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Archive for the ‘Technology and Microsoft’ Category

Estate Tax and Tax Equity: Bill Gates Sr. Battles Son Bill Gates Jr. as Grover Norquist and Warren Buffett Weigh In

Posted in Federal Reserve and SEC, News Analysis, Politics, Technology and Microsoft, World News, tagged , , , , , , , , on October 29, 2008 |

One century ago Republican Theodore Roosevelt was elected president and instituted sweeping changes in government, including the establishment of an estate tax and the national park system.  What followed was an economic boom that lasted for years. Roosevelt knew the importance of circulating wealth in order to revitalize the economy by investing in key infrastructure, including the public education system.

Today fierce battle lines are drawn over whether or not the estate tax should be repealed.  On one side are Bill Gates Jr., Grover Norquist and the Wall Mart heirs and on the other side are Bill Gates Sr. and Chuck Collins.  This is certainly not a case of “like father like son.”

While Bill Gates Sr. has co-penned a book with Chuck Collins calling for increased exemptions but not abolishment of the estate tax, Bill Gates Jr. has been the prime funder of Grover Norquist as Norquist tours the country relentlessly advocating a complete repeal of the tax.  Like Bill Gates Sr., I believe the exemption should be raised to $5 million yet do not support a repeal.

I met Grover Norquist, the nation’s most ardent anti-tax advocate, here in Portland some years ago and was amazed at his persuasive skills, and also his ability to bend facts. When I asked Norquist what he would think if I told him Microsoft made more than $10 billion in one year without paying a penny of federal income tax he replied, good for them.

Norquist seems oblivious to the growing acknowledgment that tax equity or fairness is essential to healthy capitalism.  Even the Howard Jarvis tax institute, founded by his mentor, publicly stated that there were serious fairness issues related to Microsoft’s scheme.

Also participating in the debate is Warren Buffet, who like Bill Gates Sr. opposes any repeal of the estate tax, saying:

“We have come closer to a true meritocracy than anywhere else
around the world.  You have mobility so people with talents can be
put to the best use.  Without the estate tax, you in effect will have
an aristocracy of wealth, which means you pass down the ability to
command the resources of the nation based on heredity rather than merit.”                                                     [NYT, 2/14/01]

But Warren Buffet, like the younger Gates, has also been able to sell vast holdings within the structure of his foundation, thereby avoiding all taxes.  The Bill and Melinda Gates Foundation has sold all of its Microsoft shares, not even keeping 10% out of loyalty to the company’s employees.  Of course not a penny of tax was paid on any of these sales and today the Gates Foundation aggressively invests in activities ranging from private equity to currency speculations with all gains completely shielded from any tax consequence.

One simple reform to the system would be to allow tax exempt income status to foundations and endowments only for that portion of their investments invested in US government securities.  All other investments would be taxed at normal capital gain rates.  Perhaps this would help to stabilize the markets and eliminate the excessive risk-taking and speculation many of these tax exempt entities are engaged in, knowing they would have no tax liability on gains.

As the policy debates rage on regarding changes to the tax law, let’s hope that overall fairness has a strong seat at the table, whatever the outcome.

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Hedge Funds, Buffett, Gates and Murdoch Take Down Eliot Spitzer

Posted in Federal Reserve and SEC, News Analysis, Politics, Technology and Microsoft, Uncategorized on March 12, 2008 |

Today Eliot Spitzer announced his resignation as Governor and perhaps the two most ironic twists are his ill fated pilgrimage to the “Mayflower Hotel” and the name he used to check in, George Fox. George Fox, a hedge fund manager, is his close friend. Clearly Fox and the moral ethical desert embodied by hedge funds was a key driver in Spitzer’s demise. With friends like that, who needs adverseries.

Perhaps even greater than the shame Spitzer should feel is that of the traders at the NYSE that cheered his demise. As if these traders had no regard for Spitzer’s accomplishments and recognition of how many pensions were lost due to their blatantly illegal and criminal activities. They seem instead anxious to return to robbing investors with impunity.

What you won’t read in the press is the fact that Spitzer’s three greatest adversaries were Warren Buffett, Bill Gates and Rupert Murdoch, for reasons detailed below:

buffett gates and murdoch

Recently four of Buffett’s top executives, including the CEO and CFO, in his most important company, General RE Insurance, were convicted of fraud regarding transactions with AIG, as reported in CFO Magazine. They all face significant fines and long prison terms. During the trial is was made clear that Buffett was completely aware of these transactions yet he was never called to testify, nor charged.

It was Spitzer who took down the AIG CEO Greenburg, who was instrumental in blocking most key accounting reforms, using Conneticut Senator Joe Lieberman as his main political tool. Lieberman even stood up in the Senate on one occasion and threatened to defund the Securities and Exchange Commission if it pursued rules that would have prevented Enron like accounting.

Spitzer also took on Microsoft head on and this anti-trust case was the biggest since Standard Oil in the 1920′s. As noted here, Spitzer led the effort of 19 states in its effort against Microsoft’s abusive practices.

Another key Spitzer adversary was Rupert Murdoch, who now owns the Wall Street Journal, Fox News and various other media outlets. Spitzer exposed corruption in the recording industry, the famous “payola” scandal, which significantly impacted Murdoch’s businesses. Murdoch can now be sure that a lot less attention with respect to media consolidation will occur with Spitzer out of the picture. Murdoch has so little credibility that the owners of the Dow Jones Company even made a proposal to Gazprom, the Russian state energy company, in the hope they would buy it, rather than Murdoch.   Ironically, most Americans don’t know or care much about these vital media interests being owned one such as Rupert Murdoch.

Just prior to Spitzer’s resignation I put a 6 minute video on youtube with my take on why he should not resign. It can be accessed by searching at youtube.com under the words bill parish spitzer.

YOU TUBE VIDEO SEARCH TERMS: bill parish spitzer

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Arthur Levitt Issues Pension Warning, SEC, RiskMetrics, ISS, Gates Foundation

Posted in Federal Reserve and SEC, Merger Review, News Analysis, Politics, Technology and Microsoft on November 1, 2007 |

On October 31, 2007 the NY Times wrote a story on former SEC Chair Levitt’s public pension concerns yet decided to not include the single most important fact, that being that Levitt is on the board of directors of RiskMetrics, a firm which creates derivative products for hedge funds and is now attempting an IPO. RiskMetrics is the firm that purchased Institutional Shareholder Services, the nations largest proxy firm, earlier in the year and is in violation of one of the SEC’s most important rules with respect to proxy firms, that is, it has not fully disclosed its ownership structure. A search on ISS at this blog will show related blog posts and it relationship to hedge funds, what some call private equity, and the creation of controversial derivative products that have destabilized the financial industry.

Parish & Company has been the leader in identifying key corporate governance issues with respect to public pensions and simple needed reforms, including a review of the accounting related to tax benefits by hedge funds and private equity firms, whose largest source of funds is now public pensions.

A key question is, since public pensions are tax exempt, are hedge funds booking accounting entries to take advantage of tax benefits left on the table since public pensions are tax exempt? Clearly, it is time for the IRS to challenge the tax exempt status of some large tax exempt entities by requiring them to provide details on such investments in order to verify such deductions are not being used by hedge fund general partners.

A good place to begin would be the Gates foundation. When Bill Gates Sr. told me a couple of years ago that his foundation did not own a single share of Microsoft stock, I was simply stunned. One would think that since the foundation was made on the stock that at least a nominal percent of assets, i.e. 5 percent, would be retained.

I have great respect for Levitt yet sure do wish the NY Times would end its long standing practice of pandering to their major advertisers, i.e. investment firms, and do the complete story. Here are a few excerpts from the story:

” As New York State comptroller, his father “saved the retirements” of countless workers, Arthur Levitt Jr. said in a speech yesterday — but he added that now those pensions, along with those of millions of other Americans, are again at risk.

Arthur Levitt Jr. is an adviser to the Carlyle Group.

In remarks to pension officials from New York and several other states, Mr. Levitt, the longest-serving chairman of the Securities and Exchange Commission, said their world was fraught with problems, including conflicts of interest, opaque accounting and a tendency among elected officials to promise valuable benefits, then fail to set aside enough money to pay for them.

“We can’t begin to improve the fiscal standing of public pension funds until we can accurately assess their financial health,” he said.

He blamed a rule-making framework that allows softer accounting standards for governments than for corporations, and called for the repeal of the Tower Amendment, a 30-year-old law that limits the S.E.C.’s authority to police governmental accounting. The current S.E.C. chairman, Christopher Cox, has also expressed doubts about the Tower Amendment’s continuing usefulness but has not called outright for its repeal.

He expressed great concern over the practice of some pension officials of soliciting campaign contributions from Wall Street firms. “We have created a situation where workers’ retirement savings are being used for private gain,” he said.

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Oregon PERS:More Funds to Robert Bass and Nike’s Phil Knight

Posted in Oregon-PERS, Politics, Technology and Microsoft on October 31, 2007 |

Today the Oregon Investment Council (OIC) had its October 2007 monthly meeting and made additional committments to private equity, including $325 million to Oak Hill Partners on top of its original $100 million investment made to a partnership in which Robert Bass and Phil Knight are general partners. State Treasurer Randall Edwards, whose wife Julia Brim Edwards is a public communications director at Nike, was not at the meeting and therefore did not vote.

Pictured below is J Randall of Oakhill Partners making his proposal to Ron Schmidt, PERS Chief Investment Officer on left seated next to legal counsel.

oicoakhillfarrell.jpg

Robert Bass right hand man and managing partner, J. Crandall, made the proposal. Crandall noted that his “first LBO was in 1978 and added that its 39 partners were investing a combined $100 million in the new $4 billion fund. He went on to add that this is not simply “recycling fees” but a real committment on the part of partners. Whatever the case, this amount is a fraction of the fees they are earning.

What makes us unique is our focus on “organic growth,” said Crandall, highlighting they they only leverage up firms they buy 3.5 times while the industry average is 5. As if that were not highly leveraged. He added, and so that’s our “secret sauce.” I almost burst out laughing in that it seems that since I started using this expression, secret sauce, to describe their use of NOL’s, they have turned its meaning around.

In attendance at the meeting was the council’s newest member, Keith Larson. Larson works for Intel Capital and when the council approved $75 million for a technology venture fund, Technology Crossover Partners, it seemed rather odd. Here is a top executive of a publicly traded company, Intel, one of Oregon’s largest, who is now one of five voting members on selecting the managers for Oregon’s $70 billion in PERS assets.

Technology Crossover Partners charges a carry fee of 25 percent in addition to a high annual managment fee, resulting in one council member, Harry Demorest, to initially object yet later support the proposal given the difference between the gross and net returns was about half due to the fees.

Pictured below is Scott Larson of Intel Capital, the newest member of the Oregon Investment Council.

oiclarson.jpg

The reason Larson’s involvement seemed strange, including his point that allocating a certain amount to this area is important, is that Intel has a very marginal 401K plan and one would think that deploying Mr. Larson to help fix its own retirement plan, in terms of better choices and lower fees, should be Intel’s priority.

The conflicts of interest given Intel capital’s broad reach with respect to investments that intersect with the council is so significant it is not worth mentioning. With so many capable and more experience candidates to serve in this role, it makes no sense for the Governor to add Larson.

Perhaps this again highlights why the Securities and Exchange Commission should have more oversight regarding directors of public pension systems. At a minimum, Intel’s Chief Financial Officer Andy Bryant should give Larson a call and say this is this is not the appropriate place for Larson to apply his talents.

Pictured below is Dick Solomon, OIC Council Chair and a practicing CPA, whose clients businesses intersect with the OIC’s investments.

oicsolomon.jpg

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Tektronix Corporation Sale Mirrors Merrill Lynch CEO Attempt to Sell

Posted in Federal Reserve and SEC, Merger Review, News Analysis, Technology and Microsoft on October 27, 2007 |

Tektronix $2.8 billion sale to D.C. based Danaher Corporation is a dramatic example of top executives marketing a company’s sale to benefit themselves and thereby breaching its duty to shareholders and other stakeholders. According to the WSJ, Merrill Lynch’s CEO has tried the same trick yet the board is now considering firing him over making the overture for a sale.

With the declining dollar and solid industry position, Tektronix is poised to do well over the next decade and this should be managements focus, not leveraging growth in their options to buy more luxurious vacation homes and other perks on the backs of shareholders, pension participants and employees.

Let’s look at some of the revealing specifics:

1) Both Tektronix and Danaher have traditional pension plans, with plan assets of $896 million at Danaher and $655 million at Tek for their respective most recent year ends per SEC 10K filings. Danaher’s shortfall on funding this obligation is, however, a whopping $323 million or 36 percent of plan assets, while Tek’s shortfall is $27 million or 4 percent of plan assets.

2) The right decision for Tek executives is to fully fund the pension plan and then spin it off to be managed by a separate trustee unrelated to Danaher. What other reason could Danaher want the plan for, other than to change plan assumptions and systematically peel off its assets? Especially given that the plan was terminated in the last year with respect to new contributions.

3) Tektronix May 2007 year end 10K filing also reveals that $119M or 18 percent of plan assets are invested in real estate, absolute return and private equity whose fair values are supplied to Tektronix by fund managers and general partners given the absence of publicly traded security valuations. With all the difficulty in subprime lending and related areas, the Pension Benefit Guarantee Corporation, the agency that insures such plans, should require that management provide an expanded commentary outlining the specific investments involved, their indicated market value and how such values were derived.

4) According to an October 25, 2007 Oregonian story, “The same day it OK’s a sale to Danaher Corp., Tek’s board increased seven executives payoffs, including CEO Rick Willis.” Clearly, this is a fiduciary breach to shareholders and these golden parachutes should be rescinded by the SEC due to a proxy violation given that they are material and were never put to a shareholder vote.

One Tektronix board member, Gerry Cameron, should know well the stakes here. Cameron himself got a huge payout as the departing CEO of US Bank when it was sold. I always liked Cameron while an employee there and even told him, upon leaving as takeover rumors swirled, that if US Bank didn’t put him on top within a year it was a lost cause. At the time he was head of US Bank of Washington and openly and genuinely laughed at the thought.

Turns out, he was made CEO within 6 months and the organization bloomed for years. Particularly interesting was that Cameron did the restructuring from the top, noting that many executives “candles had burned out in terms of desire and ability.” He was very popular and even suggested bringing me back to work for his top executive yet I said I was only willing to work directly for him.

It was Gerry Cameron who introduced me to Robert Parry in 1999, the then head of the Federal Reserve Bank of San Francisco, at a breakfast in which I asked a question about the tax accounting treatment for stock options and Parry jokingly replied that he did poorly in his only accounting class and that “accounting issues were not within the purview of the Federal Reserve.” Of course soon after the accounting at Microsoft, Enron, MCI, etc. became rather germane and clearly was and continues to be a structural weakness at the Federal Reserve. My advice to Federal Reserve Chairman Bernakke, hire one accountant for every two economists given the Federal Reserve has the same accounting competency problem now with respect to private equity,hedge funds and derivatives.

5) Danaher’s purchase of Tektronix is a classic leveraged buyout (LBO) in which a large amount of debt is issued to finance the purchase. This will result in dramatic and unnecessary job losses at Tektronix as Danaher’s executives leverage the next round of growth in their own stock options via staffing cuts to make interest payments on the debt. It is almost pathetic that Danaher, a technology company, refers to “headcount” in its SEC filings.

Oregon and the nation have grown many great companies that involved a lot of sweat equity, including Cameron’s over 40 years with US Bank. Sadly, today we have many younger executives masquerading as business leaders, like Tektronix Willis, when in reality they are focused on “deal making” and cryptic legal minutae designed to line their own pockets.

In the old days bank robbers rode horses, carried guns and used explosives to get at a bank’s safe yet today they “book accounting entries” and steal millions from shareholders, pension participants and other employees and get treated as royalty rather than what they are, common ciminals. Those are harsh words for Willis and other Tektronix executives, I’ll save my compassion for the shareholders, pension participants and employees.

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Obstacles Facing Microsoft’s HealthVault Initiative

Posted in Technology and Microsoft on October 22, 2007 |

When Microsoft announed its “HealthVault” concept I frankly just burst out laughing. It was back in 1999 when I proposed this concept to Intel Capital, the idea being to establish a place at Intel.com where users could store sensitive information, in particular health care records. The idea was to drive the project, not from a software perspective, but rather from that a bank would use with respect to safety deposit boxes.

With Bill Gates friend and collaborator Warren Buffett being one of the biggest players in the health insurance industry, including medical malpractice, and Microsoft’s numerous strategic partnerships with drug companies and others in the health care industry, one has to wonder who would trust Microsoft with this information. And even if you trusted them, would they be competent enough to not have their vault hacked and the information sold to health insurance companies.

In reviewing the emails between Intel capital and myself it was interesting to note that they clearly liked the idea but were looking to me to lead some kind of effort. My attitude was, hey, you are Intel with all the software and hardware connections. Give it to an ambitious project leader and put me on the board to help maintain the integrity of the idea from a non-technology standpoint.

In reviewing Microsoft’s preliminary concepts regarding its HealthVault, they clearly don’t have the perspective that will make it a success. They look more and more like a disoriented mass of confusion aboard a sinking ship grasping at opportunities they will never realize because such opportunities require partners who trust them, a group not in abundance these days.

http://web.mac.com/billnparish/iWeb/Bill%20Parish%20/Podcast/3021607B-405D-4089-AA5F-4435E750A2EF.html 

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Microsoft and Google’s Untapped Frontier

Posted in News Analysis, Politics, Technology and Microsoft on October 4, 2007 |

It is ironic that in the 1990′s by aggressivly destroying competitors and also prohibiting the sale of content on the internet by giving content away for free, Microsoft essentially paved the road for Google’s business model, the sale of privacy to advertisers. Google is a great company yet it’s business is simple, it sells privacy, that is information about everything we do.

Rarely considered however is the extent to which individuals and companies are paying Google to not be seen or to be seen yet at the bottom of a search, perhaps several thousand references down, essentially being invisible.

For example, what if Warren Buffet paid Google to surpress anything negative on its searches surrounding, for example, his insurance companies that dominate key segments of medical malpractice insurance? Would Google do that? For example, would they make the following article I wrote for Oregon Business magazine difficult to find: Buffett’s takeover of PacificCorp.

Already, PR Newswire, open of two leading pr wire services, has a policy that prohibits discussion of publicly traded companies, even regarding significant newsworthy events, unless they get approval from the company being discussed. For example, if I want to write a press release opposing Rupert Murdoch’s purchase of Dow Jones, Murdoch has to approve the release. (search for dow jones to see related blog entry). PR Newswire does this by not including ticker symbols in the releases, meaning the releases get minimal visibility.

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Microsoft Suffers Major Setback in Russia

Posted in Politics, Technology and Microsoft, World News on October 4, 2007 |

In a major victory for the Linux operating system, Russia has mandated that all Russian schools will be using open source software by 2009. Open source is indeed a great learning environment and it is unfortunate that students here in the US continue to have their educations dumbed down by being forced to use Windows based products.

Already Russia is again emerging as an economic superpower due to energy resources, see post regarding move to sell energy in rubles, and this move to Linux will clearly now position them to surpass the U.S. in software development.

With Microsoft’s largest customer now the Pentagon and its foundation openly violating rules governing non-profit organizations by using itself as a conduit for installing donated Microsoft products in schools and libraries around the country and creating a dependancy on these products, one has to wonder how Microsoft would fare in a truly competitive environment. Today it is succeeding on government contracts as smart organizations rapidly adopt open source, not only for cost reasons yet more importantly the capacity to innovate more quickly with new products and services.

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Inside Story on how Microsoft got Googled

Posted in Federal Reserve and SEC, News Analysis, Technology and Microsoft on September 28, 2007 |

I use various Google products, including Gmail. Yet I do so with the knowledge that Google’s primary business is the sale of privacy, not technology. It is hilarious to see Congress debate privacy issues surrounding Google’s proposed acquisition of doubleclick. And Microsoft’s attempt to block the acquisition misses the key point, a tax loophole Google is skillfully exploiting, just as Microsoft did prior to 2003.

Google is now accumulating vast amounts of cash via non-payment of income taxes and Microsoft has no hope of competing with this. When I first disclosed that Microsoft paid zero federal income taxes in 1999, Gretchen Morgenson, a reporter at the NY Times who went on to win a Pulitzer Prize doing stories from my core research, laughed, saying that was ridiculous. Here is the link to the NY Times front page June 2000 story based exclusively on this research, confirming Microsoft paid no income tax, for which she graciously provided a couple minor quotes at the end of the article. Frankly, I think this is why the NY Times is struggling. It simply can’t accept that news is news, no matter where it comes from.

What Google is now doing is using massive deductions from stock options to reduce its tax liability, thereby creating a cash machine in the form of non payment of taxes, exactly what Microsoft did prior to terminating its options program in 2003, roughly 30 days after my April 2003 article for Barron’s was printed. And the cost of these options for Google is also not fully reflected in Google’s financial statements, fueling the stock price and making it a more valuable currency for acquisitions.

Even after a multi-year heated debate, Congress and the SEC still don’t understand the significance of options accounting and how it corrupts the competitive market landscape. The solution is simple and that is to allow companies to issue all the options they want, provided that the expense is recognized when they are exercised by employees. Recognizing expense on the date of grant, the Black Scholes model, etc. – is all nonsense aimed at hookwinking the public and regulators.

Who would have ever thought that Microsoft would be done in by a scheme it invented, the scheme being the excessive issuance of options designed to pay employees without recognizing the respective cost in the financials, thereby creating vast sums of cash and a more valuable currency, its stock, for acquisitions.

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Microsoft – An Update

Posted in Federal Reserve and SEC, News Analysis, Technology and Microsoft on September 10, 2007 | Leave a Comment »

The following report regarding Microsoft’s financial practices is the most widely read report on my website since 1999. Numerous major news stories have appeared based upon the report titled Microsoft Financial Pyramid Summary.

In late 2002 Barrons requested a 1,200 word article about Microsoft and I chose the topic of why Microsoft should pay a dividend. It was to be a point counterpoint piece. Subsequent to reviewing the draft, Microsoft declared its first ever dividend. I then changed the topic to a discussion regarding its over issuance of stock options. Today even Bill Gates has publicly noted they issued far too many options, essentially dilluting the value of the stock. The month after this article appeared in Barrons titled Taking a Closer Look at Microsoft. Microsoft terminated its stock option program and instead began issuing restricted stock with a vesting schedule.

Many ask, Bill, why don’t you write about Microsoft anymore? The reason is that it seems rather sad, how an organization with so much promise fell so far, blinded by short term greed. Regarding technology and innovation, Microsoft is simply no longer relevant. Sadly, Microsoft’s legacy may indeed be its crushing of so many promising young companies here in the US, only to force such growth to instead occur in other nations.

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