Options Scandal Grows

[AAAintheBeltway]

While the financial media, led by Jim Cramer, continue to ignore the options backdating scandal, it continues to grow. We are not talking nickels and dimes here folks. From Broadcom's press release:

Broadcom (BRCM : broadcom corp cl a
News , chart, profile, more


10:25am 09/08/2006

Delayed quote
BRCM25.66, -0.77, -2.9%) said compensation expenses it records related to historical stock option grants will be at least double its previous estimate, "and could be substantially more," after additional accounting issues were identified. The Irvine, Calif. semiconductor company said it would also have to restate financial results from 1998 to 1999. On July 14, the company had said it would record stock-based compensation expenses of more than $750 million, as well as restate results from 2000 to 2005 and the first quarter of 2006 to correct the accounting of stock option grants to employees. Broadcom said it has been informally contacted by the U.S. Attorney's Office of Central California, and that it continues to cooperate with the U.S. Securities and Exchange Commission's informal inquiry into its previous accounting for stock option grants.

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To put it into english, they previously said they had backdated 750 million worth, now they are saying at least twice that and possibly a lot more. So we are talking minimum of 1.5 billion with a B.

This is only one company, not a real big one at that, and apparently their accounting records are so bad they can't just look up how much. Here's a suggestion to speed things along. Look up all the options grants for top exec's and just assume they were all backdated. Once you start this sort of thing, it's kind of hard to stop, free money being so attractive and all.

I don't understand why the SEC is treating this so lightly. This is fraud on a massive scale. People should be going to jail in large numbers, but it appears this will be another sweep under the rug operation. And they wonder why people prefer to buy real estate to stocks.

 

[IV_Trader]

Quote from AAAintheBeltway:

While the financial media, led by Jim Cramer, continue to ignore the options backdating scandal, it continues to grow. We are not talking nickels and dimes here folks. From Broadcom's press release:

Broadcom (BRCM : broadcom corp cl a
News , chart, profile, more


10:25am 09/08/2006

Delayed quote
BRCM25.66, -0.77, -2.9%) said compensation expenses it records related to historical stock option grants will be at least double its previous estimate, "and could be substantially more," after additional accounting issues were identified. The Irvine, Calif. semiconductor company said it would also have to restate financial results from 1998 to 1999. On July 14, the company had said it would record stock-based compensation expenses of more than $750 million, as well as restate results from 2000 to 2005 and the first quarter of 2006 to correct the accounting of stock option grants to employees. Broadcom said it has been informally contacted by the U.S. Attorney's Office of Central California, and that it continues to cooperate with the U.S. Securities and Exchange Commission's informal inquiry into its previous accounting for stock option grants.

*************************************

To put it into english, they previously said they had backdated 750 million worth, now they are saying at least twice that and possibly a lot more. So we are talking minimum of 1.5 billion with a B.

This is only one company, not a real big one at that, and apparently their accounting records are so bad they can't just look up how much. Here's a suggestion to speed things along. Look up all the options grants for top exec's and just assume they were all backdated. Once you start this sort of thing, it's kind of hard to stop, free money being so attractive and all.

I don't understand why the SEC is treating this so lightly. This is fraud on a massive scale. People should be going to jail in large numbers, but it appears this will be another sweep under the rug operation. And they wonder why people prefer to buy real estate to stocks.

purity of earnings ---> the worst ever. Without forced money flow ( 401k) , DOW would be at 5k now.

 

[AAAintheBeltway]

It seems to me this options backdating scandal is basically a ponzi scheme. The executives deliberately understated costs by, apparently from BRCM, billions of dollars, which caused the companies to appear highly profitable, which caused the stocks to soar, which caused the exec's options to soar, and everybody was happy, until the chickens come home to roost. When investors wised up and realized the stocks were fraudulently valued, the stocks tanked and the wheels came off.

This scandal also proves that the entire argument for incentive options is false. We were told that people needed to be incentivized. They would work harder for less money if they had a chance to share in the company's success. Now it turns out they weren't willing to accept that bargain at all. They wanted something guaranteed, just like hourly workers. Only they didn't want to have to pay taxes on it.

 

[Hydroblunt]

Corporate execs in USA doing something shady, unethical and borderline illegal? NO WAY I AM SHOCKED AND APPALLED

Most derivatives are BS, manufactured nonsense without anything material or tangible tied to them. Same goes for options, most never get exercises so essentially there is nothing behind them but a tool for money to change hands.

See these corporate pigs are greedy and want millions upon millions. However, them coming on board and asking either treasury stock or straight cash would never fly with the shareholders. So they mask it all with options, since the dilution is not apparent right away. Eventually, however, what happens is that these options end up diluting shareholder value and transfer wealth from those who actually PAID for their shares to those who did not. I am actually a small shareholder of a company that is a gem but I miss out on most of the appreciation because of the dilution by stock options. I dont gain while the company gains & appreciates, my gain is actually transfered to the execs exercising the options.

Employee stock options PRINT stock. They should be discontinued because they misrepresent the cost at the time of granting. If the Board of Directors feels that some suit is really worth a lot of money, either give him the right salary/bonus or give him actual stock by either a) treasury stock b) open market purchase. If these numbers were transparent, these corporate pigs would be making a fractions of what they are making now.

 

[nitro]

Quote from IV_Trader:

purity of earnings ---> the worst ever. Without forced money flow ( 401k) , DOW would be at 5k now.

That is a bit overdone. But 9600 is not. Patience, it may still go there...

nitro

 

[IV_Trader]

Quote from nitro:

That is a bit overdone. But 9600 is not. Patience, it may still go there...

nitro

to bring dividend yield and P/E ( true) to historical norms , both DOW and SPX prices should be cut by half. I know , sounds crazy but...

 

[nitro]

Quote from IV_Trader:

to bring dividend yield and P/E ( true) to historical norms , both DOW and SPX prices should be cut by half. I know , sounds crazy but...

"00:57 Wall Street warns of growing chances of US economic recession - TheBusinessOnline

TheBusinessOnline reports the likelihood of a US recession is increasing as the country's housing market grinds to a halt, according to a series of reports from top investment banks this weekend. There is now a 40% chance of a recession next year, according to the findings of Deutsche Bank's special recession forecasting model. The probability of an economic contraction over the next 12 months is put at 23% by Morgan Stanley's recession predictor. Torsten Slok, an economist at Deutsche Bank in New York, said: "Based on historical experience as captured in probit models, recent trends in the yield curve point to a 30% to 40% probability of a recession over the year ahead." Although Slok argues that his own model actually over-_predicts the risk of recession, he thinks the real probability is a still high 20%. The Deutsche Bank model uses the yield curve as a forward indicator of recessions, following an approach recently highlighted by research by the US Federal Reserve. "

I estimate the odds of a recession at closer to 40% at this juncture. But again, it may be one of these six month recessions. Still, 9600 target DOW is not out of question.

People talk about housing or oil as being the key reasons for the great chance of recession. I think it is pure and simple debt levels that is the straw that breaks the camels back, and I don't see how the FED can help by lowering interest rates at any juncture soon.

nitro

 

[IV_Trader]

Quote from nitro:

[B
People talk about housing or oil as being the key reasons for the great chance of recession. I think it is pure and simple debt levels that is the straw that breaks the camels back, and I don't see how the FED can help by lowering interest rates at any juncture soon.

nitro [/B]

of course its debit levels , but housing bubble is a part of it

 

[nitro]

Quote from IV_Trader:

of course its debit levels , but housing bubble is a part of it

Housing debt is manageable imo - it is 6%-7%. It is the huge credit card debt at 23%+ that can no longer be rolled into home equity that is going to be killer imo. And now that the liquidity of the housing market is drying up, there are going to be some nasty blowups. Since many are negative or at best breakeven when you take total debt levels and price appreciation on their assets, and when the asking price of their houses has no bid price demand, they will have to panic out to pay the debt.

The irresponsibility in amassing debt of the last few years is going to have to be paid back one way or the other....

nitro

 

[IV_Trader]

Quote from nitro:

Housing debt is manageable imo - it is 6%-7%. It is the huge credit card debt at 23%+ that can no longer be rolled into home equity that is going to be killer imo. And now that the liquidity of the housing market is drying up, there are going to be some nasty blowups. Since many are negative or at best breakeven when you take total debt levels and price appreciation on their assest, and when the asking price of their houses has no bid price demand, they will have to panic out to pay the debt.

The irresponsibility in amassing debt of the last few years is going to have to be paid back one way or the other....

nitro

agree. BTW , the future burst of real estate bubble could be the only hope for equities market ( again , money flow)