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Old 06-26-2002, 12:24 AM
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Default my view on ceo corruption



to deny that there has been a lot of ceo corruption in publicly traded companies is foolish. pick up the wsj, watch cnbc, the nightly news, etc. and youll see that there are a lot of problems out there with ceos. lets talk about martha stewart first. ok you guys say its ridiculous that her company loses 20% in market value. why is it ridiculous when it looks like she is as guilty as sin? the amount of money involved is small to her but it goes to her ethics. if shes willing to break the law for small bucks, why should she have any problems scamming stock holders of her company for big bucks? she hasnt had her day in court so weell see. but if you guys cant see that investing in her company all of a sudden got riskier which means the price of the stock goes south i would have to say that you dont have a grasp on how detrimental these scandels are. did you guys see the news on WCOM tonight? a 4 billion dollar accounting error was found (im bein polite by sayin accountin error) and the CFO was fired. the company lost 70+% of its value in after hours trading today. WCOM also announced a layoff of 17,000 employees this evening which is 20% of their work force. WCOM also nixed plans to spend $2.1 billion on capital equipment. this thing is starting to hurt the economy and i think there is a lot of other shoes to drop. WCOM was fixin to get some sort of loan to keep them solvent for awhile but now that looks like its goin to fall through. here comes chapter 11 for WCOM. the ceo of WCOM quit a short time ago a very wealthy man. what investors are seein today is that a lot of these ceos got rich by shall we say bein less than candid with their stock holders. arthur anderson was the WCOM auditor when the error was made. guess who enrons auditor was? are we beginnin to see a pattern here.? Q is also in a world of hurt, their ceo was ousted last week as he became a very rich man. i'll give you one guess as to who Q's auditor was until the enron fiasco. during the late 90's how many ceos were spinning the rosiest of projections goin forward for their companies while they were sellin their stock like crazy. yeah i know its legal, in public domain, and also is probably ethical but what investors see is that the ceos got rich for runnin companies that quite frankly aint doin all theat well hey investors were stupid during the late 90s but it is my opinion that wall street and corporate management have to bare a lot of the responsibility. investors were gullible and greedy and they got taken for a ride. id bet a whole lot of money that WCOM isnt the last scandel were goin to read about. investors right now are vary wary and they are goin to have to be compensated appropriatly for taken on the risk of ownin stocks. theres been a major change in investor sentiment and that change is for the better i think. ive posted about it before so i wont repeat myself.
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Old 06-26-2002, 02:01 AM
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Default The other side of the coin



Oh how you have forgotten that CEO's and CFO's were sued and chased out of office for having LESS than rosy predictions back in the 90s. You can't have it both ways. To think WCOM really has a lot of bearing on the economy is crazy. The stock was already under a buck and everyone knew the only reason why it had any value was the hope that people would be foolish and buy up its parts for too much. It had no chance and this just sealed its fate. Agreed that this was ridiculous, I am heavily involved in these types of issues in my job and you don't "find" $4 billion misplaced in capex, that is just stupid. I personally think there is a lot more to this that you will never find out. There is no way in hell, I repeat, no way in hell they just "found" it. My guess is that they were playing on the edge with their capex/ordinary expense line, which all companies in this type of field will do. This business is all about investment for future revenue so it becomes a judgement call. Now that Ebbers was out, they had nobody fighting to keep the company afloat as it is. After all they have $8 in cash flow a year, they could sit on that and be fine if it weren't for the debt load. They come out and take anything that could possibly be construed as a "mistake" and take the hit for it. Creates a convenient mess that speeds up bankruptcy and gets it a good chance to wash its hands of a lot of worthless business. They will emerge with a solid core of cash generating business and zero debt. Its so obvious to anyone with a clue. The CFO was going to go anyways, he makes an easy scapegoat too. Only repercussion that could come out of it is that all telcom is going to get taken into the fire now. EVERY TELCOM COMPANY HAS ISSUES LIKE THIS!


Simple way to think about it. Lets say you own a toll road. Well you go out and build a new stretch of toll road. This is a 6-lane road that looks foolish for now because no one lives out there. You get almost no tolls. However you build it because you know three homebuilders want to build 15,000 homes at the end of your road. Here comes the situation at hand. You can expense this road, saying well we are going to earn SOME revenue right now, but not very much. Or you capitalize it and say we are really building this road for 5 years from now and the road is a long-term investment that we should write off over say 25 years. This is what telcom does. They make investments in wiring and networks that have vast future potential, but minor short-term potential. They could be considered either capital or ordinary expenses, but there is so much leeway in the rules as to what has to be one or the other type of expense that there are many situations you could argue for either one. For earnings perspective, capital is the far superior choice, you only take a small charge right now. However, the investor doesn't seem to realize that it makes no difference. You can take your hit now or later. If investors weren't so short-sighted they would realize that whether WCOM reached "EPS" from its investment now or in 3 years, it makes no difference, the cash generated by their vast investments will be EXACTLY the same! I am think they were maybe a bit agressive and called it all capital in the past when maybe a portion of it could be considered ordinary expense. Now they are saying we really want to go into bankruptcy and this is the easiest way to do it by saying we fraudulently called it capex, we don't want to pay our debts anymore and don't care about our shareholders since their stock is worthless anyways. Its a nice clean sweep. You have new management opportunities then as the old generation of managers are gone and already got their money. Funniest thing will be all the shareholder lawsuits coming out. Who are they going to sue? Who has money to give them now? They don't have an auditor to go after, they can't get at management cause they are all gone, they can't blame anyone but themselves really. They took a chance on a company that clearly had risk in their tons of debt and competitive market and they lost. Its time for these people to wake up. That is the nature of the market, you take risk whenever you buy a publicly traded company. You can claim Ebbers and Co defrauded you all you want, but I don't buy it. You made him do it with your demands for earnings. If he didn't get agressive with his accounting and try to gain a big share of the telcom market through big investments serviced by high-yield debt back when it was hot you wouldn't have invested and you would have abandoned him in Mississippi long ago. This one is all on the greed of the shareholders I am afraid. The numbers were all there for you, plain as could be. Maybe you got tricked by the analysts, small excuse, but people have to stop blaming others for their investment losses. This is a good example of it. There weren't any real phantom losses, the earnings would have paid for it down the road. I know a lot of people will disagree with me on this and maybe something else comes out of it in the future, but from the info I see now and the mindset of the investors of the late 90s, this is a great case to restate the obvious: STOCKS CAN BE RISKY...
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Old 06-29-2002, 08:43 AM
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Default Re: The other side of the coin



"Oh how you have forgotten that CEO's and CFO's were sued and chased out of office for having LESS than rosy predictions back in the 90s."


indicates a big problem with the current wall street modus operandi. got to march to the wall street drummer.


"You can't have it both ways."


want some semblance of honesty not cheeleading.


"To think WCOM really has a lot of bearing on the economy is crazy."


mi amigo what troubles me is how many more are goin to come to light.


"The stock was already under a buck and everyone knew the only reason why it had any value was the hope that people would be foolish and buy up its parts for too much."


agree with you. actually it had just fallen to under a buck again. it fell to under and then traded above in the hope that some financing would come thru. my opinion is that ignorant speculators were just doin that speculatin. i went on message boards and warned company had no equity value but people do what they are goin to do.


" I am heavily involved in these types of issues in my job and you don't "find" $4 billion misplaced in capex, that is just stupid. I personally think there is a lot more to this that you will never find out. There is no way in hell, I repeat, no way in hell they just "found" it. My guess is that they were playing on the edge with their capex/ordinary expense line, which all companies in this type of field will do."


good points seems to indicate orchestrated fraud to me. i dont think WCOM is the only company that is guilty of a scam like this.


"This business is all about investment for future revenue so it becomes a judgement call."


when company "cooks the books" hard to make good judgement call.


"That is the nature of the market, you take risk whenever you buy a publicly traded company. You can claim Ebbers and Co defrauded you all you want, but I don't buy it. You made him do it with your demands for earnings."


agree with you somewhat however fraud is wrong and should be punished. if an investor buys a companies stock or bonds he should at least be confident that the "books aren't cooked" dont you agree? if not how can an investor make a reasoned assessment. in another post at a some later date ill mention why i think much of the nineties stock market runnup was a ponzi scheme.


"Now that Ebbers was out, they had nobody fighting to keep the company afloat as it is."


and maintain the EBITDA fraud.


"After all they have $8 in cash flow a year, they could sit on that and be fine if it weren't for the debt load."


debt load incurred based on reported EBITDA (i know the lenders are as crazy as the people theyre lending too) and EBITDA based on fraudulent activities. not good.


" They come out and take anything that could possibly be construed as a "mistake" and take the hit for it. Creates a convenient mess that speeds up bankruptcy and gets it a good chance to wash its hands of a lot of worthless business."


ah but look at all the bond holders that are takin a big hit. good article in fridays wall street journal about the bond holders. massive losses there.


"They will emerge with a solid core of cash generating business and zero debt. Its so obvious to anyone with a clue."


issue is though banks lent them money and people bought their bonds based on "cooked books" as the wall street journal pointed out the potential liability of the investment bankers in issuing the bonds.


"The CFO was going to go anyways, he makes an easy scapegoat too. Only repercussion that could come out of it is that all telcom is going to get taken into the fire now. EVERY TELCOM COMPANY HAS ISSUES LIKE THIS!"


cost of capital goes way up and many seem to be over leveraged right now.


"Simple way to think about it. Lets say you own a toll road. Well you go out and build a new stretch of toll road. This is a 6-lane road that looks foolish for now because no one lives out there. You get almost no tolls. However you build it because you know three homebuilders want to build 15,000 homes at the end of your road. Here comes the situation at hand. You can expense this road, saying well we are going to earn SOME revenue right now, but not very much. Or you capitalize it and say we are really building this road for 5 years from now and the road is a long-term investment that we should write off over say 25 years. This is what telcom does. They make investments in wiring and networks that have vast future potential, but minor short-term potential. They could be considered either capital or ordinary expenses, but there is so much leeway in the rules as to what has to be one or the other type of expense that there are many situations you could argue for either one. For earnings perspective, capital is the far superior choice, you only take a small charge right now. However, the investor doesn't seem to realize that it makes no difference. You can take your hit now or later."


right but loans were based on phoney EBITDA. another issue with telecom is over capacity in wiring and networks. i think it all ties in to the dot com scam perpetrated by wall street.


"If he didn't get agressive with his accounting and try to gain a big share of the telcom market through big investments serviced by high-yield debt back when it was hot you wouldn't have invested and you would have abandoned him in Mississippi long ago."


i hope you mean "you" in generic sense. ive never owned WCOM stock or bonds. its all part of the problem with how wall street is in control of publicly traded companies. more on that at a later time.


"This one is all on the greed of the shareholders I am afraid. The numbers were all there for you, plain as could be. Maybe you got tricked by the analysts, small excuse, but people have to stop blaming others for their investment losses. This is a good example of it."


i agree but fraud is wrong and should be punished. investors do have a legitmate beef about "cooking books" i think.


"There weren't any real phantom losses, the earnings would have paid for it down the road."


not sure about that but its part of the risk your bare.


" I know a lot of people will disagree with me on this and maybe something else comes out of it in the future, but from the info I see now and the mindset of the investors of the late 90s, this is a great case to restate the obvious: STOCKS CAN BE RISKY..."


i agree. i find investing to be about getting compensated at a bare minimum adequately for taking on the risk. people came to think that stock market returns were always positive. theyve found out they were wrong and continue to do do. thank you for your cogent thoughts.


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Old 06-29-2002, 03:07 PM
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Default Re: The other side of the coin



I agree with your points too, but the bondholders...that is another issue. The bonds were issued well before any fraud has been proven. The fraud all seems to be in the last couple of years where they came up with a supposed plan to emerge from trouble and it included hitting certain targets. To reach those targets, the expenses were switched. Yes it is fraud and should be punished, but don't simply overlook that fact that this type of fraud really shouldn't make any difference to a true long-term investor. Fact is the company was in big trouble anyways and would have gone bankrupt before this date. Their free cash flow, the number all serious long-term analysis must be done on, hasn't changed one bit. The expenses were going to come sooner or later. In this case they are set up for later. Its a vast difference from what most of the other companies are charged with, such as making up revenues through trades or structuring real losses so they aren't seen. If you do the math on FCF, unless the capex was hidden from everyone, and word is that it wasn't, then you could easy see that despite claims of earnings the cash situation was getting worst. Critical analysts have been saying this for a long time. EBITDA meant nothing here because everyone has known that its $30 billion in debt that can get you in trouble no matter how nice your EBITDA is. Obviously it was further hindered by the fact that the "DA" part was going to be sky high in future years, but not current ones. I am not in any way saying people shouldn't get punished nor companies shouldn't be scrutinized for this. You put your name on your financials saying they are a fair reflection and when you do what they did they clearly are not. However I am saying for those that invested and want to raise a big stink, you fell for the sales pitch just like in that Schwab commercial "lets dress up this pig, because the financials stink". Problem is that every company has some financial issues that are less than becoming. Either its a future growth issue, some liability, some debts, etc. Most aren't to the degree this company had. Hence the low stock price and the fact most should have known better than to buy it because it was cheap and might have gotten financing. With the tons of customers they have and the fact that their network is already pretty much built out, this is a company that could do just fine if they get out of the bond mess. Bondholders are greedy too, they are going to force the hand of the company in many respects hoping to get money now. Problem is that if they just waited a year or two and allowed the business to settle in, the fire sale wouldn't be necessary and their assets would fetch a lot more money and the cash flow of the company could pay off a lot more of the bonds. Such is the nature of forced bankruptcy.
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