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A part blog, part story on the issues with the owner of the Anaheim Duck... Duck... Geese (Quackers). This is my first blog and I am not a writer, so be kind...rewind:
Some history to start this off, in a big bang the world was created…too far? Ok, fast forward a bit to the years between 1998 and 2003. While Clinton was getting impeached, Tiger was leaping onto the scene, and Murray was drafting the future Stanley Cup Winners, Broadcom officers were backdating employee stock options.
Pushin' Forward Back
Backdating of stock options is basically a way to overvalue your stock option. If say, on June 1st, I give myself a pat-on-the-back reward of a unit of stock in my company; unfortunately for me, my stock is currently worth a 52-week high of $100 (that's US dollars for you Canadians! J). Now, I know my company and I know that my stock won't be worth $100 for very long, so I decide to backdate my option for May 1st when the price was $50. Now, if I wanted to, I could sell it later that day and make a $50 profit without even having to lift a finger (except of course to click on the mouse). Or, if I hold on to the option and the price does drop, I still have a $50 buffer to live with. As stock holders if we bought the same stock on the same day, our stake in the company would be worth the $100 and we'd have to suffer the consequences when the price dropped below the $100 dollar mark. Basically, by backdating the stock options the company is creating money/capital out of nothing. This would be particularly bad if every single stock owner decided to sell. The stocks would be worth more than the company. The strange thing is, this is legal, as long as you report it.
Fields of Gold
In 1992, Henry Samueli and Henry Nicholas founded Broadcom, a supplier of intergraded circuits for broadband communications. In 1998 they went public with their company. In 2003, Broadcom executives announced they would have to adjust the company’s profits between '98 and '03 by 3/4s of a million dollars. By 2007, the figure had changed to 2.2 Billion Dollars. 2.2 BILLION DOLLARS! That is a nice little retirement fund. Granted, I don't think the executives backdated 2.2 billion in stock options for themselves. If this were the case, these executives would be locked up for years almost instantly. Most of it was probably used to finance the purchases of other companies or to retain or entice high level employees and other executives. Between 1998 and 2003, around 20 companies were purchased by Broadcom using stock transfers. The main benefit in pulling this scam is that you do not have to report this compensation to the shareholders. To put it in Hockey terms, if I want Alfie to remain long term with the Centaurs, I would need to pay him a lot of money. Unfortunately, if I pay Alfie a lot, I don't have much Cap space to pay others around him. So in order to appease the NHL, I pay him 2.2 million and then give him 8 million a year to clean my pool. The NHL doesn't care who cleans my pool nor do they care that I spent 8 million to do such. Alfie remains happy and I have a ton of extra cap space.
I Fought the Law
In 2008, Henry the First was served notice of a civil complaint by the SEC. To be fair, there is probably much to this story that I am omitting or editorializing, for I am not a journalist (but I did stay at a Holiday Inn Express last night). The crux of the Prosecutor’s case lies in the fact that Henry the First lied while under oath. In 2007, he stated that he was not involved in the actual granting process when in fact on two occasions he helped set the date. Monday, June 24, 2008 rolls around and Henry the First pleads Guilty to the counts levied against him. The next day the NHL suspends him from having any involvement with the team’s operations. Susan, his wife, issues a statement that she too will abide by the NHL's decision and have no further contact with the team. For the NHL, I can only assume, this is a nightmare. Having a team's owner, one year removed from the Stanley Cup, in trouble with the law for fraud is probably never a good time. Thank goodness for the NBA, or else this might have been an even worse situation. The plea deal consisted of a 12 million dollar fine and 5 years of probation. Now the 12 million dollars is not a small chunk of change, but the 5 years of probation to Henry the First is a joke! It would be about the same as if I told you that for the next 5 years, you are not allowed to go to Greenland. Henry the First is worth Millions of Dollars, has only committed this one crime, probably doesn't want to nor need to work another day in his life. The maximums for this crime would have been only $750,000 and on average 17 months in prison. Now, I'm going to assume that the 17 months of average jail time is for those that actually go to jail and not as an average for cases of this nature.
Baby What a Big Surprise
The Judge in the case mulled over the plea deal and on August 08, 2008 rejected it. The NHL front office would have loved to wake up on the 8th and read that the plea deal had been accepted. The Judge looked at the plea deal and decided that since the plea deal contained no jail time, made him illegible for any other counts that might be levied against him for activities related to the backdating of stock options and there would be no requirement for him to testify or give any information to prosecutors in the cases against the other executives. It appears as though the only plea deal the Judge is going to accept is one that involves jail time. If I were Henry the First I would try to get something like 6 months of house arrest to try and put this whole thing behind me. The odd thing is that Federal Sentencing guidelines indicates that for the crime committed (perjury) and the criminal history (none), Henry the First should only be given probation and a fine. I think the Judge is right in trying to make a big deal with Henry the First. He was the Director of the company while his executives scammed the stock holders. The other executives are looking at a life sentences if convicted on all counts. Although, I don’t think the prosecutors have a case against Henry the First. Otherwise, they probably would have charged him for more than just one count of perjury.
WHERE DO WE GO FROM HERE?
The NHL lawyers will probably be working overtime from now until September 29th, the date of the next hearing. Now, let us presume for a few moments that the prosecutors follow the Judge’s decree and Henry the First finds himself in jail for a year. Is this going to be a Problem for the Quackers or the NHL? Should this be a problem? How will having an owner in jail affect the Quacker organization? Is this something the NHL should even be concerned with? I would say yes. This will affect the hockey club, but I think only from the stand point of bad publicity. I would also have a sit down meeting with Henry the First in order to ensure that he knows that any attempt to, or any attempt by anyone within his organization to defraud the fans, players or the NHL will result in some sort of punishment. I don’t know if there is a huge story or not. Both Henry the First and his Wife, Susan, are very good in their community. They donate time, money, and energy in many philanthropic endeavors. Personally, I’m torn with this guy, I just do not know if he can be trusted. And in the end, that could be the worst thing for the NHL.
Some history to start this off, in a big bang the world was created…too far? Ok, fast forward a bit to the years between 1998 and 2003. While Clinton was getting impeached, Tiger was leaping onto the scene, and Murray was drafting the future Stanley Cup Winners, Broadcom officers were backdating employee stock options.
Pushin' Forward Back
Backdating of stock options is basically a way to overvalue your stock option. If say, on June 1st, I give myself a pat-on-the-back reward of a unit of stock in my company; unfortunately for me, my stock is currently worth a 52-week high of $100 (that's US dollars for you Canadians! J). Now, I know my company and I know that my stock won't be worth $100 for very long, so I decide to backdate my option for May 1st when the price was $50. Now, if I wanted to, I could sell it later that day and make a $50 profit without even having to lift a finger (except of course to click on the mouse). Or, if I hold on to the option and the price does drop, I still have a $50 buffer to live with. As stock holders if we bought the same stock on the same day, our stake in the company would be worth the $100 and we'd have to suffer the consequences when the price dropped below the $100 dollar mark. Basically, by backdating the stock options the company is creating money/capital out of nothing. This would be particularly bad if every single stock owner decided to sell. The stocks would be worth more than the company. The strange thing is, this is legal, as long as you report it.
Fields of Gold
In 1992, Henry Samueli and Henry Nicholas founded Broadcom, a supplier of intergraded circuits for broadband communications. In 1998 they went public with their company. In 2003, Broadcom executives announced they would have to adjust the company’s profits between '98 and '03 by 3/4s of a million dollars. By 2007, the figure had changed to 2.2 Billion Dollars. 2.2 BILLION DOLLARS! That is a nice little retirement fund. Granted, I don't think the executives backdated 2.2 billion in stock options for themselves. If this were the case, these executives would be locked up for years almost instantly. Most of it was probably used to finance the purchases of other companies or to retain or entice high level employees and other executives. Between 1998 and 2003, around 20 companies were purchased by Broadcom using stock transfers. The main benefit in pulling this scam is that you do not have to report this compensation to the shareholders. To put it in Hockey terms, if I want Alfie to remain long term with the Centaurs, I would need to pay him a lot of money. Unfortunately, if I pay Alfie a lot, I don't have much Cap space to pay others around him. So in order to appease the NHL, I pay him 2.2 million and then give him 8 million a year to clean my pool. The NHL doesn't care who cleans my pool nor do they care that I spent 8 million to do such. Alfie remains happy and I have a ton of extra cap space.
I Fought the Law
In 2008, Henry the First was served notice of a civil complaint by the SEC. To be fair, there is probably much to this story that I am omitting or editorializing, for I am not a journalist (but I did stay at a Holiday Inn Express last night). The crux of the Prosecutor’s case lies in the fact that Henry the First lied while under oath. In 2007, he stated that he was not involved in the actual granting process when in fact on two occasions he helped set the date. Monday, June 24, 2008 rolls around and Henry the First pleads Guilty to the counts levied against him. The next day the NHL suspends him from having any involvement with the team’s operations. Susan, his wife, issues a statement that she too will abide by the NHL's decision and have no further contact with the team. For the NHL, I can only assume, this is a nightmare. Having a team's owner, one year removed from the Stanley Cup, in trouble with the law for fraud is probably never a good time. Thank goodness for the NBA, or else this might have been an even worse situation. The plea deal consisted of a 12 million dollar fine and 5 years of probation. Now the 12 million dollars is not a small chunk of change, but the 5 years of probation to Henry the First is a joke! It would be about the same as if I told you that for the next 5 years, you are not allowed to go to Greenland. Henry the First is worth Millions of Dollars, has only committed this one crime, probably doesn't want to nor need to work another day in his life. The maximums for this crime would have been only $750,000 and on average 17 months in prison. Now, I'm going to assume that the 17 months of average jail time is for those that actually go to jail and not as an average for cases of this nature.
Baby What a Big Surprise
The Judge in the case mulled over the plea deal and on August 08, 2008 rejected it. The NHL front office would have loved to wake up on the 8th and read that the plea deal had been accepted. The Judge looked at the plea deal and decided that since the plea deal contained no jail time, made him illegible for any other counts that might be levied against him for activities related to the backdating of stock options and there would be no requirement for him to testify or give any information to prosecutors in the cases against the other executives. It appears as though the only plea deal the Judge is going to accept is one that involves jail time. If I were Henry the First I would try to get something like 6 months of house arrest to try and put this whole thing behind me. The odd thing is that Federal Sentencing guidelines indicates that for the crime committed (perjury) and the criminal history (none), Henry the First should only be given probation and a fine. I think the Judge is right in trying to make a big deal with Henry the First. He was the Director of the company while his executives scammed the stock holders. The other executives are looking at a life sentences if convicted on all counts. Although, I don’t think the prosecutors have a case against Henry the First. Otherwise, they probably would have charged him for more than just one count of perjury.
WHERE DO WE GO FROM HERE?
The NHL lawyers will probably be working overtime from now until September 29th, the date of the next hearing. Now, let us presume for a few moments that the prosecutors follow the Judge’s decree and Henry the First finds himself in jail for a year. Is this going to be a Problem for the Quackers or the NHL? Should this be a problem? How will having an owner in jail affect the Quacker organization? Is this something the NHL should even be concerned with? I would say yes. This will affect the hockey club, but I think only from the stand point of bad publicity. I would also have a sit down meeting with Henry the First in order to ensure that he knows that any attempt to, or any attempt by anyone within his organization to defraud the fans, players or the NHL will result in some sort of punishment. I don’t know if there is a huge story or not. Both Henry the First and his Wife, Susan, are very good in their community. They donate time, money, and energy in many philanthropic endeavors. Personally, I’m torn with this guy, I just do not know if he can be trusted. And in the end, that could be the worst thing for the NHL.
