Oh, How The Mighty Have Fallen: Scandals That Rocked The IT World10:00 AM EST Wed. Aug. 11, 2010
The resignation of Mark Hurd as chairman, president, and CEO of HP for violating HP's code of conduct following a sexual harassment investigation is arguably the biggest scandal to rock the IT industry, if for no other reason than the fact that HP is IT's biggest player.
But Hurd is by no means alone in terms of high-level IT executives who have either resigned or been fired in the wake of issues ranging from indiscretions to outright fraud, even as they sat at or near the top of their companies.
Remember how IBM's Bob Moffat and AMD's Hector Ruiz were tarred due to their connection to an insider trading probe? Or HP's Patricia Dunn's pretexting of reporters? Or Oracle's Charles Philips and the billboards which announced a long-time affair?
We aren't National Enquirer or Star Magazine by any means. But there's nothing wrong with a good tale or two involving power, sex, and money. . . .
Mark Hurd, the man credited with helping HP overtake IBM to become the world's largest IT company, was fired in August by HP over a couple of instances of poor judgment.
HP originally investigated Hurd in response to allegations of sexual harassment connected to his relationship with Jodie Fisher, an actress who was hired by HP several times to greet executives at HP functions.
While HP's investigation eventually found no evidence of violations of HP's sexual harassment policy, and Fisher and her lawyer, Gloria Aldred, denied any sexual intimacy between Hurd and Fisher, the company fired Hurd over his undeclared close personal relationship with Fisher that constituted a conflict of interest, failure to maintain accurate expense reports, and misuse of company assets.
Hurd is unique in this list of IT execs in that his former employer gave him an exit package worth about $12 million after he admitted he was wrong.
Hurd has no monopoly over scandals at HP.
A year-and-a-half after Hurd was hired in the wake of HP's firing of CEO Carly Fiorina in early 2005, HP had to deal with news that it used illegal methods to investigate who on its Board of Directors was leaking news about the company to the press.
HP admitted it subcontracted a firm that used pretexting, the practice of misrepresenting oneself to obtain private records of board members, to fraudulently gain access to records of personal calls made to and from board members' homes and personal cell phones, as well as information from several journalists.
Patricia Dunn, a board member at the time who served as the non-executive chairman of HP while the company looked for a replacement for Fiorina, was implicated in the pretexting scandal and resigned from HP Sept. 22, 2006, weeks before she was was charged by then-California Attorney General Bill Lockyer.
However, while she accepted responsibility for the investigation of the leaks, she denied knowing about the specific methods. She was eventually cleared of the charges.
An actress was almost the undoing of Charles Phillips, president of Oracle.
Phillips in January acknowledged an 8-year extramarital affair after his jilted mistress plastered several cities with billboards calling attention to their relationship.
That mistress, YaVaughnie Wilkins, was angry over Phillips' decision to reconcile with his wife, and hired contractors to erect billboards in several cities showing photos of her and Phillips together. She also released photo of the two together taken over the course of their affair.
While billboards showing Phillips and Wilkins were quickly pulled down and Wilkins' Website where she posted the photos is no longer active, the Daily Mail still maintains photos of those billboards and other photos of the two together.
Phillips, unlike the other executives in this list, managed to avoid retiring or being fired in the wake of the scandal.
Sanjay Kumar, former chairman and CEO of CA, is currently serving a 12-year prison sentence for his involvement in a $2.2 billion accounting scandal in 2004.
Kumar in 2006 pleaded guilty to securities fraud and obstruction of justice charges in U.S. District Court in Brooklyn, N.Y. Also pleading guilty was co-defendant Stephen Richards, once a top CA sales executive.
Kumar was sentenced to prison in November 2006 for his involvement in the scandal. He started his sentence in August of 2007.
Kumar in 2008 implicated several current and former CA directors in the scandal, including Charles Wang, co-founder and former CEO of CA, and Alfonse D’Amato, a former U.S. Senator, saying they knew about CA’s fraudulent accounting practices and helped hide information from investigators.
Bob Moffat was one of over 20 high-level execs who engaged in insider trading in relation to a multibillion-dollar joint venture between AMD and a high-tech investment company created by the government of Abu Dhabi which resulted in AMD's spinning off of its processor manufacturing operations.
Other executives who faced charges from the investigation included Rajiv Goel, a director in strategic investments at Intel; Raj Rajaratnam, managing member of Galleon Management; Danielle Chiesi of New Castle Funds; Mark Kurland, an executive at New Castle Funds; and Anil Kumar, a director at McKinsey & Co.
Moffat, a 31-year IBM veteran who was often cited as a possible successor to IBM CEO Sam Palmisano, ended his career in March with a guilty plea in a Manhattan federal court.
The case marked the first time that court-authorized wiretaps have been used to target insider trading on Wall Street. The executives allegedly netted $20 million in illegal profits, according to the Manhattan U.S. Attorney's office.
Nortel, one of the top names in the telecom industry at the turn of the century, was in late 2009 acquired by Avaya thanks in part to fraud by three of its top execs, including former CEO Frank Dunn.
Nortel had been selling parts of itself off, with the last portion, its enterprise business going to Avaya for only $915 million.
Canadian authorities in 2008 Thursday arrested Dunn along with ex-CFO Douglas Beatty and former corporate controller Michael Gollogly on charges including "fraud affecting public market; falsification of books and documents; and false prospectus, pertaining to allegations of criminal activity within Nortel Networks during 2002 and 2003."
The move came after the SEC in 2007 announced civil fraud charges against Nortel, alleging improper revenue recognition by the company between 2000 and 2003 that was aimed at making the company appear more profitable than it was. Nortel eventually agreed to pay $35 million to resolve the allegations.
Former WorldCom CEO Bernard Ebbers in 2004 was indicted on federal charges, including securities fraud stemming from a multibillion dollar accounting scandal at the telecommunications giant. Ebbers resigned from WorldCom in April 2002 long after the company's stock price had begun a steady decline and soon after questions arose about the company's finances.
Two months after his resignation, WorldCom said it had uncovered nearly $4 billion in hidden expenses. Eventually, that figure would increase to $11 billion, making it the largest corporate fraud in U.S. history at the time.
WorldCom filed for bankruptcy July 21, 2002, and in 2003 changed its name to MCI.
Ebbers is currently serving a 25-year sentence at a Federal prison in Louisiana.
Former Brocade CEO Greg Reyes in June was sentenced to 18 months in prison and fined $15 million for his role in stock options backdating while at Brocade.
That was actually much less than what he was facing.
Reyes was originally convicted in 2007 of misleading stockholders and the government about the value of Brocade stock options and received a 21-month prison sentence, but that conviction was overturned in 2009.
Prosecutors originally sought fines of $137 million and a 37-month sentence for Reyes.
Reyes resigned from Brocade in early 2005, and he and other ex-Brocade executives in 2006 were first charged with securities fraud and backdating activities following a restatement by Brocade of some $300 million in earnings over a five-year period.
Joseph Nacchio, former CEO of Quest Communications, along with ex-CFO Robert Woodruff, ex-COO Afshin Mohebbi, and former financial reporting chiefs James Kozlowski and Frank Noyes, were sued by the SEC in 2005 for committing securities fraud.
The SEC charged Nacchio and his colleagues of misleading investors in 2000 and 2001 by booking improper revenue or by hiding how much of the company's revenue growth came from one-time network capacity contracts instead of monthly revenue.
Nacchio was convicted in 2007 of 19 felony counts, and is currently serving time in prison.