NewsNotables – Issue 71

Disgraced Broker Says Greed Got Better of Her

The Seattle Times, August 5, 2010

Disgraced Kirkland investment broker Rhonda Breard says that unvarnished greed and “wanting to be like every rich person she ever met” led her to embezzle millions of dollars from her clients. She believes she should go to prison, but not as long as the government is asking. Federal sentencing guidelines suggest she should be locked up for 8 to 10 years, with a maximum penalty of 20 years. She is asking for a little over 5 years so she could be a mother thereafter to her two youngest children who are now 9 and 11.

Documents filed by U.S. prosecutors state that she stole $11.4 million from 43 of her roughly 100 investors. Court documents state that Breard used the money to travel and live lavishly. Breard owned three luxury homes, including a $2.6 million home on Lake Washington, 27 cars, boats, trucks and recreational vehicles.

Breard was manager and chief executive officer of Breard & Associates Wealth Management, a boutique brokerage on the Kirkland [Washington] waterfront that catered to well-heeled clients. Last February she abruptly closed the offices and, according to her lawyers, went home and attempted to commit suicide by cutting her wrists after an ING audit turned up a secret set of files detailing the scheme. Breard had hidden the thefts by sending out forged statements, according to charging documents. Some investors lost their life savings.

Breard has been contrite and apologetic in the sentencing documents and has been exceptionally cooperative pushing for a lesser sentence. In a draft of a letter she intends to send to her victims after sentencing, Breard apologizes and says she had reasons for what she did, “just not good ones.”

Comment: This almost sounds like the Madoff situation all over again, but at a much lower level. But the level of fraud isn’t the issue. Fraud is fraud. Sometimes it’s just too easy for someone in control of other people’s money to yield to temptation. You have to feel sorry for those victims who “lost their life savings,” but once again it demonstrates the common sense investment strategy of not placing all your eggs in one basket. In the Madoff case, many investors had done so well over the years that they put all their money with him — a form of greed by the investors. Enron employees placing all their IRA investment in Enron stock was a similar situation. Breard’s pushing for a shorter sentence because of the young age of her children, is compelling.

Intel Slapped in Antitrust Case

The Wall Street Journal, August 5, 2010

Intel agreed to a broad set of restrictions sought by U.S. antitrust regulators to settle charges that they had unlawfully stifled completion in the computer chip market. Federal Trade Commission officials said the settlement would stop Intel from retaliating against computer makers that buy chips from rival companies, or from paying them to boycott competitors.

Regulators allege Intel used improper sales tactics to hinder rival Advanced Micro Devices, Inc. during two periods when the smaller company had superior chips. “Intel cannot use its market power to threaten customers just because they also purchased from a rival,” said FTC Chairman Jon Leibowitz. Leibowitx said the commission had been deeply troubled by Intel’s actions, arguing that the company had hobbled competition in technology fields that are vital to consumers and the broader economy.

Intel, which supplies 80% of the world’s microprocessors, has consistently denied wrong-doing, although as part of the settlement with AMD, Intel paid $1.25 billion and agreed to changes in its business practices. The FTC stressed that Intel would now operate under a binding consent order for a decade. The agreement prohibits what AMD calls “all or nothing” discounts and retroactive rebates that made it difficult for the company to match Intel when bidding for minority portions of a computer maker’s business. The FTC also sued Intel in December, alleging that it coerced the world’s largest computer manufacturers, including Dell, Hewlett-Packard and IBM into not buying rival computer chips.

Comment: When you supply 80 percent of the world’s microprocessors, antitrust issues become very complex. This situation is very similar to Microsoft [] in years gone by where computer makers largely used Microsoft’s operating system. In the early stages of competition, companies are fighting for as much business it can get, many times just hoping to survive. When the industry becomes more mature and one company has gained the giant share of the market, the balance between normal healthy competition and overpowering dominance can become cloudy, many times stifling competition.

Hewlett Packard CEO Resigns, Shocking Industry

Associated Press, August 7, 2010

The downfall of Hewlett-Packard CEO Mark Hurd, was swift and stunning. Hurd abruptly resigned over financial shenanigans involving a relationship with a former HP contractor. Hurd had a nearly bulletproof reputation on Wall Street for his stewardship of the world’s biggest maker of personal computers and printers. HP said that Hurd was forced out after the company discovered that he had a secret relationship with a women who worked with HP on marketing matters, and that he falsified expense and other financial reports to conceal the relationship and help get the contractor paid for work she didn’t do.

Hurd said it as a “painful decision” to leave but acknowledged there were “instances in which I did not live up to the standards and principles of trust, respect and integrity that I have espoused at HP.” Mark, an analyst with Brigantine Advisors, said Hurd’s resignation boils down to “one person doing some really stupid things.”

HP’s general counsel said on a conference call with analysts that Hurd’s actions showed “a profound lack of judgment” and his “systematic pattern” of submitting falsified financial reports to hide the relationship convinced the board that “it would be impossible for him to be an effective leader moving forward and that he had to step down.” He also said, “The facts that drove the decision for the company had to do with integrity, had to do with credibility, had to do with honesty.” An investigation found that HP’s sexual harassment policy wasn’t violated but that its standards of business conduct were.

Comment: This is a sad ending for a man seen by many as HP’s white knight, who transformed the company from a computer maker hooked on the profits of printer ink into a company that is now a major player in technology services. Hurd made a bad mistake and is now paying for it — not monetarily, but in a damaged character and loss of integrity. I agree with the board that it would be impossible for Hurd to be an effective leader moving forward.

Hewlett-Packard Sues to Stop Ex-Chief’s Job

The Wall Street Journal, September 8, 2010

Hewlett-Packard (HP) has sued to block its former chief executive from joining rival Oracle Corp. as a senior executive, alleging Mark Hurd’s hiring breaches his exit agreement and will lead to a transfer of its trade secrets to a competitor. The suit seeks injunctions against Hurd and unnamed others who helped him join Oracle and asks for unspecified damages. The complaint claims Mr. Hurd “is in violation and will continue to violate his legal obligations” as a result of his Oracle appointment. HP also asked the court to appoint a “special master” to regularly review Hurd’s compliance with his confidentiality agreement.

According to an HP spokeswoman, Hurd signed agreements designed to protect HP’s trade secrets and confidential information. Oracle CEO Larry Ellison said that his company and HP have long been partners but by “filling this vindictive lawsuit,” HP’s board “is acting with utter disregard for that partnership, our joint customers, and their own shareholders and employees.” He also stated that the board “is making it virtually impossible for Oracle and HP to continue to cooperate.”

HP’s suit is the latest fallout of the bitter parting between Mr. Hurd and HP, where he was CEO for five years before resigning last month following allegations by former contractor Jodie Fisher of sexual harassment. HP found that Hurd didn’t violate the company’s sexual harassment policy but determined that he violated its code of business conduct, including inaccurate expense reports that appeared to conceal a personal relationship with Ms. Fisher.

HP’s suit focuses on a confidentiality agreement, which restricts Hurd from disclosing sensitive information about HP. Hurd’s exit agreement did not include a non-compete clause, since it’s hard to enforce in California courts. HP’s lawsuit alleges that Mr. Hurd holds knowledge of HP’s operations that could prove useful to Oracle, that as CEO, Hurd attended meetings where HP’s plans for future products were discussed, that Hurd has access to pricing information and details about component and products costs, and that Hurd has put HP’s most valuable trade secrets and confidential information in peril.

Comment: This is a follow-up article from Hewlett-Packard CEO Resigns, posted August 7, 2010. I read a statement on the PCWorld web site saying, “He walked away with a $34 million exit package and was just named co-president of Oracle, a gig that pays $11 million a year plus options. That’ll teach him to break the rules.”This is a sad statement but is the world in which we live. This situation has left companies that have worked together for 25 years is disarray and many employees of both companies now at odds with the other. It started with just one employee, HP’s CEO. The ramifications will continue to spread and involve many more companies who work with HP and Oracle. Stay tuned.

By Roger Eigsti
Board President,
Institute for Business, Technology, and Ethics