Sunday, November 20, 2005

Options have no cost ?

I have opined in the past that buybacks, especially in the tech/biotech sectors, are really a fraud inflicted on hapless investors. Given the constant dilution with unbelievable options grants, the buybacks are just a great way to transfer wealth to those who don't deserve it! Check an earlier post here.

The recent announcements of large/increased buybacks are no different. Some see it as a way to return money to the shareholders. I see it as a way for the insiders to sell on the pop that usually follows the buyback announcement.

The recent revelations at Mercury Interactive should be an eye-opener. It is unfortunate that the top executives are unlikely to see the insides of a prison. I do hope though that the SEC will start looking under more rocks. Options fraud definitely was/is more widespread than acknowledged. In fact, if the SEC starts looking close enough, Enron and Worldcom will start looking like misdemeanors.

Having just read an annual report of a technology company, I cannot but shake my head in disbelief at what goes on in these firms. It is daylight robbery, pure and simple. The one I read yesterday had the top 3 executives (each) taking home around $400K in salary, $300K in bonus and zillions of options, while at the same time claiming a cost savings of a few millions laying off 15% of staff. All along, the report has shareholder value strewn around. That is funny!

Where are the board members ? Given their advanced age and the fact that they seem to appear in dozens of boards, snapping up options for each position, is it any wonder they don't see what is going on in their own companies.

The tech industry's fight against options expensing was supposedly to ensure that the innovation engine keeps humming. I have a simpler excuse for the opposition - greed.

Options/bonuses also seem to be one-way streets. With all the restatements over the last years, one would have expected to see atleast a few boards ask executives to return their options/bonuses. Then again, it is an exclusive club filled with behavior that borders on incest.


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