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$1.00 | FINAL EDITION | DECEMBER 8, 2002 | SUNDAY FC . . . . WWW.BAYAREA.COM SERVING NORTHERN CALIFORNIA SINCE 1851 THE NEWSPAPER OF SILICON VALLEY THE INSIDERS Iraq delivers , weapons RICH MAN report 12,000-PAGE DOCUMENT ISSUED WITH A THREAT Mercury News Wire Services BAGHDAD, Iraq — Iraqi President POOR COMPANY Saddam Hussein made a grand ges- ture of cooperation with the United HOW SOME SILICON VALLEY EXECUTIVES MADE FORTUNES Nations on Saturday, turning over a 12,000-page inventory of materials he possesses that could be used for WHILE THE VALUE OF THEIR COMPANIES PLUNGED weapons, but he then turned his open hand into a fist. Iraqi officials said the released doc- (AND IT’S ALL PERFECTLY LEGAL) uments confirmed, in rebuttal of U.S. and British claims, that Saddam Hus- sein’s government had no weapons of FOUR WINNERS mass destruction and no current pro- A Mercury News analysis shows insiders at 40 companies took home AND THEIR LOSERS grams to develop them. Saddam also chose Saturday to de- $3.4 billion from selling their stock. Meanwhile, their company’s value fell liver a statement on Kuwait, offering an apology to God if Iraq had un- at least 99.5 percent from what it was at the height of the boom. knowingly harmed the desert king- dom with its invasion in 1990. But he COMPANY EXECUTIVES 1997-2002 MARCH 31, 2000 – SEPT. 30, 2002 coupled that muted retreat with an appeal to Islamist militants in Kuwait Billing software 21 Sold stock Company’s — a diverse group with at least some firm is based insiders worth change in value Dennis Barsema, past links to Al-Qaida — to join him in Cupertino. $704 million -99.5% Former CEO of See IRAQ, Back Page develops network Company’s optimization software and 15 Sold stock HOWMUCHHESOLD worth change in value is based in Foster City. insiders $600 million -99.8% 1.8 million shares for WHAT’S NEXT $138 million ■ The cargo of documents, CD-ROMs and Exodus Communications, COMPANY’S VALUE filing folders will arrive in New York today a Santa Clara Web-hosting 26 Sold stock Company’s worth change in value Has fallen 99.7 percent and be delivered straight to the offices of the firm, filed for bankruptcy. insiders $549 million -100% U.N. Monitoring, Verification and Inspection Commission (UNMOVIC), the agency set up Telecommunications Sold stock Company’s to ensure the disarmament of Iraq. equipment company 19 worth change in value ■ is in San Jose. insiders The next crucial stage will come when the $441 million -99.7% documents are handed over to the United States and other member states of the Clarent, a Redwood City 10 Sold stock Company’s Security Council, a step that could take firm, specializes in worth change in value several days. communications products. insiders $356 million -100% ■ The CIA and the national laboratories will analyze the report as soon as they obtain a K. B. Chandrasekhar copy, comparing it with intelligence 21 Sold stock Company’s Founder and former CEO Redwood City broadband insiders worth change in value information about Saddam’s known company filed for bankruptcy. $269 million -100% of Exodus Communications weapons projects before inspectors were HOWMUCHHESOLD withdrawn in 1998. Software firm Sold stock Company’s 6.8 million shares for is based in 13 worth change in value $135 million Redwood City. insiders $129 million -99.6% COMPANY’S VALUE Adaptive Broadband, Has fallen 100 percent KAITLYN’S Sold stock Company’s a Sunnyvale company, 8 worth change in value filed for bankruptcy. insiders $73 million -100% SPIRIT , a storage area Sold stock Company’s network firm, 18 INSPIRES worth change in value is based in San Jose. insiders $59 million -99.9% KINDNESS The Menlo Park software retailer filed 12 Sold stock Company’s for bankruptcy. insiders worth $40 million change in value -100% Offers of benefit CD, money David Peterschmidt given to girl with rare disease A MERCURY NEWS SPECIAL REPORT CEO of Inktomi HOWMUCHHESOLD By Linda Goldston 1.6 million shares for Mercury News $90 million Inspired by an 8-year-old Saratoga Public investors are the big losers COMPANY’S VALUE girl’s brave fight against a debilitat- Has fallen 99.8 percent ing disease, a music promoter hopes By Chris O’Brien and Jack Davis First in a three-part series tion and corporate governance. to turn her poem — ‘‘I Am the Same Mercury News ‘‘The people who bought the stock they Inside’’ — into a song, record it on a Running companies that became al- COMING TOMORROW sold are the victims here,’’ said Charles El- CD and unveil it at a benefit concert most worthless didn’t stop dozens of Sili- How insiders can reap enormous rewards son, director of the Center for Corporate in February. con Valley insiders from pocketing billions even when their companies tank. Governance at the University of Delaware. The CD and concert are the most of dollars by selling their stock during the ‘‘This money was taken from investors who unusual offers of help for Kaitlyn tech boom and bust. didn’t have the same information as these Langstaff, whose illness has left her The Mercury News examined the wealth from the pockets of thousands of insiders and lost their money.’’ unable to see, speak or eat everyday stock sales record of insiders at 40 com- anonymous investors — from day traders The Mercury News compiled a list of lo- food. But she also has received more panies in Silicon Valley that have lost vir- to pension funds — into the wallets of exec- cal companies whose stock price dropped than 150 letters with donations from $1 tually all their value since the stock mar- utives and directors who turned out to be at least 99.5 percent from March 2000, Thomas Jermoluk to $1,000 since her poem and her story ket peaked in March 2000. The execu- winners even when their companies be- when the Nasdaq peaked, to Sept. 30, 2002. Former CEO were published in the Mercury News

tives, board members and venture came some of Silicon Valley’s biggest losers. Those companies were then ranked by the of @Home on Thanksgiving Day. And total . capitalists at these companies walked off Coming at a time of public discontent amount of stock sold by insiders — roughly strangers have offered to repair her HOWMUCHHESOLD with $3.41 billion, while their companies’ with corporate ethics, the disconnect be- 300 — since the beginning of 1997. family’s damaged van and leaking roof. 1.9 million shares for F total market value plunged 99.8 percent tween the performance of these companies This means the list leaves off some $50 million ‘‘We are shell-shocked, just over- to a mere $229.5 million at the end of and the executives’ fantastic rewards is spectacular flameouts where executives whelmed by the response,’’ said Kait- September. symptomatic of the problems that have ig- COMPANY’S VALUE It represented a remarkable transfer of nited calls to reform executive compensa- See INSIDERS, Page 18A Has fallen 100 percent See KAITLYN, Page 14A

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18A WWW.BAYAREA.COM SAN JOSE MERCURY NEWS SUNDAY, DECEMBER 8, 2002 FROM PAGE ONE

RICH MAN, POOR COMPANY | A MERCURY NEWS SPECIAL REPORT INSIDERS l Executives scored big while company values plunged

Continued from Page 1A fore vaporizing following squab- bles with its main shareholder INSIDER SALES AT VALLEY COMPANIES THAT LOST VIRTUALLY ALL THEIR VALUE weren’t shy about selling stock. and partner, AT&T. Jermoluk is For instance, JDS Uniphase now a venture partner at Klein- These 40 Silicon Valley companies lost at least shares sold by directors, venture capitalists and other missed the cut, with a 97.1 per- er Perkins Caufield & Byers. 99.5 percent of their value from the end of the first major investors, as well as those executives deemed to be cent drop, even though execu- Executives at every company tives sold $1.17 billion in stock contacted either did not return quarter of 2000, when the Nasdaq market peaked, “insiders.” (Companies have leeway in identifying insiders, between May 1997 and Novem- phone calls or declined to com- through the end of the third quarter of this year. so the figures vary by company.) Some transactions on ber 2002, even as the optical ment, in many cases citing pend- components company was fir- ing litigation. The one exception (The percentage change listed is rounded to the nearest behalf of trusts have been included. The companies are ing two-thirds of its employees. was Frederick D. Lawrence, for- tenth of a percent.) The Mercury News examined insider ranked by the value of insider sales. Market values have Also absent is software compa- mer CEO of Adaptive Broad- ny Ariba, whose stock dropped band, who agreed — after speak- sales from 1997 to the present. Sales figures include been rounded to the nearest $100,000. 98.7 percent and where insiders ing with his lawyer — to discuss sold $1.26 billion between Octo- executive compensation though MARKET VALUE PERCENT INSIDER SALES NO. OF ber 1999 and November 2002. not the specifics of his company. March 31, 2000 Sept. 30, 2002 CHANGE SINCE 1997 SELLERS The survey also excludes some He pointed out that executive of the valley’s household names. pay plans are publicly available Not included are John Cham- and that most investors never Portal Software $9.0 billion $42.4 million -99.5% $703.9 million 21 bers, who between August 1997 bother to read them. And when and February 2000 sold insiders sell stock, they must al- $296.2 million in Cisco stock; Lar- so publicly disclose the sales in Inktomi $21.4 billion $36.6 million -99.8% $600.2 million 15 ry Ellison, who in January 2001 filings to the SEC. sold $894.8 million in Oracle ‘‘People really work hard in Exodus Commun.1 $29.0 billion $0.0 -100.0% $548.7 million 26 stock; and Scott McNealy, who these industries,’’ Lawrence from May 1997 to July 2002 sold said. ‘‘They spend hours away $107.9 million in Sun Microsys- from friends and family. Al- Redback Networks $21.8 billion $54.9 million -99.7% $440.6 million 19 tems stock. These corporate gi- though that’s not an excuse for ants generally are older and re- any poor behavior.’’ main strong competitors even as Clarent $2.9 billion $1.2 million -100.0% $355.8 million 10 their stock prices have tanked. No surprise However, Nell Minow, editor of 1 Supposed good bets the Corporate Library, a research Excite@Home $13.0 billion $1.0 million -100.0% $269.0 million 21 The 40 companies on the Mer- center that focuses on corporate cury News list are primarily soft- governance, said the heavy insid- ware, hardware and telecommu- er stock sales are no surprise. Mi- BroadVision $11.2 billion $39.6 million -99.6% $128.8 million 13 nications companies — the infra- now is a leading critic of allowing structure providers that were insiders to sell their stock be- Adaptive Broadband1 $2.0 billion $100,000 -100.0% $72.6 million 8 supposed to be good bets rather cause it creates the temptation to than flighty dot-coms. push the envelope on things like These companies are a seri- accounting. Gadzoox $1.3 billion $900,000 -99.9% $59.4 million 18 ously wounded bunch. While ‘‘They sell the stock and then not true of every company, as a they restate the earnings,’’ Mi- 1 group, they have a variety of now said. ‘‘That brings it one Egghead $283 million $100,000 -100.0% $40.3 million 12 problems. Most had major re- step closer to being a Ponzi structurings that led to mass scheme.’’ firings. Fifteen went bankrupt. The increasing use of stock Kana Commun. $6.1 billion $18.3 million -99.7% $39.7 million 15 Several more are running out and options to compensate exec- of cash. utives over the past decade grew Almost half the companies out of a broader shareholder val- Nexprise $2.6 billion $8.1 million -99.7% $31.0 million 4 face lawsuits from angry share- ue movement. The idea was to holders. Five of the Top 15 com- align the interests of executives P-Com $1.4 billion $6.4 million -99.6% $22.4 million 9 panies had to restate earnings, with the stockholders who, in some from periods when insid- theory, are more important than ers were selling stock. And a employees or managers. Accrue Software $1.2 billion $2.0 million -99.8% $20.9 million 12 handful of the companies have But the practice has come been cited in investigations by under fire from critics who say Congress and the Securities stock grants have forced execu- 3DFX Interactive $292 million $200,000 -99.9% $19.6 million 22 and Exchange Commission into tives to become too focused on investment banks accused of short-term results and doing 1 manipulating IPOs. whatever it takes to boost the Metricom $1.4 billion $100,000 -100.0% $12.5 million 12 Though option grants usually stock price. That in turn can get the most attention, much of lead to everything from laying 1 the stock sold by insiders at off employees after a bad quar- $2.5 billion $100,000 -100.0% $9.3 million 5 these companies were shares ter to feeling pressure to bend they gained from being found- or break accounting rules to Com21 $1.0 billion $3.7million -99.6% $7.2 million 14 ers or early-stage venture inves- make the numbers. tors prior to IPOs. Once their ‘‘Their decisions are distort- standard 180-day lock-up peri- ed,’’ said Neelam Jain, assistant Mbrane 1 $403 million $0.0 -100.0% $5.0 million 13 ods ended, many of these insid- professor at Jones Graduate ers began selling their stock like School of Management at Rice there was no tomorrow. University. ‘‘What the mana- PixTech $193 million $800,000 -99.6% $4.5 million 7 For some of their companies, gers are trying to do is maxi- there isn’t much of a tomorrow: mize their own profits and not ■ John Little, founder and the firm’s profits.’’ Viador $840 million $2.1 million -99.8% $3.3 million 3 CEO of Portal Software, sold Graef Crystal, a leading com- $127.5 million of stock in Portal, pensation expert in Las Vegas, which is on the verge of being de- believes the problem has been Sunrise Technologies $327 million $100,000 -100.0% $2.6 million 3 listed by Nasdaq. Portal, which overblown. He points out that sells billing software, topped the while many executives sold 1 Mercury News list with insiders their stock, many of them could Keravision $114 million $100,000 -99.9% $2.3 million 8 selling $704 million in stock — have sold far more, which they more than its total revenue since elected to keep and which even- Hybrid Networks $192 million $0.0 -100.0% $1.5 million 3 the May 1999 IPO. tually became worthless. ■ David Peterschmidt, 1 CEO of Inktomi, sold Did they know? SSE Telecom $54.4 million $0.0 -99.9% $1.4 million 4 $90.5 million of stock at the No. ‘‘The fact that they left huge 2 company on the list. Inktomi, amounts of money on the table once a promising Internet does not suggest they knew General Magic $458 million $0.0 -100.0% $1.1 million 3 search engine company, in No- something was coming,’’ Crys- vember sold off a major division tal said. 1 to raise cash it needs to survive. But the criticism of these in- Quintus $994 million $3.2 million -99.7% $1.1 million 1 ■ K.B. Chandrasekhar, sider stock sales continues to founder and former CEO of grow. That backlash increased 1 the former Exodus Commu- in November, when the Confer- Audiohighway.com $33.9 million $0.0 -100.0% $700,000 3 nications, cashed out ence Board released an annual $135.1 million in stock at the survey of 2,841 companies in 14 Preview Systems $795 million $600,000 -99.9% $500,000 3 Web hosting company before it industries that showed execu- went bankrupt. Chandrasekhar tive pay and perks continued to 1 is now founder and CEO of Jam- rise in 2001 even as the stock Natural Wonders $10.1 million $0.0 -100.0% $400,000 7 cracker. Exodus was bought out market and economy slumped. of bankruptcy by Cable & Wire- At the same time executive 1 less, which recently announced compensation has exploded, ATG $58.2 million $0.0 -100.0% $100,000 1 more layoffs at the hosting divi- bankruptcies have soared and sion. publicly traded companies are ■ Dennis Barsema, former facing record numbers of share- eGain $1.2 billion $4.8 million -99.6% $100,000 3 CEO of Redback Networks, holder lawsuits. According to sold $138.4 million in stock be- the Securities Class Action 1 fore he left in July 2000 after Clearinghouse at Stanford Law @Comm $155 million $0.0 -100.0% $35,000 3 2½ years at the helm. Barsema School, the number of share- later became CEO at Onetta, holder suits rose from 213 in Solopoint $11 million $0.0 -99.5% $27,000 1 another networking start-up. 2000 to 488 in 2001 — despite a He donated $20 million in stock law passed in 1996 by Congress to his alma mater, Northern Illi- to discourage such litigation. Innovacom $43 million $0.0 -100.0% # # nois University. Meanwhile, While many companies dis- Redback announced another miss such litigation as a nuisance, round of layoffs Nov. 14 and says observers say many corporate in- Netobjects $700 million $200,000 -100.0% # # it may have to raise more fi- siders still underestimate the an- nancing to stay afloat. ger of investors who lost big 1 ■ Jerry Shaw-Yau Chang, sums during the boom and bust Enlighten Software $28.6 million $0.0 -99.9% # # former CEO of Clarent, sold a and are still feeling burned. measly $16.5 million, though in- ‘‘This is not a victimless siders at his telecom company crime,’’ said Charlie Cray, direc- iPrint.com $576.2 million $1.1 million -99.8% # # dumped $355.8 million. Mired tor of Citizen Works’ Campaign in accounting irregularities, the for Corporate Reform. ‘‘The ar- company has restated financial gument is that they’re taking LiveWorld $151.5 million $500,000 -99.7% # # statements for 2000 and part of risks. But they’re taking risks 2001, and been unable to report with other people’s money. Euphonix $45.6 million $200,000 -99.7% # # earnings for most of 2002. ‘‘This is really a question of ■ Thomas Jermoluk, for- fairness.’’ mer CEO of At Home, sold Total $136 billion $230 million -99.8% $3.4 billion 315* $50.3 million before the cable Contact Chris O’Brien at broadband giant filed for bank- [email protected] or (415) 1 Filed for bankruptcy # No insider sales activity found * Insiders who sold at more than one of these companies were counted once. ruptcy. The company, known as 477-2504. Contact Jack Davis at SOURCE:THOMPSON FINANCIAL, BLOOMBERG FINANCIAL MARKETS, SECURITIES AND EXCHANGE COMMISSION Excite@Home, once boasted a [email protected] or (408) MERCURY NEWS market value of $13 billion be- 271-3788. 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FROM PAGE ONE SUNDAY, DECEMBER 8, 2002 SAN JOSE MERCURY NEWS WWW.BAYAREA.COM 19A

RICH MAN, POOR COMPANY | A MERCURY NEWS SPECIAL REPORT Adaptive insiders Sampling of 40 biggest losers enjoyed is only tip of insider iceberg the ride DOZENS OF IMPRESSIVE UNDERACHIEVERS IN VALLEY BARELY MISSED THE CUT $73 MILLION CASHED By Chris O’Brien the valley have lost at least 87 percent $831 million. heaviest selling occurred remain es- IN 6-WEEK PERIOD Mercury News of their stock value since the Nasdaq ■ Juniper Networks fell 96.4 per- tablished players with solid prospects The 40 Silicon Valley companies peaked in March 2000. cent while insiders sold $604 million. and reputations even if their stock By Chris O’Brien featured in these stories offer just a In many cases, ■ Network Appli- prices are down sharply. That in- Mercury News glimpse of the much larger rush of in- insiders at this next ance fell 91.1 percent cludes Cisco Systems, Sun Microsys- Adaptive Broadband had a sider stock sales that have funneled group of under- Overall, what while insiders sold tems and Yahoo. tumultuous ride from start to billions of dollars into the hands of ex- achievers received numbers are publicly $571 million. And of course, not all this money finish. But that didn’t stop in- ecutives, directors and major inves- far larger windfalls The list also didn’t ended up in the hands of executives. siders from cashing out stock tors despite the miserable perfor- for company track available probably extend to San Francis- The Packard Foundation sold worth $72.6 million during a mance of their companies. records that were understate the size co, home to many of $1.34 billion worth of Hewlett-Pack- six-week period in 2000. To make the cut, a company’s stock only marginally of insiders’ haul. the dot-coms, or much ard stock over a two-year period. HP Adaptive began life as Cali- had to lose at least 99.5 percent of its better than the 40 of the East Bay. So it CEO Carly Fiorina only cashed out fornia Microwave, a Sunnyvale value between March 2000 and Sep- worst performing didn’t look at wound- $8.8 million in August 2000. company that made satellite tember 2002. companies: ed ducklings like San But overall, what numbers are pub- and microwave radio equip- Overall, there were 319 publicly ■ Yahoo’s stock fell 94.4 percent Francisco’s CNet, where the stock licly available probably understate ment. Its chief executive was traded companies in the valley during while insiders sold $2.3 billion (for- dropped 97.8 percent and insiders the size of insiders’ haul because Frederick D. Lawrence. He that period. mer Chief Executive sold $303 million. Also left out was many executives left their companies had spent 12 years at Sprint, Had the cutoff been set at a stock alone sold $191 million worth of Yahoo Pleasanton’s , which with millions of unsold shares. Once helping to oversee the building decline of 90 percent, the number of stock). fell 99.6 percent even as insiders sold they stop being insiders, they are no of its fiber optic network. companies would leap to 146. In fact, ■ Foundry Networks stock fell $588 million. longer required to report sales of In October 1998, California half the publicly traded companies in 95.7 percent while insiders sold Some of the companies where the those shares. Microwave purchased a Brit- ish start-up called Adaptive Broadband for $11 million in “On the surface it looked like it was in decent shape. But it was a money pit.” cash. Adaptive’s product al- lowed high-speed Internet ac- — ARCHITECT GARY KOHLSAAT TALKING ABOUT THE HAYFIELD HOUSE IN SARATOGA, cess through a wireless con- WHICH HE HELPED INKTOMI’S CHIEF EXECUTIVE RENOVATE. DAVID PETERSCHMIDT AND HIS WIFE BOUGHT THE MANSION FOR $4.7 MILLION IN 1999. nection. Name changed California Microwave changed its name to Adaptive Broadband and divested most divisions except wireless broadband. The divestitures included selling its government busi- ness unit to defense giant Nor- throp Grumman for $98 mil- lion in cash. In July 1999, Northrop sued Adaptive, claiming it had been misled about the status of the unit’s major government con- tracts. Adaptive denied the claim. Nonetheless, Adaptive’s stock raced up — from as low as $8.75 in January 1999 to $207.44 on March 10, 2000. Between Feb. 2 and March 8, 2000, eight insiders sold $72.5 million in stock — just before the stock peaked on March 10. They were led by Lawrence, who sold $47.8 mil- lion of stock. The timing was good for Lawrence, who on May 25 EUGENE H. LOUIE — MERCURY NEWS bought a $6 million, six-bed- Inktomi CEO David Peterschmidt and his wife bought this six-bedroom mansion, designed by Julia Morgan, for $4.7 million. They also own two adjacent properties. room house in Rancho Santa Fe on 2.4 acres. About 30 miles north of San Diego, Rancho Santa Fe is the richest com- munity in the United States, according to U.S. Census data. By mid-2000, the Nasdaq had started its crash and so AS INKTOMI SINKS, had Adaptive’s stock. On Nov. 13, 2000, Adaptive announced it was being acquired by an- other local wireless broadband company called Western Mul- tiplex of Sunnyvale for $645 CEO RESTORES HOME million in stock. Merger called off In January 2001, Western He sold $90.5 million in stock by early ’01 called off the merger when Adaptive’s quarterly revenue By Chris O’Brien co. Then the guest home had to be total of $1.76 million in salary and bo- Peterschmidt also served as a direc- came in at $8 million — far Mercury News moved and a new garage built. The nus, plus options for 2.1 million shares. tor at Portal Software, where he sold lower than the $31 million pro- For David C. Peterschmidt, chief ex- mansion — with a wraparound porch, The company let him exchange options $7.3 million in stock since 1999. Inkto- jected by the company. At the ecutive of Inktomi, things went wrong several gables and an ornate for 1.47 million shares for ones mi happened to be a customer of Por- same time, Lawrence an- from the start. Not with the search en- front gate — should be done at lower prices as Inktomi’s tal’s and bought $90,246 in software nounced his intention to retire. gine company, but with the six-bed- sometime this month. stock fell. and consulting services in the 2001 fis- The new CEO took over and room Saratoga mansion he bought. When completed, it will go Inktomi also extended 10 cal year. in March 2001 reported that The Hayfield House, which has his- nicely with the two adjacent loans to Peterschmidt between Peterschmidt, through an Inktomi the company had to restate toric landmark designation, was de- properties the Peterschmidts Dec. 10, 2001, and May 14 total- spokeswoman, declined to comment. earnings for the quarter ended signed by legendary architect Julia bought for $2.1 million and ing $7.6 million to cover what He became CEO of Inktomi in July June 2000 from $17.1 million to Morgan. Peterschmidt and his wife, $5.4 million. And the Pe- the company described in SEC 1996, just a few months after being $13.1 million. Roxanne, bought the house in June terschmidts can always es- filings as his ‘‘short-term cash ousted as chief operating officer at Sy- Four months later, in July 1999 for $4.7 million. It needed restora- cape to the three-bedroom va- needs.’’ The company made base when the software company re- 2001, Adaptive filed for bank- tion, so they hired architect Gary Kohl- cation house in Palm Desert the loans so Peterschmidt ported a first quarter loss. ruptcy. saat. they bought in September Peterschmidt wouldn’t sell more Inktomi Inktomi’s future is uncertain. Its Lawrence and Donna Birks, Three years later, the work is still 2000 for $3.5 million. stock, which could have had stock traded at $241.50 on March 24, the former chief financial offi- not done. Don’t worry. Peterschmidt can af- ‘‘negative inferences,’’ Inktomi said in a 2000, but now hovers around $1. The cer who cashed out $9 million ‘‘On the surface it looked like it was ford the pricey real estate. He sold filing. The company added that by company recently sold its software di- in stock, have been sued by in decent shape,’’ Kohlsaat said. ‘‘But it $90.5 million in Inktomi stock between making the loans, it hoped its CEO vision for $25 million to raise cash. The shareholders. was a money pit.’’ November 1998 and February 2001. would ‘‘focus on growing the compa- number of employees stands at 140, In addition, the bankruptcy There were leaks and sagging stuc- From 1999 to 2001, he also collected a ny.’’ down by more than 600 from its peak. attorney liquidating Adap- tive’s assets has indicated in SEC filings that he may sue to get Lawrence and Birks to re- pay interest-free loans of $150,000 and $500,000, re- spectively, that the company Clarent deals too good to be true made for ‘‘among other things, purchase of personal residenc- es.’’ in February. major investors in the company. Critics PANEL FINDS OVERSTATED REVENUE; BEFORE Before Chang left, he sold $16.5 mil- of insider stock sales argue that grant- No comment LEAVING, CEO SOLD $16.5 MILLION IN STOCK lion in company stock, part of the total ing shares to board members compro- Lawrence is retired and $355.8 million sold by 10 insiders be- mises their independence. working part time as a venture By Chris O’Brien money to entities he controlled, which tween November 1999 and July 2001. Clarent board member Wen Chang capitalist. He declined to dis- Mercury News then used that same cash to buy Cla- Chang and his wife live in a Ko, chairman of the Taiwan- cuss specific events at Adap- Through 2000 and the first half of rent products. $7 million, three-bedroom Los based WK Technology Funds, tive because of pending litiga- 2001, sales ballooned at a scrappy tele- Clarent uses Internet technologies to Altos home they bought in Au- sold $211.5 million of stock con- tion. com start-up named Clarent in Red- deliver telecommunications services. gust 2000, complete with a trolled by him and his funds But he did say that people wood City. Customers seemed to be Jerry Chang, who had been CEO three-car garage, a multi-level before leaving the board in have forgotten how hard com- buying its revolutionary new services since the company’s founding in July fountain in the driveway and a April 2001. Board member panies had to compete to re- at a pace that seemed too good to be 1996, was also implicated. According to brown facade topped with a Shirley Lin, a Goldman Sachs tain executives during the true. an SEC filing, the committee’s report minaret. managing director, sold $36 bubble days. It was. said that Chang may have had an ‘‘indi- Chang and his family re- million of stock on behalf of He said there probably In August 2001, Clarent’s board rect financial interest’’ in an Asian ferred questions to his attor- Goldman Sachs before she left needs to be some changes to formed a committee to investigate a se- company named Articula, which re- ney, Mike Diamond, who said Clarent’s board in August the way executives are com- ries of accounting and financial irregu- ceived cash from Clarent to buy Cla- he had no comment. In court Chang 2000. pensated, though he’s not sure larities. According to Clarent’s SEC fil- rent products. filings, Chang has denied any More than a year after Cla- exactly what. ings, the committee discovered that Clarent announced in September wrongdoing and denied that he had any rent’s board moved to shake up the ‘‘It’s right that people revenue had been overstated by 47 per- 2001 that it had laid off two executives interest in Articula. company, Clarent has not been able to should worry about this,’’ Law- cent — $129.4 million — for 2000 and and had accepted the resignation of A Clarent spokesman said the com- file earnings statements for 2002. rence said. ‘‘If there’s the per- the first half of 2001 because of numer- Chang, who had previously been placed pany was unable to comment because Since July 2001, Clarent has fired 82 ception that someone won and ous shenanigans in its Asian division. on administrative leave. of pending litigation. percent of its employees, leaving it with lost, then nobody is going to be In an SEC filing in May, the company Trading in the company’s stock was The two other biggest stock sales about 180. And the company faces sev- happy. I’m not smart enough disclosed that in one case a marketing halted that month and only resumed were made by Clarent board members eral class action lawsuits from to know how you change that.’’ director in Asia had funneled Clarent last January. Nasdaq delisted the stock whose venture capital funds had been shareholders.