All Things Digital

Good thing Google seems to be backing away from its informal motto, “Don’t Be Evil.” Otherwise, news that Google board member and former Pixar CFO Ann Mather is facing civil action from the Securities and Exchange Commission for her alleged role in a stock-options backdating scandal at the animation studio would be, you know, totally ironic.

In a regulatory filing yesterday, Google (GOOG) said that Mather was notified last Wednesday that the SEC planned to recommend civil proceedings against her. That recommendation, Google was quick to stress, arises out of her prior employment at Pixar. If Mather, who has served as a member of the Google board of directors since November 2005, approved the improper dating of stock-option grants, she didn’t do it under the search sovereign’s aegis. That said, Google doesn’t seem to think she was involved at all. Said Google CEO Eric Schmidt, “We have the utmost confidence in Ann’s integrity, as well as her abilities as a director, and we continue to support Ann’s re-election to our board of directors.”

That’s a persuasive vote of confidence. Still, the SEC presumably has some reason for recommending civil action against Mather. And Disney (DIS), though it cleared former Pixar CEO Steve Jobs and anyone else “currently associated with Disney” of wrongdoing in connection with the options backdating that occurred at the company, never did offer an explanation of how the backdating came to pass. Perhaps one will be forthcoming from the SEC.

Mounting shareholder discontent over Yahoo’s response to Microsoft’s $44.6 billion takeover bid has inspired a legal pig-pile on the Internet company. In an annual report filed yesterday with the U.S. Securities and Exchange Commission, Yahoo (YHOO) said the company has been named in seven shareholder lawsuits claiming it has mishandled its response to Microsoft’s (MSFT) offer. What an annoyance that must be, but not nearly as annoying as the offer that inspired it, which Yahoo memorializes in a section of the report entitled simply,

“Microsoft’s unsolicited acquisition proposal has created a distraction for our management and uncertainty that may adversely affect our business.”

“The review and consideration of the Microsoft proposal (and any alternate proposals that may be made by other parties) have been, and may continue to be, a significant distraction for our management and employees and have required, and may continue to require, the expenditure of significant time and resources by us,” the company wrote in its report. “Microsoft’s unsolicited acquisition proposal has also created uncertainty for our employees and this uncertainty may adversely affect our ability to retain key employees and to hire new talent. Microsoft’s unsolicited acquisition proposal may also create uncertainty for current and potential publishers, advertisers and other business partners, which may cause them to terminate, or not to renew or enter into, arrangements with us.”

The company goes on to note that its stock price, which has been “volatile historically” (Oh, reaaaaally?) may continue to be volatile regardless of its operating performance. And this too will be Microsoft’s fault. “We further believe that, as a result of Microsoft’s unsolicited acquisition proposal, and speculation concerning a potential acquisition, the future trading price of our common stock is likely to be volatile and could be subject to wide price fluctuations,” the company said. “There can be no assurance whether a transaction will occur or at what price. If a transaction does not occur, or the market perceives a transaction as unlikely to happen, our stock price may decline.”

Some people have been critical of Skype, but I am very proud of the company’s growth. Very few companies can claim to match the growth trajectory Skype is on and continues to be on.”

Skype co-founder Niklas ‘NZennström’

It’s taken two years longer than it should have, but skepticism with which investors met eBay’s $2.6 billion-plus purchase of Skype in October 2005 has finally made its way up to eBay management.

This morning the Internet auction giant said it was taking a $1.43 billion charge for its acquisition of the Internet telephone provider and that Niklas Zennström, a co-founder of Skype, was stepping down as chief executive of the division. The charge announced today reflects the “updated long-term financial outlook for Skype,” eBay said in a filing with the Securities and Exchange Commission.

Though Skype’s membership and revenues have grown since the acquisition, it has fallen far short of Wall Street’s general expectations for it. And try as it might, eBay just hasn’t been able to figure out a way to make the sort of money it needs from the company to justify that astonishing $2.6 billion purchase price. Said Derek Brown, an analyst at Cantor Fitzgerald, “It has seemed relatively clear that Skype has underperformed even modest expectations for the last two years.”

Silicon Alley Insider’s Henry Blodget agrees. “The Skype acquisition never made sense strategically, and one reason Skype has struggled, we think, is that it is just a distraction to eBay (which needs desperately to focus on its core commerce business),” Blodget writes. “eBay should immediately sell what’s left of Skype to Yahoo, Microsoft, or Google, all companies that offer portfolios of communications services that Skype might actually benefit from being a part of. Skype is rapidly surrendering its early dominance of soft-phone VOIP to other more focused competitors, and if it stays within the eBay fold, we think further write-downs will be in the offing. Skype was a $2 billion to $4 billion eBay Hail-Mary pass, and it just officially fell incomplete.”

The Securities and Exchange Commission has subpoenaed Apple CEO Steve Jobs in connection with a backdating lawsuit against former Apple General Counsel Nancy Heinen. Seems the SEC wants Jobs to testify against Heinen, whom it sued in late April for allegedly backdating stock-option grants to Jobs and other Apple execs.

And that puts Jobs in an uncomfortable position. Because while Apple has cleared him of any wrongdoing, former Apple CFO Fred “It was you, Fredo” Anderson did try to implicate him in the scandal (Post continues after video … ).

Though Apple dismissed Anderson’s accusations as the ravings of a madman, they’re still not the sort of thing you want hanging over you when you’re testifying before an SEC panel. Because though the agency has said it will take no action against Apple, it hasn’t ruled out continued scrutiny of Jobs.

Dell must have appreciated the lackluster financial quarters it had under former chief executive Kevin Rollins a lot more than it let on, because it gave him a hell of a parting gift. In a filing yesterday with the Securities and Exchange Commission, Dell said it will pay Rollins $48.5 million for his now-expired stock options. This just six months after he was shown the door in the wake of a string of losses and an intensifying SEC investigation into the company’s financial practices.

Not bad for Rollins, who already pocketed $5 million in severance when he left Dell.

The hammer has finally fallen on Greg “it’s not illegal if you don’t get caught” Reyes. Yesterday afternoon, a jury found the former Brocade Communications Systems CEO (and consultant) guilty on ten felony counts of securities fraud in the nation’s first criminal trial over the backdating of stock options.

Reyes was charged last year with “routinely backdating stock options grants to give employees favorably priced options without recording necessary compensation expenses. From 2000 through 2004, prosecutors claimed, Reyes “used the virtually unchecked authority given to him to grant ‘in the money’ options to employees by falsifying in the options documentation the date on which the grants were made and thereby granting the options with below-market strike prices.” In doing so, they argued, he defrauded Brocade shareholders and violated generally acceptable accounting rules.

And it seems the jury called to hear the case agreed. Apparently, it too found the low-priced grants Reye’s made in committee-of-one “meetings with himself” a little bit more than suspicious.

Reyes could face a decade or more in prison for his misdeeds, which should put the fear of God into the dozens of other corporate executives who are under investigation by the Justice Department and the Securities and Exchange Commission in connection with backdated options. “This is a pretty big win for the government,” former federal prosecutor Peter Henning told Bloomberg. “It may well encourage more cases or push some investigations forward.”