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Former controller at WorldCom says he committed securities fraud; Mississippi attorney general may bring charges against others in case. Plus: The trouble with contract workers, tech companies repricing options, and here comes the IT recovery.
Stephen Taub, CFO.com | US
October 14, 2002
In an appearance before a Hinds County (Mississippi) Circuit Court judge on Friday, former WorldCom Inc. controller David Myers pleaded guilty to one count of conspiracy to commit securities fraud.
Myers is the first person to be identified in a state investigation of the Mississippi-based WorldCom.
Myers faces up to five years in prison and a fine of $5,000 on the state charge, though sentencing has been deferred. He was released on $10,000 bond on this charge.
"We made the choice to pursue state charges against this particular defendant and there may be others we may pursue state charges against," Mississippi attorney general Mike Moore told The Associated Press. "We, of course, are working in partnership with the U.S. attorney in New York."
In September, Myers became the first ex-executive of WorldCom to plead guilty to federal fraud and conspiracy charges. He faces up to 10 years on those counts.
Last week, former accounting director Buford Yates Jr. pleaded guilty to two felony charges, stating that he both conspired to commit and in fact committed securities fraud.
Former WorldCom finance executives Betty Vinson and Troy Normand also pleaded guilty last week to one count of securities fraud and one count of conspiracy to commit securities fraud.
Reportedly, Moore said that prosecutors in Mississippi "have some cooperating witnesses who have not been charged and we have some cooperating witnesses who are also defendants because of the actions they took. We are getting closer and closer to getting to those who had knowledge of these illegal things."
Swartz Raises Bail
It looks like the former CFO of Tyco International won't be spending time in prison anytime soon.
Reportedly a judge accepted a $50 million bail package offered for Mark Swartz, the onetime finance chief of the U.S. conglomerate.
The bail bond security—$5 million in stock and real estate—was put up by Swartz's parents and in-laws.
Under what is described as an unusual feature of the package, each person agreed to accept responsibility for the entire $50 million bond.
"I'm satisfied that this is an appropriate bail package," State Supreme Court Justice Michael Obus reportedly said. "The court is satisfied that these provisions will assure the defendant's appearance in court, which ultimately is all that this is about."
The Rebirth of Repricing
It appears a number of tech companies are reviving a favorite pastime from the late 1990s: repricing underwater stock options.
In a Securities and Exchange Commission filing on Friday, management at software maker Business Objects noted that employees can now trade in options that are currently out of the money for fewer new options. The strike prices of the new options reflect trading levels of the company's stock at the time they are reissued.
Thom Weatherford, CFO of Business Objects, told Reuters that the company's goals are to reduce the number of options outstanding, cut the related expense, and give employees something in exchange.
He added that the company will not book a charge related to the options-exchange program.
Other tech companies, including Siebel Systems Inc. and Nvidia Corp., have also recently offered repriced options to employees.
Software maker Siebel gave its employees the opportunity to swap underwater options for cash or stock. The company took a charge of about $60 million related to the program.
Graphics-chip maker Nvidia is letting its employees exchange nearly worthless options for fractions of shares. Nvidia is taking a charge of about $66 million for the stock swap.
Business Objects is based in both Paris and the United States.
SEC Settles with Former CFO
The SEC settled securities fraud charges with J. Mark Samper, former senior vice president of finance and chief financial officer at Flir Systems Inc., a Portland, Oregon-based maker of infrared imaging systems.
The regulatory agency alleged that Samper:
Samper was the last of four former Flir executives to settle allegations they intentionally inflated the company's earnings in 1998 and 1999.
Samper was ordered to pay more than $61,359 in disgorgement and interest, as well as a $110,000 civil penalty, according to the SEC. In addition, he was barred from serving as an officer or director of a public company.
Gartner Predicts IT Recovery
Gartner Dataquest said a worldwide IT recovery is just around the corner.
The consulting and market research company said it expects IT spending to increase by 3.4 percent to $2.3 trillion in 2002 and then jump 7 percent to $2.5 trillion in 2003.
Worldwide telecommunications, along with technology services (outsourcing and consulting), account for almost 60 percent of 2002 spending, said Gartner. The consultancy predicts these two sectors will receive the largest increases in consumer and business spending in 2003.
Gartner also expects steady revenues in telecom services such as phone and Internet connections. Those sales will more than offset the collapse among telecom equipment makers, it added.
Revenues in the hardware sector are falling by 1.3 percent—due in part to steep price drops on large computer servers and storage devices, added Gartner.
The research firm expects only modest gains for hardware and software in 2003.
Study: Contract Workers Don't Pay Off
Companies with the best people management deliver nearly twice as much value to shareholders as their average competitors, according to a study by Watson Wyatt.
What's more, the gap between the best and the rest is growing.
According to the study of people-management practices at more than 600 companies in Europe, there is a clear link between specific people-management practices and financial performance. Similar results have been found in Watson Wyatt's studies of North American and Asia-Pacific companies, the consultancy indicated.
"The perception that HR is a nonstrategic business overhead still persists," says Steven Dicker, a partner at Watson Wyatt and a co-author of the report. "But this is wrong. Our…research has again demonstrated the strong link between effective human-capital management and shareholder value."
Watson Wyatt said three practices undermine financial performance: using contract workers to provide "a disposable workforce," excessive developmental training, and paternalism.
The study found that companies that have avoided the 'disposable worker' approach delivered up to 5.6 percent more shareholder value than average-performing companies.
"The approach to using temporary workers to provide a cushion of 'disposable workers' in case of an economic slowdown or cancellation of noncore projects seems reasonable in principle," says Doug Ross, a co-author of the report. "However, our experience suggests that the temporary workers cause tensions and jealousies with permanent employees in good times because of the different terms and lack of commitment to the company." Ross also notes that when 'disposable workers' are brought in, permanent employees feel as vulnerable as if permanent employees were actually being laid off.
In addition, companies that limit their use of developmental training deliver up to 5.2 percent more shareholder value than average companies, according to the study.
"Development training appears to increase the value of the individual, but not necessarily the value of the company," said Ross. "This is either because the training is not well timed or good enough, or the costs of employment rise as the employee either demands more pay or moves to another employer to realize their newly enhanced value."
The study also found that companies that were overly paternalistic lost up to 5.2 percent of shareholder value compared with average companies.
"Providing a secure working environment, coupled with effective performance management, can create a high-value workplace," says Ross. "However, some people-management practices are excessively paternalistic, such as maintaining training regardless of economic circumstances and avoiding at almost all costs the termination of employees; these undermine shareholder value."