CNET CEO Resigns as Accounting Scandal Worsens
The fallout from companies tainted by recent SEC investigations into inappropriate stock options grants escalated from a steady rain to a heavy downpour this morning, as news of the resignation of CNET Networks' CEO and Founder, Shelby Bonnie, followed almost immediately on the heels of news of McAfee's CEO's resignation, and the ouster of that company's president.
An internal review of CNET accounting practices, which concluded today, revealed another worst-case scenario: Grants of backdated options took place as far back as 1996, though they may have ceased in 2003. Still, the company's history for the past decade will have to be rewritten.
A statement from CNET today cited the review as laying at least partial blame for the accounting discrepancies on Bonnie, as well as the company's senior vice president for human resources, Heather McGaughey, and general counsel Sharon LeDuy, whose resignations were noted in passing.
"A number of executives of the Company, including the former CFO and the recently resigned CEO, General Counsel and SVP of Human Resources, bear varying degrees of responsibility for these deficiencies," the company stated this morning.
But none of the company's current or recently resigned employees, "engaged in intentional wrongdoing," the report concluded. Furthermore, in a much more transparent statement than seen from other companies, CNET says that its executives and directors who did receive backdated options grants have agreed to have their options' value re-priced, apparently according to fair market value on the date of issue.
Ten years ago, CNET stock value traded for about $4 per share. But during the lofty days when the Internet bubble inflation machine was on overdrive, the company's stock traded at a peak of $66.88 per share in early 2000. That would have been the peak time for the company to have issued backdated options to its executives and directors as "partial" compensation.
But now, according to the company, those options are being reset to their original values. Although the timing of the backdating remains unknown outside of the company, if the options' exercise dates are being reset for after 2000, they may essentially be grants to purchase stock for around $25 to $30 per share, whose value today just barely eclipsed $9.25 per share by noon. After news of Bonnie's resignation broke, trading in CNET plummeted more than 6.25%, before leveling off.
Bonnie's replacement as CEO is Neil Ashe, a four-year veteran of the company, after having served as the leader of a handful of startups and acquisitions. Reflecting the kind of corporate structure the SEC wants to see, CNET appointed a non-executive chairman, Jarl Mohn, who has a very interesting background: He's the former CEO of Liberty Digital, Inc., working with financier John Malone. Prior to that, he was the founding CEO of E! Entertainment Television, and a former senior executive at MTV Networks. Suddenly, you have two names entering the picture who know a lot about acquisitions.