Eight notorious tech CEO scandals

Mark Hurd’s surprise resignation as Hewlett Packard Co.‘s (NYSE: HPQ) CEO Friday following disclosure of a sexual harassment charge against him makes Hurd just the latest in a long line of tech CEOs forced to resign due to scandal.

It’s actually been a bit quiet on the tech CEO scandal front of late, whereas the early and mid-2000s were full of apologies and resignations in light of various financial crimes, with insider trading and backdating of stock options being all the rage.

Here’s a rundown of the most notorious cases:

Bernard Ebbers, WorldCom CEO

Ebbers, the so-called “Telecom Cowboy” who famously built what became the second largest long distance company in the U.S. through a series of acquisitions (including that of MCI and that almost included Sprint), resigned in April of 2002 amidst a financial scandal that resulted in the shamed executive going to prison.

Ebbers, who started in business running a chain of motels in Mississippi, was convicted of falsely inflating the carrier’s revenue and stock price. At the age of 65, Ebbers reported to the Oakdale Federal Correction Complex in Louisiana to serve a 25-year sentence for his role in WorldCom’s $11 billion accounting scandal.

John Rigas, Adelphia CEO

Rigas was one of the founders in 1952 of Adelphia, which became one of the largest cable companies in the United States and a growing player in telecommunications before its bankruptcy filing in 2002.

Rigas resigned as CEO in 2002 after being charged with security violations that wound up taking down what had grown from a successful family business into a public company way over its management team’s head. During court proceedings, details emerged of how the company made up numbers to give to investors and lenders (and hid $2.3 billion in debts) while spending lavishly on cars and personal services. Not only did Rigas wind up going to jail for his crimes, but so did son Timothy, who had been Adelphia’s CFO.

Time Warner Cable and Comcast wound up with much of Adelphia’s assets.

Robert McCormick, Savvis CEO

CEO Robert McCormick resigned in late 2005 after American Express filed suit claiming it was owed money stemming from a $241,000 bill McCormick allegedly rung up at the New York topless club Scores about two years before. Savvis said at the time it investigated the matter and that McCormick “did not submit the charges in question to Savvis for reimbursement and that Savvis has not made any payment to American Express related to the charges.”

A negotiated settlement was announced by the parties in 2006. While McCormick’s issue paled in comparison to others on this list, the nature of it earned him disproportionate attention.

Joseph Nacchio, Qwest CEO

Joe Nacchio, who first caught the public’s eye as a blunt talking pitchman for AT&T in the late 1980s, resigned as Qwest’s CEO in 2002 after stockholders raised questions about his $27 million annual compensation package.

In March 2005, the Securities and Exchange Commission charged him, along with eight other former Qwest executives, with fraud. He was found guilty of 19 counts of insider trading in 2007, covering $52 million in stock sales, and sentenced to six years in prison.

As of July 2010, Nacchio was still seeking relief from the court on his sentencing, which was recalculated earlier this year to be two months shorter than originally (to five years, 10 months).

Frank Dunn, Nortel CEO

In 2004 Nortel CEO Frank Dunn got the boot (along with CFO Douglas Beatty) for his part in a widespread accounting scandal. Dunn was charged by the SEC with directing an earnings management fraud to meet earnings targets, fabricate profits and pay performance-related bonuses. And the Royal Canadian Mounted Police charged him and other Nortel execs with making falsifying financial results and knowingly deceiving or defrauded the members, shareholders or creditors of Nortel. These alleged misdeeds forced Nortel to reissue its financial statements for 2000, 2001 and 2002 and for the first and second quarters of 2003.

Nortel’s downward spiral pre-dated Dunn, but his team’s efforts didn’t do anything to slow the company’s eventual path to bankruptcy in 2009.

Greg Reyes, Brocade CEO

Brocade CEO Gregory Reyes resigned in 2005 after the storage networking company revealed discovery of accounting irregularities in connection with stock-option grants. Reyes was sentenced to 21 months in prison and a $15 million fine for fraud in 2008, though in August of 2009 his conviction was overturned on appeal due to misconduct by prosecutors. However, this past June Reyes was sentence to 18 months in jail and was ordered to pay $15 million as a fine. Reyes has had a strong show of support from those who believe he was unfairly targeted by the government in a witch hunt of sorts, and another appeal is likely.

Sanjay Kumar, CA CEO

Sanjay Kumar was ousted as CEO of Computer Associates in April 2004 and pleaded guilty two years later to charges including falsely reporting hundreds of millions of dollars in revenue for licensing agreements before the deals were finalized.

Several other CA executives were also implicated in the financial fraud. Kumar reported to federal prison in August 2007 to begin serving a 12-year term. A U.S. District Court judge ordered more than $1 billion in restitution to the victims of the company’s securities fraud. CA paid $225 million of that total, leaving $798 million in restitution to Kumar.

Stephen Gardner, Peregrine Systems CEO

Back in 2002, Gardner and Peregrine CFO Matt Gless resigned following an internal investigation by the San Diego company into up to $100 million in accounting irregularities. The company had been a high flier in the asset management software business, making a series of acquisitions to fuel its growth.

Gardner was sentenced in 2008 to more than eight years in federal prison and to forfeit some $1.4 million in proceeds from real estate and from brokerage accounts.

Peregrine wound up filing for bankruptcy protection in 2002, sold off its Remedy business to BMC, then emerged from bankruptcy protection in 2003 only to be acquired by HP in 2005.

Network World’s Ann Bednarz and Jim Duffy contributed to this report.

Network World (US)

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