Comments on: Skype’s evil ways, cont.

By: ROBERTCBIBBJR.

ROBERTCBIBBJR. — Tue, 28 Jun 2011 01:23:57 +0000

FRAUD IS FRAUD. THE EXERCISE OF A CONDITIONAL RIGHT MUST BE PREDICATED UPON THE ACTUAL EXISTENCE OF THE PREDICATE CONDITION. THE TAKING OF THE SHARES FROM THE EMPLOYEES BASED UPON FABRICATED WRONGDOING IS THE ACT OF SCOUNDRELS AND SCALAWAGS. IT DOES NOT MATTER WHERE THE PERPETRATORS OF THE FRAUD RESIDE OR WHERE THE ACTUAL PERPETRATION OCCURRED. THE COMMERCE CLAUSE OF THE U.S. CONSTITUTION GIVES JURISDICTION TO THE GOVERNMENT AND CRIMINAL PROSECUTION IS NOT ONLY PROBABLE, BUT ALSO LIKELY. THE HIGH ARE NEVER SO LOW AS WHEN THEY VICTIMIZE THE DEFENSELESS. MICROSOFT HAS BOUGHT A SHIP OF FOOLS WHO STUMBLED UPON A GREAT PRODUCT. IT IS MICROSOFT WHO WILL SUFFER FINANCIALLY WHEN IT PAYS OFF THE WRONGED EMPLOYEES. THE FOUNDERS OF SKYPE WILL TAKE THEIR ILL-GOTTEN GAINS TO THEIR NATIVE INDIA AND BE ABOVE EXTRADITION. SHORTLY THEREAFTER, THEY WILL OBTAIN NEW PASSPORTS WITH NEW NAMES AND PREAPRE FOR THEIR NEXT CRIME.

By: factual

factual — Tue, 28 Jun 2011 00:32:41 +0000

Since Andressen Horowitz were part of this deal why did they not insist at a minimum on transparency for all employees? If they were unaware how do they expect employees to pony up for legal fees to read options agreements?

By: ChrisMaresca

ChrisMaresca — Mon, 27 Jun 2011 16:27:00 +0000

@KenG_CA

I’m not a lawyer, but I’ve put together a number of companies. Partnership agreements very often have share buyback provisions for outlier circumstances (death, divorce, etc) and are sometimes quite broad. You would not necessarily request to see the partnership agreement as part of your employment contract negotiations and you would normally assume that such provisions were a last resort in case of an extreme event or legal fight.

That said, I personally would have refused to sign such an agreement without tracing all the dependencies… The other odd thing about all this is that, at a certain executive level, you negotiate termination clauses specifically to prevent this sort of evil behavior…

By: ChrisMaresca

ChrisMaresca — Mon, 27 Jun 2011 16:14:06 +0000

Moral of the story:

If you are a Silicon Valley exec, avoid Silver Lake like the plague.

By: dWj

dWj — Mon, 27 Jun 2011 15:50:01 +0000

I’m all for allowing different kinds of contracts to which parties voluntarily consent, and there’s a certain extent to which it’s the parties’ responsibility to read and understand the contract, but I’m kind of hung up on this use of the word “vested”. Ten pages of small type followed by “where by ‘cat’ I mean ‘dog’” may be logically and linguistically interpretable, but sure looks fraudulent in intent.

By: jmh530

jmh530 — Mon, 27 Jun 2011 14:45:05 +0000

Is it really true that PE firms will regularly not pay out vested options for firms they manage? Is there a source on this among Blodget or Lacy that isn’t from Silver Lake?

By: AnonymousChef

AnonymousChef — Mon, 27 Jun 2011 14:38:53 +0000

“Hey, could some attorney help me out here, but if an employee signs an option agreement (even if it references another document, like the partner agreement), can that agreement be unilaterally changed by one party after the fact?”

It depends on the agreement. You can draft the contract so that it references the January 1, 2000 version of the partnership agreement, or you can draft the contract so that it “automatically updates” with each new partnership agreement.

“And would the clause of the options agreement that references the partnership agreement be valid if the employee was never given a copy of the partnership agreement?”

I’m not an employment lawyer, so there might be a special defense available if the contract wasn’t provided to the employee. But generally – and I think especially if these were high level executives who would have the ability to retain counsel – its your duty not to agree to something without reading it. (In practice, of course, most people move forward under an assumption of good faith – I’ve been to a medical clinic where I was the first person to ask for the privacy agreement we all agree we’ve read).

By: TimC

TimC — Mon, 27 Jun 2011 14:28:52 +0000

I don’t know what the controversy is. The bolded paragraph is very explicit that the “vested” shares are only owned indirectly via a limited partnership and that the employee cannot possibly realize any of the value of the options or underlying shares if they resign.

I want to know what the tax angle of this is. Seems like this partnership is in the business of fleecing US employees of their options. At what point is this a taxable event for the Cayman partnership? Are the options treated as contributions? When are they exercised, if ever, by the partnership? When, if ever are they distributed? Is the partnership filing US tax returns, and if not, why not?

By: DanFarfan

DanFarfan — Mon, 27 Jun 2011 13:57:48 +0000

Another case of “caveat fidelis” (faithful beware). The list is growing. If this story gets much worse it’ll make my next book (on citizenship)m but not as a good example to emulate.

@DanFarfan

By: PeterCartier

PeterCartier — Mon, 27 Jun 2011 09:29:28 +0000

Anyone who ends up working for a company that has a Private Equity partner needs to learn about what it means. There are plenty of tricks and trade secrets in private equity designed to reduce risk for the PE Firm and increase their upside. If you’ve worked in PE, these things are obvious, but even for very experienced business people, they aren’t so obvious.

If you want to know more of the tricks to how PE makes money, you should read Private Equity Secrets Revealed. It’s not just about employee contracts, but everything about PE tries to extract value as quickly as possible from investee companies. You’ll be interested to know that a PE Firm can make millions even when a company doesn’t grow. You can find the reading here:

http://www.theprivateequiteer.com/privat e-equity-secrets-revealed

By: DrFuManchu

DrFuManchu — Mon, 27 Jun 2011 09:15:35 +0000

It’s alright – I guess MSFT doesn’t care about Skype’s brand as an employer, presumably because they are planning on recruiting under the Microsoft brand in future. Meanwhile, everyone else there at Skype is no doubt going to be looking for a new job as soon as they can take their equity with them.

By: zato

zato — Mon, 27 Jun 2011 08:53:22 +0000

Where is Microsoft in all this? They supposedly paid $8.5 Billion for Skype. Skype would not have fired 8 top managers without Microsoft approval (or Microsoft request that they be fired so they could be replaced with Microsoft people). If this is true, then what did Microsoft get back? So far they look clean, but I’m guessing that’s what was intended.

By: KenG_CA

KenG_CA — Mon, 27 Jun 2011 07:28:18 +0000

“…explains how Skype pulled this stunt by changing its options agreement after it was acquired by Silver Lake”

Hey, could some attorney help me out here, but if an employee signs an option agreement (even if it references another document, like the partner agreement), can that agreement be unilaterally changed by one party after the fact? I would think not, even if the agreement referenced the partnership agreement that gives the company the right to take back vested shares, as the partnership agreement that would matter is the one that is in effect at the time the options were granted.

And would the clause of the options agreement that references the partnership agreement be valid if the employee was never given a copy of the partnership agreement? Wouldn’t that outside agreement have to be provided along with the document as proof that it even existed, or wasn’t changed after the fact?

Can’t the employees say that the copy of the partnership agreement they saw never had that clause in it, and the scumbags have no way to prove they showed the employee said partnership agreement?

Sounds like no case for Skype and their owners.

By: davidjwbailey

davidjwbailey — Mon, 27 Jun 2011 07:11:45 +0000

Has anyone asked the original founders what they intended / told their staff about options?

By: GrapeBinding

GrapeBinding — Mon, 27 Jun 2011 05:53:26 +0000

The LP might be Cayman organized, but if the employees were located in Cali, it sure would appear likely the offering/grant of shares/LP units/etc. was made in Cali. One offers securities in the U.S., one is usually subject to U.S. state and federal securities laws for example. Accurate/adequate disclosure made in connection with such an offering? I wouldn’t be feeling quite so sanguine if I were the SilverLake/Skype honchos. It ain’t so easy to avoid California labor-employee laws vis-a-vis California employees. All this matter has done – and the two companies continual defensiveness about it and reluctance to step up and rectify the situation – has been to draw attention to these things.