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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Hawkmoon who wrote (5568)	2/17/2002 11:44:38 PM
From: John Pitera	Read Replies (2) \| Respond to of 33421

Hi Hawk, Bill Parish's site is very interesting. I've been looking at couple of his articles. I think we should be exploring this in greater detail. this is an interesting section of nov 1999 MSFT article. ----------------- billparish.com A Breakthrough With The Independent Editorial In October of 1998 a prominent British publication, the Independent newspaper, published a lead editorial, citing my study and concurring that Microsoft had erected a financial pyramid scheme in which employees were prepaying their own wages and the retirement system was being plundered. I can still remember the editor's voice who interviewed me and his startled realization that the study was credible. The study results and follow-up work were then sent to The Economist and several leading business publications here in the US, more than a dozen times, in addition to regularly calling once a month and leaving detailed messages. Another breakthrough could have occurred when CNBC scheduled a panel discussion on World Business Review with Caspar Weinberger yet the show was canceled due to the controversial nature of the content. The Economist Story Legitimizes My Study Bill Gates has publicly said that this is his favorite publication on finance and economics. It is also generally believed to be the leading such publication in the world. In an 8/7/99 cover story, The Economist noted that a proper accounting at Microsoft would result in a loss of $18 billion for 1998 rather than the reported earnings of $4.5 billion. If you are not an accountant, don't waste the time pretending you are, trust The Economist, the earnings are not real. Don't let yourself be intimidated or deceived by financial analysts, TV commentators, bullies on Internet forums or Microsoft's elaborate public relations campaign. Bill Gates trusts The Economist and you should too. Abbey Joseph Cohen and Rick Sherlund of Goldman Sachs have been sent this material numerous times over a 9 month period and neither has publicly divulged this situation. A link to the Economist article in available in the featured press releases at www.billparish.com. Do note, however, that the reference to Microsoft occurs well into the article. Microsoft's Response to The Study Microsoft's perspective is best reflected by Bob Herbold, Chief Operating Officer, to whom the CFO reports. Bob very sincerely replied, "Bill, everyone is doing it." My response was that Microsoft is a leader and that others are now seeking to emulate these fraudulent practices they have legitimized. Naturally Bob was not pleased by this perspective and that was our final conversation. A second informal response came when Microsoft asked PR Newswire to stop issuing my press releases. Microsoft is PR Newswire's largest client. Pam Edstrom, director of Microsoft's public relations, Steven Holley, lead outside counsel with Sullivan and Cromwell and Bob Herbold are regularly called prior to releasing any new information on the study yet they no longer respond to inquiries, which is disappointing. Although confident of the findings, it would be nice if they could issue a formal statement or response. A key legal point here is that they were all informed regularly over a several month period that their actions constituted fraud. This is important because in order to prove fraud you must demonstrate a willful intent to misrepresent the financial results. A critical mistake of Microsoft's was not paying adequate attention to the SAS auditing standards which have very strict disclosure requirements. Most investors have never heard of the Statement of Auditing Standards but it is adherence to these standards which has resulted in Certified Public Accountants being granted a monopoly over the ability to express an opinion on audited financial statements. Far too much emphasis has been placed on GAAP which are Generally Accepted Accounting Principles. Statements must indeed be prepared according to GAAP yet equally important is to conform to the SAS auditing rules. By issuing an unqualified opinion with no reference to key disclosure requirements due to the materiality (size in plain English) of several key issues, Deloitte is itself clearly guilty of financial fraud. An expanded discussion of this will follow in a later section...

To: Hawkmoon who wrote (5568)	2/17/2002 11:52:35 PM
From: John Pitera	Read Replies (2) \| Respond to of 33421

McCain Cosponsors Ending Double Standards for Stock Options Act. (Jorj, the "seasons are continuing to change' in front of our very eyes) mccain.senate.gov Washington, DC – U.S. Senator John McCain today made the following statement regarding the introduction of the Ending Double Standards for Stock Options Act: "Mr. President. I rise today to introduce legislation with Senators Levin, Fitzgerald, and Durbin, entitled Ending Double Standards for Stock Options Act. This legislation requires companies to treat stock options for employees as an expense for bookkeeping purposes if they want to claim this expense as a deduction for tax purposes. We introduced similar legislation in 1997 during the 105th Congress but unfortunately, the special interests with a vested stake in the status quo prevented this legislation from seeing the light of day. "Currently, corporations can hide these multimillion-dollar compensation plans from their stockholders or other investors because these plans are not counted as an expense when calculating company earnings. Even the Federal Accounting Standards Board [FASB] recognized that stock options should be treated as an expense for accounting purposes. Accounting disclosure rules issued by FASB require that companies include in their annual reports a footnote disclosing what the company's net earnings would have been if stock option plans were treated as an expense. "The latest scandals involving the collapse of Enron highlight the problem of misleading annual statements and financial statements. According to a recent analysis, from 1996 to 2000, Enron issued nearly $600 million in stock options, collecting tax deductions which allowed the corporation to severely reduce their payment in taxes. Whether or not Enron took advantage of current disclosure rules to hide their financial problems remains a question. The fact remains that current rules allow companies such as Enron to disclose as little as possible. And this prevents investors, Wall Street analysts, corporate executives, and auditors from properly understanding the bottom line of corporations. "One might reasonably ask how an arcane accounting rule could have such a large impact on the bottom line of corporations. The answer lies in the growth and value of stock options as a means of executive compensation. "We have heard the reports of executives making multimillion-dollar salaries, while average worker salaries stagnate or fall. According to one recent report, almost half of the earnings of the typical chief executive officer of a top company reflects stock options. Why shouldn't the value of this compensation package be included in calculating a company's earnings? How can stockowners evaluate the true value of employee compensation if the value is just buried in a footnote somewhere in the annual report? "No other type of compensation gets treated as an expense for tax purposes, without also being treated as an expense on the company books. This double standard is exactly the kind of inequitable corporate benefit that makes the American people irate and must be eliminated. If companies do not want to fully disclose on their books how much they are compensating their employees, then they should not be able to claim a tax benefit for it. "This legislation does not require a particular accounting treatment; the accounting decision is left to the company. This legislation simply requires companies to treat stock options the same way for both accounting and tax purposes. "I hope my colleagues will join us in cosponsoring this important legislation that will end the double standard for stock option compensation."