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Whistleblower settles after Microsoft SEC fraud claim

A former senior staffer has settled out of court, possibly for $4m - but the SEC may still be interested

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A senior whistleblower who had accused Microsoft of systematically distorting its figures has settled out of court with the company, leaving hanging the question of whether or not the US Securities and Exchange Commission is investigating his claims. According to a story published in the Seattle Weekly earlier this week, Charlie Pancerzewski had been claiming unfair dismissal under the US Whistleblowers Protection Act. He claimed to have been forced to resign in 1995 after reporting his suspicions about Microsoft bookkeeping to CFO Mike Brown and COO Bob Herbold. Pancerzewski had been head-hunted for the post of chief of internal audits by Bob Herbold, then CFO, in 1991, having previously been a partner at Deloitte, Haskins & Sells ( now Deloitte Touche). His performance evaluations until 1995 were excellent, but shortly after reporting his suspicions he was given a snap, unfavourable evaluation, and shortly afterwards given the option of resignation or dismissal. The Whistleblowers Protection Act applies in cases such as this in the US. Pancerzewski claimed that he'd identified possible breaches of SEC rules, but that when he'd told his superiors, he'd been elbowed out. He filed under the Act in 1997, and after several months of pretrial motions the judge denied Microsoft's motion for summary judgement on the grounds that she found that there was evidence that Pancerzewski's allegations could be true, and that Microsoft had indeed violated SEC rules. This process will be familiar to Microsoft trial watchers. Motions for summary dismissal are commonplace, and depend on it being shown that there is no case to answer. If there is evidence that's worth considering, then the judge will throw out the motion, as happened here. But then in November Microsoft and Pancerzewski settled out of court. It was a civil action, so this is perfectly normal, but as the terms of the deal are secret, neither Pancerzewski nor Microsoft will talk about it. The Seattle Weekly claims sources say he got $4 million. But court records of the case show Pancerzewski had claimed he'd been ordered to destroy a consultant's report about potential tax liabilities in Europe, and that he'd found that Microsoft was controlling the level of reported income by switching money back and forth from reserves. Much simplified, this procedure involves putting money into reserves in good times, and transferring it back into reported income when times are hard. It's used to keep earnings apparently growing smoothly, and it is illegal, under SEC rules. The judge threw out some of his allegations for lack of evidence, but retained this one. Microsoft itself claims that its actions were legal, and his departure entirely unrelated to his claims. But if the judge found evidence of smoke, nostrils at the SEC will surely be twitching. Register factoid: To our recollection, for several years now Microsoft's high command has habitually predicted tougher times ahead, and then Microsoft has habitually outperformed the (Microsoft-briefed) analysts' predictions when its results have been filed. ®

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