) | more than 14 years ago | (#1572783)

And yet, people still think that stock markets are a great way for society to decide how to invest it's time and resources. It's not democratic, and it's very obviously not even pragmatic. So what is it? A casino in which the more money you have, the more likely you are to win. And now all these companies like AmeriTrade are trying to get smaller traders into the game? Sure- pour in your money! Pour in half of the Social Security funds! Anything to keep those meaningless values from tanking!

Interesting findings... about a week too late (1)

Masem (1171) | more than 14 years ago | (#1572784)

I only causally follow the markets, but everyone knows that the market is riding high, and everyone's waiting for the IT bubble to burst, where people will realize that stocks like Amazon and such will bottom out to their 'true' value, and we'll hit a so-called recession across the board. (extreme, yes, but sometimes you have to be).

Last week, MS was added to the Dow Jones, the leading indicator of the stock market.

I know that these findings took time, and such, but I also see that this was written at the beginning of Oct, and that the info was also sent to the appropriate gov't finance offices. I wonder if those offices even saw them.

If MS stock were to deflate to it's normal value, I'd strongly worry about a deflation of stocks across the board, as the start of the pending 'diaster' that may hit the market. Of course, other stocks, such as Apple's, IBM, and so forth, which have much more tangible qualities, may be able to hold their own, and the IT bubble won't pop as badly.

One thing I did like was that MS tried to claim that everyone was overvaluing their stock, but Bill retorted that MS is a market leader, and thus should be setting the example, and not trying to succum to such tactics. Very good point here.

Food for thought (2)

japhar (88252) | more than 14 years ago | (#1572792)

Lets follow the logic... stock market runs on PCs most PCs run windows MS stock grows coincidence? i think not.

Kook city (2)

ptomblin (1378) | more than 14 years ago | (#1572794)

The "analysis" has all the hallmarks of a kook.
  • Tons of talking about what his analysis shows, without actually showing the analysis
  • Rampant paranoia (Microsoft is going to sue me, they're keeping me out of the legit media, etc)
  • Tons of self-promotion (put me on your talk show, I did this and I did that)
  • Pie charts, the tool of Ross Perot :-)


Even if I could find any facts on this page to back up his outrageous claims (and I can't, all I can find is him saying over and over again that he has these facts), I still wouldn't believe him.

A bone to pick? (1)

stjobe (78285) | more than 14 years ago | (#1572796)

"To Steve Ballmer I would say, perhaps we could have a brief discussion regarding some ways to manage this situation. By now it should be clear that farming me off to your legal staff was not a good decision."

Aw heck, I don't know, but this seems like the key sentences in the article to me.

Re:Slashdot is scared of M$ too (2)

Peter La Casse (3992) | more than 14 years ago | (#1572798)

Maybe Roblimo wasn't sure if this story was accurate, and didn't want to look like an idiot by endorsing an idiot.

FASB Disagreements (2)

David Jensen (1987) | more than 14 years ago | (#1572800)

Read the entire financial statement of any company before you invest. If you do, you will find in the footnotes the exposure the company faces. The Finacial Accounting Standards Board wanted more, but were persuaded to live with clear disclosure in the footnotes.

Yes, options can dilute the value of your stock. No, options are not being accounted for in the P&L because they don't really fit there. No, options are not very well accounted for in the balance sheet either, but every solution that has been tried has a serious problem.

Microsoft does buy the shares to fill the options on the open market, so they are better than companies that use treasury stock to give to employees who exercise their options. Their footnotes are good and are not misleading about the amount of options outstanding and the exposure that Microsoft shareholders face. Critics of options have no problem identifying the exposure because it is well documented in the footnotes. If you cannot or do not read and understand a financial statement, ask someone to help you or find a different investment vehicle.

Re:Not too smart (1)

GrenDel Fuego (2558) | more than 14 years ago | (#1572802)

Slashdot is a news site. This is news.

If a financial advising site was about to go IPO, should they not post any bad reviews? Or should they continue as normal?

Not really... (4)

Kaa (21510) | more than 14 years ago | (#1572803)

This guy seems to really hate Microsoft...

But what he basically claims is that in Microsoft accounting (and specifically, in stating the earnings) the overhang of the existing stock options is not being considered. That's true. However, that's true for every company in the US that has issued stock options. This issue has been discussed by FASB (accounting standards setting body) several times and after quite animated debate, the existing situation -- that the companies are not obliged to put the outstanding stock options into their profit-and-loss statement -- was left to stand as it is now.

Basically, the situation is like this. Company X issues a stock option to employee Y at, say, $10/share. Let's say a year passed and the stock of company X is now trading at $100. You *can* say that the company sustained a $90 unrealized loss (I am ignoring the time value of money for simplicity) and that's exactly what Parish is saying. However, in the real world if the option gets cashed in, the company will not go onto the open market, buy a share for $100 and give it to the employee in exchange for $10. The company will just issue more stock.

Of course, this is not a painless procedure. The more stock is issued, the more the value of the existing shares is diluted (or "watered down"). If the company has 100 shares outstanding, each share was worth 1% of the company. If 100 more shares are issued, all shares will now be worth only 0.5% of the company, so the previous share owners clearly become worse off.

And that's exactly why the earning figures released generally show two numbers: one for outstanding shares (those that have been issued and are not treasury stock), and one on a fully diluted basis, which assumes that all stock options are turned into shares. It is quite misleading to say that this is a big scam that nobody knows about. Any investment professional understands what "fully diluted" means and that Microsoft does have a huge number of stock options outstanding. That hasn't stopped them from buying Microsoft shares in huge amounts.

Maybe the guy has a point in that the gullible public should be made more aware of the problem (and I freely concede that this *is* a problem: only not limited to Microsoft, not having such huge importance, and not likely to lead to the financial meltdown of the free world). But financial professionals know the situation quite well. And the measures that he proposes against Microsoft are quite ridiculous.

I suspect that Bill Parish at some point in the past shorted Microsoft stock (or didn't buy it, buying instead something else) and is now very very bitter about it...

Kaa

Re:yeah emerging markets still suck (1)

plunge (27239) | more than 14 years ago | (#1572805)

In many cases, it looks like the Asian bug hasn't taught anyone much of anything. Even super developed Japan still can't get the basics of macro controls down (though that's much more to do with the messy state of coalition politics there)! Though keep in mind that transparency doesn't stop speculation, and regulation doesn't insure wise investment decisions, or optimal social outcomes- too many externalities, and too many purely speculative concerns. Part of the reason so much of the really "risky" traders are interested in those markets is precisely because they are so screwed up and susceptible to manipulation. That's how we get crazy things like George Soros litterally begging the world to protect itself from people like him!

This is just corporate accounting (3)

alexhmit01 (104757) | more than 14 years ago | (#1572806)

This is how the corporate accounting rules work. They don't make any sense. There is a push to make stock option gains come on the company expense reports. It will probably happen. However, until then, Microsoft is following standard accounting rules.

However, as usual, Microsoft is doing a few shady things to exploit the system more than usual. Every tech company has HUGE stock options, the difference is the Microsoft plays more games then the rest.

Stocks are screwy anyway. According to economic theory, a stock's price = present value(future dividends), when in reality, there are no dividends because the tax structure makes capital gains taxed less. As a result, all earnings are returned and reinvested, making the company more valuable. However, because of the lack of dividends, the stock market has these problems.

Placing dividend income at (or below) the capital gains rate would fix the problems. It would force dividends to be paid giving stocks real values. Sure they would be based upon future earnings, but those earnings would start to come on established companies like Microsoft. Also, if cash on hand went to paying dividends, large companies wouldn't have nearly infinite revenue. Basically, profits go to the owners. However, by a shell game, instead of going to the owner, they are used to buy other companies, which increases the share price the amount that the dividend should (in theory).

This encourages the merger mania sweeping this country. A large, wealthy company with huge profits has 3 options:
1) Pay dividends
2) Buy companies
3) Pay dividends with stock buy backs

Dividends are out of the question for tax reasons. Three can cause trouble if it looks like you are paying a dividend (i.e., if Microsoft made %3 percent of it's share price in profits, they buy back 3% of the stock, which means that everyone's stock goes up that value, this continues until their are very few stock holders because the rest sold them back), however, this can cause suspicion as tax fraud. The resulting option is buying companies (or building internal divisions). Either way, a large company is forced to grow beyond it's optimal size, because real profits are out of the question.

Of course, if it grows beyond its means, diminishing returns kick in, growth drops, and the stock collapses... What a way to run an economy.

We need tax AND accounting reform.

Alex

Re:Slashdot is scared of M$ too (2)

Evil Greeb (47931) | more than 14 years ago | (#1572807)

An article here [theregister.co.uk] at the Register notes how several publications 'fell for' a Dixons rip-off story (where it was claimed that Dixons were ripping consumers off), following allegations by Intel employee Craig Barrett. All of them had to apologise, after the Office of Fair Trading found that the allegations were false. Its sensible of the Slashdot people not to comment on it, in case the same happens.

A publication should not officially comment on something that may turn out to be false, because it can backfire nastily (libel?) and can cause damage to journalistic reputation.

As Slashdot subscribers, we don't have to worry about the latter problem, but I wonder if one day someone is going to libel somebody about a post made on Slashdot.

Everyone else does it too... (2)

Christopher B. Brown (1267) | more than 14 years ago | (#1572810)

'Creative accounting' is used by most major corporations, Billy G didn't invent it.
Quite true. The essential claim in the report is that the widespread use of stock options to compensate employees turns things into something of a "pyramid scheme."

Other articles claiming the same have come along from more credible sources. Of course, if MSFT is "guilty" of "pyramiding," there are also a whole lot of other companies that are also guilty, particularly with the ludicrously highly valued activities that fall out of corporate mergers.

If "everyone else is guilty too," this undercuts this article's claims somewhat, as it implies that if MSFT is overvalued, then many other securities are similarly overvalued.

Which doesn't make Microsoft any righter, but does suggest that they're just a convenient "whipping boy" for someone's political concerns.

M$ (0)

Anonymous Coward | more than 14 years ago | (#1572812)

"Slashdot offers no opinion one way or the other"

wow, that's a first.

ya right (0)

Anonymous Coward | more than 14 years ago | (#1572814)

ya, since when is M$ losing money? Hehehe, thats a new one. Some people will believe anything they read/hear. and some web sites PRINT anything they hear. Where's the facts? If you believe that M$ is losing money, I have a bridge in Brooklyn that I want to sell you.

Re:one more thing- MS flap with the Dow? (1)

plunge (27239) | more than 14 years ago | (#1572817)

I remember reading a Salon article about how the Dow and M$ weren't getting along very well recently- M$ got really pissed at something the Dow people published about them- anyone remember what happened? It seemed a little fishy to me, but I can't recall...

This reads like a paranoid rant (3)

Paul Johnson (33553) | more than 14 years ago | (#1572819)

Hmmm. I used to spend quite a lot of time on sci.skeptic, and maintained the FAQ for a while. This gave me a good opportunity to study "fringe" ideas. This article has a lot in common with them:
  • It targets a prominant public figure and alleges that he is at the head of a large scale conspiracy.
  • Lack of firm evidence to support his position. I tried to read the spreadsheet, but my copy of Excel would not open it. Nothing else in the article gives me any confidence in his position.
  • Various out-of-context bits and pieces are made to seem more important than they are. Specifically MS has been accused of manipulating its stock price by reserving money from rich quarters and turning it into profit during poor quarters. But this can only smooth out lumps and bumps, not maintain a long-term growth curve.
  • Lots of references are made to people who don't believe the author, along with elaborate justifications for this. No doubt Alan Greenspan is snowed under by letters from crackpot economists and conspiracy nuts. This guy looks just like another one. Ditto the fund managers and newspaper editors. They know what a price support operation looks like, and this isn't it.
  • Discussions of how courageous the author is being in revealing this truth.
  • Predictions of apocolypse RSN.
I think MS is overvalued, but I very much doubt that the situation is this bad.

Paul.

Re:Slashdot is scared of M$ too (0)

Anonymous Coward | more than 14 years ago | (#1572820)

There are two issues involved here: 1) Microsoft is a large corporation and has resources most could only dream of (they could spend a millions on a court case without worrying about the effect that will have the companies bottom line), and 2) With slashdot.org leaving the dorm room and entering the equity market, they have more to lose than a spiffy domain name and some cool web pages).

Stating opinions is fine, we call it free speech and in many cases there is no need for concern about retribution, but if that were to be presented as fact, or presented in a way that one could argue it is presented as a fact, then it can open one up to lawsuits.

With more of their assets on the line, slashdot appears to be avoiding the grey areas. Besides, all they did was leave for the reader the determination of fact, a pefrectly reasonable approach IMHO.

To fight or to truce? (1)

Augur (62912) | more than 14 years ago | (#1572821)

I do like to find the things goes on about the internet and computer industries. From the point of view of a casual user of MS products (aye!) I don't care about Microsoft financial perfomance a lot(I'm not a citizen of the USA, huh).

I wonder about the future without a behemoth like Microsoft after me. Would we live in the world of green-screened terminals? Or unix communities got boomed in their advacement? (I don't think so, look about Kasparov vs the rest of us; who won? The rest of us are weaker than the DeepBlue, hah!)

I must respect the great ability of Bill Gates to handle the situation on his OWN way. I suppose he is a greatest hacker of the world, covered by a suit and lawmakers. He is cute and nice. Really, he is much greater than thousand of mitnicks gathered together. Think about it.

Okay. Seems like /. comminity likes to make fight rather INSIDE their own. I think it's better to unite and do struggle not against the principles of Microsoft (who cares about you?) but for the 'better future'.

Generally I won't to live in the world of computers. I need in people. Do you?

Re:Not too smart (1)

radja (58949) | more than 14 years ago | (#1572822)

Whether it's true or not doesn't matter. an allegation like this is news and as such should be reported. Yes, news can influence stock... but that's no reason not to publish.

//rdj

Re:Slashdot is scared of M$ too (1)

Rob the Roadie (2950) | more than 14 years ago | (#1572824)

It's not so much /. or it's authors or it's contributors, it has to be Andover.Net - it can be no other.

When Roblimo posted this, he knew he was skating on very thin ice but he took the risk and it was posted and in the next few hours vast numbers of /.ers will skim over the document [billparish.com] and realise that they are not financial market experts but come up with the same opinion.

What goes up, must come down.

Okay, this article/document/fact/fiction may not be the tool to bring Microsoft back into check but sooner or later it will happen.

From the short converastion I have just had with my financial advisor I have managed to glean this much...this article it's self is based completely on interpretation of laws. All this article does is play the other side of the laws that Microsoft is alleged to be breaching.

If this article was totally accurate, why the ambigous language in the disclaimer?
Disclaimer: Due to the dramatic implications of my study results and potential legal ramifications for Microsoft, I must emphatically state that the following is my opinion based upon my understanding of the facts. I assume no responsibility whatsoever for any investment related decision or misinterpretations of the tax law I have made in this analysis.


My 2 cents? /. hasn't sold out on this issue, Roblimo et al are just trying to cover their own backs/jobs/entire lives.

Remember...We are /.

complete nonsense (0)

Anonymous Coward | more than 14 years ago | (#1572828)

US accounting rules do not requere stock options to be treated as cost
`Accounting principles offer management a choice: pay employees in one form and count the cost, or pay them in another form and ignore the cost. Small wonder then that the use of options has mushroomed,...If options aren't a form of compensation, what are they? If compensation isn't an expense, what is it? And, is expenses shouldn't go into the calculation of earnings, where in the world should they go?'' Warren Buffett, annual report Berkshire Hathaway
so Microsoft is not comitting a fraud. This is all legal, and done by all High Tech firms. But the underlying fact is true, with Microsoft stock options prices and acounted as loss the firm looses money.

Read your own post... (1)

x00 (82065) | more than 14 years ago | (#1572829)

Both stock buybacks and stock splits have long been considered legitimate tools for a company to use to keep stock value up for shareholders. Now the author wants to outlaw both.

If you actually read the text you pasted in you'd see that he only talks about doing it for 10years... which I guess is his idea for Microsoft to normalise...

Strange though.. his website, while interesting, comes accross as very extreme.... Maybe its cos he's been ignored for so long?

Re:Not too smart (0)

Anonymous Coward | more than 14 years ago | (#1572832)

The courts have upheld lawsuits against sites that knowingly or carelessly post false or misleading information about stocks and company values. Slashdot can definately be held liable. The SEC now knows, though. No need to worry.

Perhaps this is just an grab for attention? (1)

sdt (7606) | more than 14 years ago | (#1572834)

Hmm, I can't say anything about the situation regarding Microsoft and all. But what if this is just an attempt by Mr Parish to attract attention onto his company? Does anybody know something about the credibility of this person and his company?

Take for instance, FAQ Item 6:
6) What if I am interested in hiring you as my advisor and has this helped your business?

Just found that interesting. I don't like Microsoft's marketing strategies. I don't own stock in the company (and I don't use their products, either). I don't know anything about Perrish and Company. Just a mild speculation :). With media, especially with webpages, you can never be sure of their integrity or credibility, really, because it's so easy to be anonymous on the web.

Re:stock markets are so much fun! (2)

Black Parrot (19622) | more than 14 years ago | (#1572836)

> Anything to keep those meaningless values from tanking!

And the Dow just switched out some traditional companies to make room for some active tech stocks. I have long thought that the fact that the DJ is an average makes it susceptible to artificial manipulation, to make it look like things are going better than they are. I think I now have an example to cite.

Best would be if they only swapped one new company in per year or so, rather than the four at a time like they just did.

Better yet if they had avoided swapping in Micorsoft, which is allegedly under investigation by the SEC for using a fraudulent/illegal cookie-jar scheme to inflate its stock values.

Conspiracy theorists are, of course, free to conclude that putting MS on the DJ was a move to interfere with the DoJ case, since any hard hit on the price of MS stocks will have a very visible effect on the DJ average, after which the defense will cry "Our society can't afford a negative judgement!"

--
It's October 6th. Where's W2K? Over the horizon again, eh?

Incentive Options do NOT count as a cost in the US (1)

Pretender R*S (8816) | more than 14 years ago | (#1572838)

One very scary thing about tech companies in general is that the Stock Options that they give employee's as compensation to make them stick don't count as costs for accounting purposes. But the Options do really count as money, they dilute share holder value, in other words Options really are costs. To quote the Economist [economist.com] "For instance, Microsoft, the world's most valuable company,
declared a profit of $4.5 billion in 1998; when the cost of options awarded that year, plus the change in the value of outstanding options, is
deducted, the firm made a loss of $18 billion, according to Smithers." from 7-Aug-99, sorry a login is required to read old issues.

This is not just a problem with Microsoft but with tech companies in general, I think that this accountancy rules does confuse investors to the profitablity of companies and makes tech companies which have a high percentage of incentive options appear much better on paper than they actually are.

This is silly (1)

LLatson (24205) | more than 14 years ago | (#1572839)

I'm not an accountant, so take this for what you will, but as I understand accounting, it is a pretty subjective profession. Of course there are standards, but things like how long to depreciate property investments, which inventory system is used (FIFO or LIFO), etc., all have a major effect on what the books actually look like. It is _consistency_ across financial statements that lets you really evaluate how a company is doing.

This guys comments about how we should prohibit microsoft from buying back its own stock - that's absurd. Treasury stock is a basic concept in any publically traded company, and this guy's claim to prevent that illuminates how much he _doesn't_ know what he's talking about.

This is just some fool trying to scare everybody into selling off MS stock, and he's getting a lot of undeserved attention for it.

LL

Re:Stock Splits (1)

Rabbins (70965) | more than 14 years ago | (#1572841)

Both stock buybacks and stock splits have long been considered legitimate tools for a company to use to keep stock value up for shareholders.

Yes, company's have a responsibility to their shareholder's... they are afterall, the owners. Would he like to outlaw dividends as well?

Welcome to the Internet age (1)

PapaZit (33585) | more than 14 years ago | (#1572843)

This guy's presenting insufficient data for his case, he's acting like there's a great conspiracy to keep him quiet, and most importantly, everybody else does it. This isn't a Microsoft issue. Doonesbury's been lampooning the tech industry for this for a while.

There was an article in Boardwatch magazine [internet.com] a few years ago that went into this very nicely. The author compared the situation to a game of musical chairs. People know that there are too many competitors in the industry, and that it can't sustain its current level of investment for too long without having something to show for it. So, everybody's burning money at a prodigious rate in an attempt to gain "mindshare". The goal is simple: be in front when the venture capital stops. It's reached a level of insanity where it's hard for small businesses with sound expansion plans to get venture capital because "they're not agressive enough."

It's kind of like the cold war, in a way. The US "won", not on any ideological or technological superiority, but because we were able to keep spending for longer than the Soviets. The tech industry seems to be emulating that model.

Some conspiracy theory (1)

briancarnell (94247) | more than 14 years ago | (#1572845)

The weird part is his claim that the reason nobody's heard about this before is that Microsoft is a major advertiser in media.

That's weird because I've read several articles highlighting the strange ways that Microsoft and other companies book profits in order to beat Street expectations, just as there have been a number of recent articles on the creative ways Internet startups book all these stock options they give their employees to minimize their future liability (at least on paper).

This is nothing new or surprising.

Re:Not too smart (1)

Myddrin (54596) | more than 14 years ago | (#1572848)

So, how much of a discount did you get on
your MS stock options?

What a tool.

Smoke and fire (2)

evilpenguin (18720) | more than 14 years ago | (#1572849)

"Kook" is too strong, and "idealogue" not strong enough. I think it is fair to say that this guy is more concerned and hyperbolic than most commentators, but I have read a number of stories from reputable sources (NPR, The Economist) that indicate that MS has had actual losses due to both time shuffling of earnings and the lamentable fact that no one (not just MS) has to report stock options as a debt.

In other words (and remember, not only am I not an accountant nor a lawyer, but I'm barely fluent in basic economics, so this is definitely a media created impression, not knowledgeable reportage), it may well be that MS has had multi-million dollar losses in the last few years. So have many companies that continue to have high stock prices and good long-term prospects.

I would very much like to see a change in the law requiring that stock options be included in financial reports as debts, because THEY REALLY ARE DEBT. The reason that I think the banking and SEC big-wigs are not all bent out of shape over this is NOT that MS is buying their silence, but rather that this has become a pervasive practice and changing radically and suddenly would probably have catastrophic consequences.

I would expect to see this practice regulated increasingly over time.

What I do not know is if this practice, if added up across the market, really amounts to a dangerous bubble. That would be an interesting question. The danger would depend on the ratio of vested, unredeemed stock options to the market cap of the company all weighed against earnings. If the P/E ratio is already out of whack and the percentage of options in total market cap is high, well, that would have to be risky, wouldn't it?

I guess I'd side with this gadfly to the extent that I think we should agitate for tighter regulation of the accounting practices that allow the "shadow debt" of options, and for greater disclosure.

Beyond that, I'd like to hear from several other experts and economists. This guy's story is interesting, but long on conclusions and short on data.

Running a business in America (2)

lionrampant (74852) | more than 14 years ago | (#1572850)

I believe that the author of this piece fully believes in what he writes about. It is unfortunate that he didn't include any of his actual analysis in the article, but then again, how many of us really want to look at all of the math involved? Well, OK, I do, but I've got a degree in Accounting, so I like that stuff.

I see some comments on Slashdot saying that what is mentioned in the article is just standard business practice. That is partly true. As the accounting rules currently stand, companies are allowed to play some minor games with their earnings statements. Examples of these include how inventory is valued, and how you account for orders at year end that you don't ship out until the next year. Probably the most flagrant of these is the "pooling of interests" that companies are allowed to use in mergers so that overpaying for a company doesn't hit you as a real expense. Thankfully that goes away at the end of next year.

However, the author of the piece makes it impossible to really see the extent to which Microsoft just has smart accountants and finance folks playing the game legally, and to what extent those smart folks are "cooking the books." You just have to realize that corporate accounting is really more art than science, and you do what you can within the law to look as good as you can. If I was an investor in MS (which I'm not), I wouldn't be worried by the author's comments. In fact, MS should go up in the next few days as all Dow index funds (not that there are that many of them) have to buy the stock to stay current with the index.

Quote from the Economist (was Re:Kook city) (1)

JDisk (82627) | more than 14 years ago | (#1572851)

The "analysis" has all the hallmarks of a kook.
It sure sounds that way. BUT at least some of his accusations are true. He claims that "the Economist Story Legitimizes My Study" and I have to admit that he is correct: To quote from the story (I can't find it on the net any more, so I'll cut and paste some excerpts):
First, it is hard to tell whether profits have, in fact, risen all that much, for the cost of most executive share-option schemes is not fully reflected in company profit-and-loss accounts. Attempts by the Financial Accounting Standards Board (FASB) to require firms to set the cost of options against profits were killed by corporate lobbyists in 1995. They argued that if the cost of option schemes were treated in that way, fewer of them would be awarded, fewer people would have reason to maximise shareholder value and the economy would suffer.

FASB did, however, manage to make firms include a footnote in their accounts detailing the share options awarded during the year. Smithers & Co., a research firm in London, calculated the cost of these footnoted options and concluded that the American companies granting them overstated their profits by as much as half in the financial year ending in 1998. In some cases, particularly that of high-tech firms (which tend to be generous with options), the disparity is even greater. For instance, Microsoft, the world's most valuable company, declared a profit of $4.5 billion in 1998; when the cost of options awarded that year, plus the change in the value of outstanding options, is deducted, the firm made a loss of $18 billion, according to Smithers.

Some maintain that these numbers exaggerate the problem: there is genuine dispute over how best to calculate and account for the cost of executive options. But this is quibbling. Warren Buffett, a well-known American investor, put the case succinctly for tightening the rules on share-option schemes in the recent annual report of his investment company, Berkshire Hathaway. "Accounting principles offer management a choice : pay employees in one form and count the cost, or pay them in another form and ignore the cost. Small wonder then that the use of options has mushroomed," he observes. "If options aren't a form of compensation, what are they? If compensation isn't an expense, what is it? And, if expenses shouldn't go into the calculation of earnings, where in the world should they go?"

So, the Economist does seem to agree with him at least partly.

Re:Links to more info (1)

McKing (1017) | more than 14 years ago | (#1572852)

Those are very good links, and proof that the guy from the original story isn't really a crackpot.

Re:Not really... (1)

alexhmit01 (104757) | more than 14 years ago | (#1572853)

Actually, they don't issue more stock, because that would dilute (and devalue) the stock base, which would not be in the interest of the company. Instead, they issue and retire 1 share of stock, paying the employee the difference. This has a few advantages:

1. No commissions
2. No dilution of stock base
3. Nothing to report. The company merely records the cost of the exercizing against their cash on hand, but it doesn't touch their profits (because it isn't an expense, and it definitely isn't an operating expense).

This is completely retarded, because as the author states, stock options are part of salary. Without them, companies would have to pay higher salaries. Elimination of stock options might make sense. It would separate capital from wages, and it would force companies, even with high flying stock prices, to pay market wages.

Companies could issue the equivalent of stock options... i.e. you get bonuses equal to the change in stock price... but that would be wages, and would therefore be accounted normally.

Alex

Re:stock markets are so much fun! (2)

Kaa (21510) | more than 14 years ago | (#1572854)

And yet, people still think that stock markets are a great way for society to decide how to invest it's time and resources.

They have worked much better than any alternative system that I know of... Or are you claiming that the government allocation of resources works better?

It's not democratic, and it's very obviously not even pragmatic.

It was never supposed to be democratic (in the one person -- one vote sense). You don't decide where the society will invest its capital -- all you do is buy pieces of companies that you like. The rest works out by itself. Read Adam Smith -- he understood how this works a while ago.

As to being pragmatic -- I take it that you know better than everybody what is pragmatic and what is not, right?

A casino in which the more money you have, the more likely you are to win.

A casino, maybe. If you buy and sell stocks randomly, it is mostly luck that determines what you'll get at the end. I don't see, though, why the more money you have the more likely you are to win. Let's say that I buy 1 share of Microsoft. The odds of the Microsoft stock going up are exactly the same for me and for Bill Gates.


Kaa

Re:Slashdot is scared of M$ too (3)

Zoltar (24850) | more than 14 years ago | (#1572856)

I think Robin included that comment more as a reminder that just because Slashdot posts a link to a story doean't mean that they are endorsing it as the truth. Given all of the zealotry on Slashdot this seems like a very reasonable thing to do. Your *job* (should you choose to accept it:) would be to read the article and form your own opinion.

I'll agree that many stories do include a tounge-in-cheek comment with an anti-MS slant, but I've never taken them as an official Slashdot opinion, more as the posters attempt to be sly.

Anyways... I wonder how many people own MS stock and don't even know it. MS stock has been very popular with mutual fund managers (with good reason) for years.

I'm just cynical enough to believe that big companies, MS included, will try to get away with whatever they can. This sort of thing (if it's true) probably goes on more than we want to believe. The truth is, I'm sad to admit, I just don't have the time or the energy to really care.

This Is Old News (1)

Anonymous Coward | more than 14 years ago | (#1572857)

Anyone who follows the investment and personal finance news sources has heard this before.

Microsoft has paid their employees partly by stock options. This does not show up on quarterly earnings reports so the corporation loves it. As long as the stock price goes up the employees love it. The problem comes when stock prices crash, which all through history, they eventually have done. The situation then does indeed look like a pyramid scheme.

Microsoft also has been accused of "cookie-jar" accounting. The story here is to keep, deeply hidden, a reserve fund. In bad years, money is taken from the reserves and sneaked into revenues, in good years revenue is moved into the reserve fund. The result is steadily rising earnings and, hopefully a rising stock price. There are still probably on-line newspaper articles on this subject, especially in the Seattle area. Microsoft fired an accountant for raising complaints on this subject. He was then "bought off" by a generous out of court settlement, large enough for a comfortable "retirement".

The real problem facing the SEC and the FED is that Microsoft is not the only high tech firm using "creative accounting" practices. The whole high tech sector is a bubble waiting to pop. As Barron's likes to point out, there has never, through all of history has been a good end to a stock market bubble! If Microsoft's stock price comes down, the whole sector will crash and burn gloriously.

Regulators are faced with an impossible task, to slowly deflate the bubble down to sustainable stock prices without causing a out of control crash. There indeed has been talk of tightening accounting standards especially for high tech companies and also a raising of margin requirements to control short term speculation. Stay tuned to see how the story turns out.

YACT [Yet Another Conspiracy Theory] (2)

Black Parrot (19622) | more than 14 years ago | (#1572858)

> If MS stock were to deflate to it's normal value, I'd strongly worry about a deflation of stocks across the board, as the start of the pending 'diaster' that may hit the market.

That may be the plan. Let the bubble burst, have the uninformed/misled masses sell off cheap, then let the pros move in and buy cheap and sit back and wait for the market to climb back up to 10K within a year or so.

The stock market is, IMO, just a machine for pumping money out of amateurs' pockets and into the pros' pockets. For everyone who gets bit by buying high and selling low, someone else rakes it in by buying low and selling high.

--
It's October 6th. Where's W2K? Over the horizon again, eh?

figures (2)

Hard_Code (49548) | more than 14 years ago | (#1572859)

This seems to have a touch of scare in it, but I wouldn't be surprised at all if it were true. It's funny that all the charts are in MS Excel.

A little off. (1)

Rabbins (70965) | more than 14 years ago | (#1572860)

Of course, this is not a painless procedure. The more stock is issued, the more the value of the existing shares is diluted (or "watered down"). If the company has 100 shares outstanding, each share was worth 1% of the company. If 100 more shares are issued, all shares will now be worth only 0.5% of the company, so the previous share owners clearly become worse off.

Yes, but you are forgetting one important thing.
Existing Common stockholders have the right to maintain their proportianate ownership of the outstanding stock when new shares are issued. This is known as preemptive right.

For example, if you own 10% of a company's outstanding common shares and the company issues an additional 500,000 shares, you automatically have the right to purchase 10%, or 50,000 of the new shares. This offer MUST be made to you before the new shares go out.

Re:Kook city (0)

Anonymous Coward | more than 14 years ago | (#1572861)

Couldn't agree more, as a economics major myself and having just plowed through some advanced econometrics and a class on international finance -- if there is one thing you can't do in this world is make broad generalized statements. Where is his analysis ? It doesn't make sense, where is his data coming from? Is his source biased? How did he do teh accounting ? I want to see the accouting he did. Did he do any stastical work (besides those shabby charts?)? Any paper with a FAQ moreover is not a paper. I sure as heck at the end of my term papers write: Q. Did you copy this off a friend? A. No, I do not do that! Q. Why should I give you an A? bla bla. The article raises some interesting points -- however if there is ONE THING that I learned in school was that if you have a point to make you have to have SUPPORTING ARGUMENTS. I wouldn't want this guy as my investor in a million years.

Re:This is just corporate accounting (1)

Kaa (21510) | more than 14 years ago | (#1572862)

Stocks are screwy anyway. According to economic theory, a stock's price = present value(future dividends)

Well, there are plenty of economic theories and the one you mention (stock price is the value of future cash flows discounted to the present) is one of the simplest and least satisfying ones. I think it's fair to say that it doesn't work, at least on the level of this simple statement.

People buy stocks not because they expect to get payments (mostly dividends) for 50 years from now. They buy stocks because they believe that at some point in the future they'll be able to sell this stock for more than they bought it for. Economists don't like this kind of assertions because they are very hard to analyze, but they correspond to real life much more.

Kaa

no opinion...WHAT?!?!?! (0)

Anonymous Coward | more than 14 years ago | (#1572863)

SLASHDOT has no opinion..that IS a FIRST I think. C'mon ROB, TACO someone has got to HAVE an opinion that is unbelievable...I am bereft, afloat so to speak...lost within the sea of mediocrity and you expect me to form MY OWN OPINION...shhuuddddeerrr
some one loan me $.02 please I am really broke

Commentary on financial fraud (1)

wljones (79862) | more than 14 years ago | (#1572864)

Dallas area investors should be very jumpy after reading a report like this. They saw what happened when Jimmy Ling went to work on Ling Temco Vought (stock collapsed, Braniff Airlines never recovered), when Dallas' biggest bank went bankrupt (bad loans to oil and real estate, good old boy practices), and the Billy Sol Estes schemes ( took much money by unethical practices, but only broke one law when he declared that an empty silo was full). It's your money, and everyone wants it. Be careful.

The one true pyramid (2)

MikeFM (12491) | more than 14 years ago | (#1572865)

Sure M$ is a pyramid scheme as are virtually all tech stocks. Technology actually works in such a way. Why do you think Moore's law works? Will it eventually crash? Doubtlessly but not in the way economists imagine. Before technology can crash in any big way we must have enough technology built up to deflate the cash behind the technology. At this point we should flip over into a gift culture completely as the economics behind technology are crashed. It isn't exactly a bad thing but just a change and changes can hurt even if they are healthy. Now maybe it's true M$ is carrying the whole thing a little to far. It does worry me a little having so many eggs in one shakey basket. I keep watching their spin.. so forward a few years ago but now begining to slow and wobble towards reverse. The people I really pity are their employees that work 50 hour weeks and take it all as stock expecting it to pay for their retirement and childrens education and such. If that bubble bursts they'll be the ones hurt the most. I for one would never put all my investments in any one product. It just isn't smart. :)

Re:Not really... (1)

Mister Attack (95347) | more than 14 years ago | (#1572866)

Still, I sem to recall reading on Slashdot a while ago that the MS Board was selling off their stock. Could they be bailing out? or preparing to bail out? I'm glad I don't own any Microsoft...

Due for a Crash? (1)

packrat (93184) | more than 14 years ago | (#1572867)

Regardless of how you regard the 'facts' presented in this analysis of the microsoft stock prices, the sudden jumps and dips of almost all the tech stocks in the last couple of months on the slightest hint of news have had to have made you look up.

The analysis comes out like this: the stock market, and the tech stocks in particular, are due for a catastrophic crash. It's interesting to note that a couple of tech stocks have recently made it into one of the major stock indices in recent weeks (days?). Ask yourself what the end result might be if a these tech stocks tumbled, taking the market with them. After all, what is a market crash but a coordinated loss of confidence.

While discussing some of the more interesting points of the industry with a friend, a relevant point came up. Before the last two major stock market crunches, the major signs have been reduces speculation by the bigger (better informed?) trading houses, and share trading instead being thrown in the face of the common small investors.

Not only have we see this happening, but the recent sudden promulgation of small on-line trading places might well use the technology to achieve its own downfall.

The irony of it all.

Re:A little off. (1)

Kaa (21510) | more than 14 years ago | (#1572868)

Existing Common stockholders have the right to maintain their proportianate ownership of the outstanding stock when new shares are issued. This is known as preemptive right.

Sometimes yes, and sometimes no. It depends on how the corporation's charter and by-laws are written. Some corporations offer such rights (also known as the right of first refusal) to their shareholders, and some do not.

Kaa

FUD as weapon against MS? (1)

sloth jr (88200) | more than 14 years ago | (#1572869)

Well, THIS has certainly been an interesting article. Let's set aside notions of "true" or "false" in this regard, and just think about the value of FUD as an agent against MS.

MS certainly has engaged in FUD-slinging against (your favorite MS adversary here). Could FUD be used effectively against them? HAS FUD been used effectively against them?

Tangent: And supposing that the MS stock bubble burst (my read of the immediate effect of well-received FUD), would the stock of the entire tech sector plunge with it?

More questions than answers, but it's an interesting mind puzzle...

Re:Speculative Indeed (1)

rnturn (11092) | more than 14 years ago | (#1572870)

``The bottom line is usually 'what goes around comes around'. -IF- MS is really crossing the line with regards to how they cook the books, it will catch up with them''

Anyway, I believe that the Parrish analyst's point was that if and when it does catch up with Microsoft, a lot of little people are going to get hurt when the value of their retirement plans goes down the toilet. If this doesn't register somewhat on the concern-o-meter then methinks that, perhaps, too many Slashdot readers aren't concerning themselves with their retirement plans. Panic certainly isn't warranted (yet) but keep your eyes peeled. The FASB (sp?) may get its way in the future and those stock options may eat into corporate earnings; if so, the stock market could become much more volatile.

I saw this analysis last week and didn't really know what to make of it. I'm sure that many see its author as some sort of crackpot. Since I'm not a professional financial analyst, I can't really judge the quality of this guy's claims. On the other hand, it certainly seems shady that MS canned its internal (for reasons that we'll probably never really know since, I believe, the terms of the out of court settlement will neatly cover up the facts). Sigh.

My 401K and other investments are only currently only minimally invested in MS stock. I will be keeping an eye out on how heavily my retirement is dependent on certain stocks.

The $9B Tax Deducation (2)

AtariDatacenter (31657) | more than 14 years ago | (#1572871)

> This might explain why reporters are afraid to
> print the facts, for instance that Microsoft
> took a $9 billion tax deduction for wages in
> 1999 and didn't charge a dime of this amount
> against earnings.

Employee wages for R&D are tax deductable. It is done in the large corp I work for.

Math (1)

Benjamin Shniper (24107) | more than 14 years ago | (#1572872)

This may sound like a ridiculous thing to do, but I'd like to look at the math of this guy. Basically, a quick check at how a company selling about 50 million units a year worldwide at about 200$ profit each could possibly lose money. Between selling it's office suite and Windows NT to each company in America and charging about 400$ each, they must make money. Real money. That's about $10 billion dollars a year in variable profit and $20 billion a year in sales, by this estimate. Plus they sell tons of databases, e-mail and servers. Truly, I don't understand what all the hoopla could possibly be about. Are companies NOT going to buy Windows 2000 in droves? That's the issue, not the accounting practices. P.S. this was just a guess, but on microsoft's page: http://www.microsoft.com/presspass/fastfacts.htm They say: Net revenue $19.75 billion Net income $7.79 billion I'm sorry, but doesn't this seem reasonable? They can do whatever obfuscations of the accounting they want, but the fact is they're making money hand over fist. Until that changes, and we can change it by demonstrating better products than Microsoft's, they will be around. -Benjamin Shniper

Re:Not really... (1)

King Babar (19862) | more than 14 years ago | (#1572873)

Basically, the situation is like this. Company X issues a stock option to employee Y at, say, $10/share. Let's say a year passed and the stock of company X is now trading at $100. You *can* say that the company sustained a $90 unrealized loss (I am ignoring the time value of money for simplicity) and that's exactly what Parish is saying. However, in the real world if the option gets cashed in, the company will not go onto the open market, buy a share for $100 and give it to the employee in exchange for $10. The company will just issue more stock.

Not to give a Raving Loony more than his due (I'm talking about Parrish, not this poster), but Parrish also seemed to be suggesting a second kind of earnings problem as well. That story goes like this:

Microsoft has employees, and those employees are compensated by some combination of boring benefits, wages/salary, and those nifty stock options. Now, the possibility of income from exercising those stock options looks as good as money in the bank, because the stock is always going up, so the options are never worthless. This is a very nice situation for Microsoft, since it means that the salary and other benefits they pay don't have to be as high as those of other companies that can't essentially pay people with stock options that are as good as gold. So Microsoft has a smaller expense for wages and such, which makes their earnings larger.

The problem for Parrish is that there is nothing wrong with this, taken by itself. Indeed, you could argue that if Microsoft didn't take advantage of opportunities like this, that they would be wronging their shareholders.

Now, what would be a concern is if Microsoft was so dependent on this tactic that they felt the need to do any of the followint things:

  1. Issue an ever increasing number of options, with the possibility of accelerating dilution or having those options appear less attractive as inducements to sign up with the company
  2. Manipulate earnings so that the stock price continues to grow as steady-as-she-goes, so that the options ploy will always work.
  3. Manipulate the stock price itself, so that the options are always exercised and the expense of employee compensation is kept low (or even lowered further)

Regardless of whether or not any of these things are illegal or unethical, it's reasonable to question whether this is the kind of financial footwork you'd like to see supporting the stock price of a $500 billion company.

Re:YACT [Yet Another Conspiracy Theory] (1)

rnturn (11092) | more than 14 years ago | (#1572874)

``The stock market is, IMO, just a machine for pumping money out of amateurs' pockets and into the pros' pockets.''

Now I may just have to go re-read ``Where Are the Customers' Yachts? Or, a Good Hard Look at Wall Street'' by Fred Schwed and Peter Arno. A sometimes humorous look into the way Wall Street investment firms work.

Re:Slashdot is scared of M$ too (1)

Bearpaw (13080) | more than 14 years ago | (#1572875)

Usually the folks at Slashdot offer some sort of comment or opinion about the subject because, after all, we all DO have an opinion.

This is a pretty common attitude (at least in the US, where everyone has a right to their opinion, no matter how stupid), but it's an attitude that annoys the shit out of me.

No, dammit, I do not have an opinion about this. I'm not qualified to have a meaningful opinion about it, and probably neither are most Slashdot readers. Roblimo is evidently smart enough to know his limits, unlike most people.

If you want to guess, you go right ahead. But don't think that your guesses are opinions, and don't think that your opinions are facts.

Re:Speculative Indeed (1)

klm20 (39056) | more than 14 years ago | (#1572876)

'Creative accounting' is used by most major corporations, Billy G didn't invent it.

Billy G never invented anything. He just learned how to take the inventions of others and leverage the Hell out of them.


--
I gave my boss a reality check. It bounced.

Re:Does it matter... (0)

Anonymous Coward | more than 14 years ago | (#1572877)

In the financial world, perception is ONE FACTOR and nothing more. And for the wise investor in it for the long haul, it's not that big of a factor.

Math (1)

Benjamin Shniper (24107) | more than 14 years ago | (#1572878)

This may sound like a ridiculous thing to do, but I'd like to look at the math of this guy. Basically, a quick check at how a company selling about 50 million units a year worldwide at about 200$ profit each could possibly lose money. Between selling it's office suite and Windows NT to each company in America and charging about 400$ each, they must make money. Real money. That's about $10 billion dollars a year in variable profit and $20 billion a year in sales, by this estimate. Plus they sell tons of databases, e-mail and servers. Truly, I don't understand what all the hoopla could possibly be about. Are companies NOT going to buy Windows 2000 in droves? That's the issue, not the accounting practices.

P.S. this was just a guess, but on microsoft's page:
http://www.microsoft.com/presspass/fastfacts.htm

They say:
Net revenue $19.75 billion
Net income $7.79 billion

I'm sorry, but doesn't this seem reasonable?
They can do whatever obfuscations of the accounting they want, but the fact is they're making money hand over fist. Until that changes, and we can change it by demonstrating better products than Microsoft's, they will be around.

-Benjamin Shniper

Don't Believe it. (0)

Anonymous Coward | more than 14 years ago | (#1572879)

Parish and Company? Who the hell is that? Exactly. One of the oldest tricks in the book for these "financial analysts" is to make wildly outlandish predictions. This gets them the media exposure they need. Afterall, if every wall street financial advisor agreed, what would that do to the stock market? This guy doesn't care if you believe him or not. he just wants you to think he has information you don't, so you'll think your money is safe with his firm. I bet he owns a nice chunk of Microsoft to boot.

Re:OK... (0)

Anonymous Coward | more than 14 years ago | (#1572880)

Amazon is a completely different issue. Amazon discloses their losses. However Microsoft pretends that all is well, yet, according to Bill Parish, finance their operation mainly by distributing new options, put options, and other means of earning money on a stock price they largely control.

Re:This reads like a paranoid rant (3)

coyote-san (38515) | more than 14 years ago | (#1572881)

Speaking of sci.skeptic, I've been reading SI and the Skeptic for years... and a lot of skeptics forget that every so often one of the "kooks" is correct. They inevitable go through a period where they look like "kooks" at first glance, but I've noticed several common traits which this guy seems to share:

He *doesn't* compare himself to Galileo, an early Einstein, or any other genius "misunderstood in his own time,"

He's speaking in his area of professional interest. He's an analyst taking a hard line on the valuation of stock options, not a taxi driver discussing macroeconomic theory,

His stand is in an area of active debate. If just one major company hoses the books with stock options I think there's little doubt that the FASB will adopt a harder line. He seems to think MS may be that company.

The details *can* be checked. I don't have the MS annual statements handy, or the details of the proposed Expedia spinoff, but he could be easily discredited if he's bending the truth too far

Finally, some non-kooks have looked at his claims and said that they might have merit.

IMHO, he *might* be a kook, but it's at least as likely that he's just someone frustrated at the perceived indifference to something that's obvious to him.

As for the overall presentation, it's targeted towards the general public. If he presents the same document to Greenspan I would be worried, but I have no reason to believe that's the case.

Re:one more thing- MS flap with the Dow? (1)

QuMa (19440) | more than 14 years ago | (#1572887)

Didn't they claim something about a breakup clause in new MS contracts? I didn't really follow the story, but there was something about it on the register.

Re:Not too smart (0)

Anonymous Coward | more than 14 years ago | (#1572889)

However the information Slashdot posted wasn't false or misleading - Slashdot only pointed to an external article, stating that an investment advisor alledges that Microsoft use fraudulent practices. They've made no assertions as to the correctness of the claims by Bill Parish, nor presented his claims as truth.

Re:Stock Splits (1)

Salamander (33735) | more than 14 years ago | (#1572890)

>Both stock buybacks and stock splits have long been considered legitimate tools

Buybacks and splits, sure, but how about selling put options on your own stock? That's just sleazy, and I'm amazed it's even legal.

Invite me to your talk show! (1)

v0rteck (62611) | more than 14 years ago | (#1572891)

This guy doesn't seem objective because he talks way too much in the first person. An objective analysis would refer to facts, conclusions, and the method used to reach those conclusions. I see none of this in the article. Mostly what I see is Parish trying to create fame and fortune for himself.

As to the conclusions drawn, I will not deny that Microsoft uses underhanded financial illusions to inflate stock, but I don't know if these illusions are of the scale that Parrish suggests. Anyway, I will watch for a more objective report for someone not seeking fame and fortune.

Re:Not too smart (1)

radish (98371) | more than 14 years ago | (#1572892)

The courts have upheld lawsuits against sites that knowingly or carelessly post false or misleading information about
stocks and company values.


Slashdot have not published anything. They merely linked to an article on another site, which looks like it has been there for quite some time. That, combined with the very strict disclaimers on the front page, both attached to this particular story and the site in general, would make any legal action against slashdot a farce.

full of it (2)

jsm2 (89962) | more than 14 years ago | (#1572893)

Speaking as a man with three years' experience as a stock market regulator ...

You're full of it, mate, and a poor Anthony Elgindy wannabe to boot. Slashdot posted a link to a site with a critique of MS accounting policies, which critique adds nothing to information already in the public domain other than the word "fraud" (which it is cleary wrong to add). Slashdot have not libelled MS, nor have they done anything which might bring down the wrath of the SEC. In any case, the public statement provisions of the law relating to IPOs have definite exceptions for media outlets (Or should newspapers stop publishing news in the run up to the IPO?)

And finally, your accusation that /. was trying to "manipulate MS' share price" is equally brainless. What on earth does the price of MS have to do with andover.net's IPO? You seem to be labouring under the impression that the stock market is a zero-sum game.

full of it, I reiterate, and you will get no thanks from the SEC for wasting their time.

jsm

What's going on here? (0)

Anonymous Coward | more than 14 years ago | (#1572895)

Slashdot readers are normaly somewhat anti-Microsoft. Howcome all the pro Microsoft posts here on this subject? Could someone be stuffing the ballot box???? I think I smell a rat!

Re:Not too smart (1)

radja (58949) | more than 14 years ago | (#1572897)

Well.. just checked the /. article, and the article is completely correct. Basic content of /. article:

there's this guy, and this guy says something bad about microsoft. A link is provided to prove it.

well.. this is all perfectly true, I see no problem here, but IANAL.

//rdj

Re:FASB Disagreements (2)

jsm2 (89962) | more than 14 years ago | (#1572899)

options are not being accounted for in the P&L because they don't really fit there

respectfully disagree (the rest of this post is actually very good).

To paraphrase Warren Buffet:

If options aren't compensation, what are they?
If compensation isn't an expense, what is it?
And if an expense doesn't belong in the P&L, where in heaven's name does it belong?

jsm

Re:Speculative Indeed (1)

Salamander (33735) | more than 14 years ago | (#1572907)

>'Creative accounting' is used by most major corporations, Billy G didn't invent it.

I do hope you're not implying that we should just not try to enforce any kinds of standards for accounting. That would be a classic example of the "excluded middle" fallacy, so obvious even the average slashdotter could see through it.

Sure, creative accounting has been around for a long time and many companies get away with a certain amount of "creativity" within the limits that we do set. But some companies - Sequoia and KSR come to mind - don't get away with it because their practices have gone beyond creativity into outright fraud. If we are to allow those companies to fail for their dishonesty, why should Microsoft be held to a more lenient standard?

We may not be able to make everyone perfectly honest, but we can prevent or discourage some of the most blatant forms of corporate dishonesty and that's what this article is about.

This is why I buy Cisco (2)

rodent (550) | more than 14 years ago | (#1572908)

This is exactly why I prefer stocks like Cisco that actually make something. Software (in the broad sense) only companies like MS will take a tumble here in the near future as folks recognize that their actual worth isn't much. However hardware (again, in the broad sense) companies like Cisco, Ford or IBM actually make something which can be said to have X value. Raw materials+labor instead of just labor which is always relative.


rodent...

Re:Food for thought (1)

radish (98371) | more than 14 years ago | (#1572909)


Nope. Speaking from experience I can say that most systems involved in actual trade flow are unix based. Sure people have PCs on their desks, but these are frequently just running as terminals onto other systems (unix/mainframe) and other times are just used for email etc, leaving the other stuff to the "real" computers.

Re:A little off. (1)

Rabbins (70965) | more than 14 years ago | (#1572910)

Though it is in general good business practice to offer the rights.

Traditional Rights Offerings now happen so rarely though anyways. The vast majority of mature companies rarely issue new common stock. It is usually associated with the recapitalization of a highly leveraged company following a takeover or a merger. They are also ssociated with your poison pills now.

Odd (1)

John Bridges (103918) | more than 14 years ago | (#1572911)

The article seems to want to avert a 20/30's style crash, yet his suggested solution is likely to create such a crash. M$ undoubtedly practices 'alternative' accounting procedures, but that's its job. It has to ensure that it acts in the best interests of its shareholders. E.g. what is wrong with issuing puts on its stock ? This provides a good source of revenue for M$ and could act as a good brake during minor price drops. Looks like a hedging strategy to me, and if a large corporation doesn't employ hedging strategies then its shareholders should be worried. The other thing that seems to be ignored, is that the whole financial system works through self-fulfilment. The Mutuals who control a great deal of movement in the stock market have bet their cash on these obviously dodgy stock prices and consequently are unlikely to start divesting in bulk and consequently cause a price crash.

Re:Read your own post... (0)

Anonymous Coward | more than 14 years ago | (#1572912)

Strange though.. his website, while interesting, comes accross as very extreme.... Maybe its cos he's been ignored for so long?

Maybe it's because he's so extreme that he's irrelevant.

(except, of course, to Microsoft bashers out on a rampage)

Andover.net is in "quiet period" (1)

WanderingWastrel (98947) | more than 14 years ago | (#1572913)

Since /.'s new corporate owners are in a pre-IPO "quiet period" mandated by the SEC, there are certain things they can't talk about. If they do talk about them, the SEC will come down on them *very* hard.

I have no idea if an article casting doubt on the accounting practices of M$ and the supposed lack of response on the part of the government agencies who are supposed to prevent this kind of thing would transgress against the "quiet period" rules... and I doubt if anyone at /. knows either. I'd play it very very safe myself, just like Rob did.

There are times for humorous comments, and times to zip your lip.

Re:Math (0)

Anonymous Coward | more than 14 years ago | (#1572915)

Ever had a bad day in physics lab, and changed your data to fit the model to make the error analysis/explaination easier?

Re:stock options (1)

Salamander (33735) | more than 14 years ago | (#1572916)

>There is general problem with how companies have to account for stock options given to employees.

That was actually one of the author's points.

What's the solution? Forcing companies to account for all granted options as income is really not quite right, because many of those options will in fact never vest. The fairest thing would seem to be a requirement for a "good faith" estimate of what percentage of options will vest, based on industry averages and/or prior experience at that company. That portion would then have to be accounted as income. It's no different really from many other things in a company's financial statements that are actually just estimates.

Buffet's Berkshire Hathaway (2)

aheitner (3273) | more than 14 years ago | (#1572918)

Warren Buffet is adamently opposed to stock splits -- he refuses to permit them for his own companies, and discourages them publicly for others.

He believes a stock split artificially inflates the price of stock, and would rather see large pools of investors (as in a mutual fund) buy single shares of high-valued stock to split among investors. You can invest in mutual funds which simply own shares in Berkshire Hathaway.

This goes with this investing advice that "the ideal amount of time to hold a stock for is forever". It's good investment advice, since it relies on the core meaning of the market -- we buy stocks because we believe companies will make money, and we want a share in the profits. It's the furor that ensues when we forget this and start madly speculating that causes investment bubbles and overvalued markets, which is bad for everbody.

Basically, Buffet is the antithesis of a day trader. Obviously, I have a tremendous amount of respect for him :)
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