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A sampling of famous and not-so-famous tech execs who ran afoul of the law
Rising to the top in the fast paced technology industry requires brains, daring, ego, desire, commitment, pride, thinking outside the box – traits that can lead to success in all kinds of business. Unfortunately some execs stray into funny business and get caught, resulting in high-profile trials and often long prison sentences. Here’s a smattering of some of the cases that made headlines where tech CEOs got caught engaging in extra-legal activities ranging from fraud to shooting buffalo and paid for it, sometimes at the expense of their companies.
Bernie Ebbers, Worldcom
The poster boy for felonious audacity and the architect of high-flying Worldcom’s descent into bankruptcy, Bernie Ebbers is serving 25 years in federal prison in Louisiana. He was found guilty in 2005 of securities fraud, conspiracy and filing false documents with regulators. Essentially he cooked the books at telecom giant Worldcom, overestimating revenues by about $5 billion over seven quarters. Known as the Telecom Cowboy for his wearing of jeans and cowboy boots to work, the former motel-chain owner had a flair that followed him all the way to the jailhouse door; he drove himself to prison in his Mercedes.
Sanjay Kumar, Computer Associates
Sanjay Kumar pleaded guilty to accounting fraud committed while CEO of Computer Associates (now CA). Fraudulent practices included the 35-day month, in which income in one quarter is supplemented with revenue from the next in order to meet Wall Street expectations. The practice resulted in a $2.2 billion fraud case that damaged the company and won Kumar a 12-year sentence to federal prison in New Jersey. Once there he started pointing fingers at others within the company, but no charges resulted.
Joe Nacchio, Qwest
Insider trading was what tripped up Qwest CEO Joe Nacchio who was found guilty of using information he gleaned from his position in order to sell $52 million in stocks at an advantageous price. He told Wall Street that the telecom provider would meet its revenue goals, based in part on his belief the company was in line to land some hefty federal contracts. In 2007, he started serving a 70-month federal jail term in Pennsylvania. He fought for and won a retrial, was reconvicted and once he was in jail, sued his lawyer for allegedly over charging him for his defense. He says the bill was more than $25 million.
John Rigas, Adelphia
Hiding a whopping $2.3 billion in debt isn’t easy as John Rigas found out when he tried to do just that for Adelphia, his family-owned cable business that was starting to make a name for itself as a telecom carrier when he was charged in 2002 with felony fraud and conspiracy. Not only was he found guilty, but so was his son, Timothy, who served as the company’s CFO. The father got 15 years; the son, 20. The elder Rigas was 80 when he started serving his term in a North Carolina federal prison, and a federal judge cut three years off the term. Adelphia went bankrupt.
Gregory Reyes, Brocade
The practice of backdating stock options for financial gain is not necessarily illegal, but in the case of Brocade’s then CEO Gregory Reyes, a jury found otherwise – twice. Backdating is advantageous if it makes the price employees pay for the stock less than the current price, generating an instant profit boost for the employees. Reyes insisted throughout that he didn’t know the finance department at Brocade was engaged in the practice. In 2007 he was convicted at a second trial, served 18 months in a California prison and was released last December. After his release, he asked the U.S. Supreme Court to review his case, but it turned him down.
Paul Johnston, Entellium
Intuit offered $100 million to buy CRM software startup Entellium , but CEO Paul Johnston turned it down, perhaps because the company’s books couldn’t withstand the scrutiny of a due-diligence audit, according to the prosecutor in the case. Johnston pleaded guilty in 2009 and was sentenced to three years in a California federal prison for falsifying revenue figures to attract $50 million in investments. At his sentencing, he admitted his guilt, apologized to those he bilked and said he’d been driven by a fear of failure. He’s served his time and been deported. Entellium declared bankruptcy and Intuit bought some of its assets at a bargain price.
Frances Flood, ClearOne Communications
The revenues being generated by ClearOne Communications under the leadership of Frances Flood seemed too good to be true, and apparently they were. She was convicted of inflating revenue figures by shipping products with the stipulation that retailers didn’t have to pay until they sold them but booking them as sales anyway, a practice known as channel stuffing. That helped the audio and video conferencing company appear to meet revenue targets, at least for a while. Flood was charged with fraud and keeping false books in 2003, quite a comedown from the year before when Forbes named the company one of the top 100 publicly traded small companies. She was sentenced to four years in 2009.
Michael Peppel, MCSi (Miami Computer Supply)
Michael Peppel might not have been caught save for the investigation into the previous CEO in this slideshow, Frances Flood. A set of sham transactions between his company, MCSi, and her company, ClearOne Communications, caught the eye of prosecutors, and resulted in charges being filed against him as well. He pleaded guilty to willful false certification of a financial report by a corporate officer; money laundering and conspiracy to commit securities fraud. He could have been sentenced to 50 years in prison. Instead he was sentenced to seven days. He was also fined $5 million, with a payment plan of $3,000 per month, which means it will take 138 years to pay it off. Federal prosecutors just last month filed to have Peppel resentenced.
Jeff Hawn, Attachmate
When 32 bison, some of them pregnant, wandered onto Jeff Hawn’s Colorado ranch in 2008, he took action by hiring hunters to kill the intruders. Actually, the then-CEO of Attachmate gave the hunters the option to remove them live if they wanted to, but they chose to hunt, and apparently weren’t very good shots. Some of the carcasses had eight bullets in them when they were left to rot on the range. "What I find really disturbing is that these animals definitely suffered," the judge said at Hawn’s sentencing, according to a report in the Denver Post. The judge sentenced him to 10 days in Colorado’s Park County Jail.
Jeremy Blackburn, Canopy Financial
Canopy Financial was a software firm that sold platforms for healthcare savings, spending and reimbursements, but the company’s founder Jeremy Blackburn admitted misappropriating $18 million from customer accounts and fraudulently obtaining $75 million from investors. He and others at the company used a bogus auditor’s report and falsified bank statements. With the cash he bought two 2010 Range Rover SUVs, a 2009 Bentley, a 2008 Lamborghini, a 2010 Lamborghini, a 2009 Rolls Royce Phantom, a 2009 Aston Martin DBS, a 2009 Bentley Continental and a 2009 Ferrari 430. On Feb. 12 of this year Blackburn was sentenced to 15 years in prison. On March 19, the day before he was supposed to start serving his term, he was found dead in a car.