Just by listening to his favorite rappers, Ben Horowitz has absorbed many tales of run-ins and near run-ins with the law. But the prominent Silicon Valley investor also lived one of his own.
Mr. Horowitz, a co-founder of the venture capital firm Andreessen Horowitz, said in a blog post on Thursday that he narrowly avoided getting caught up in the options backdating investigations that swept corporate America in 2006. What saved him, he said, was a skeptical general counsel who recommended against adopting a compensation practice used at other companies.
The anecdote, Mr. Horowitz says, was written for his upcoming book, “The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers,†but didn’t make the final cut. Titled “Why I Did Not Go To Jail,†the blog post is about a company near and dear to Mr. Horowitz’s heart: Opsware, a data center automation software provider that he co-founded with Marc Andreessen, his current business partner.
Opsware, Mr. Horowitz writes, hired a chief financial officer who recommended that the company adopt a policy for granting stock options that was used by her previous employer, an enterprise software company. That practice involved setting option prices according to the lowest level the stock had hit during the month, effectively increasing their value.
Mr. Horowitz writes:
“It all sounded great: better incentives for employees at no additional cost or risk. However, after nearly four years of disastrous surprises, nothing made me more nervous than things that sounded great. On top of that, changes related to accounting law always worried me.â€
He ran the idea by his general counsel, Jordan Breslow, who had “hippie sensibilities†and was “nearly allergic to corporate politics, showmanship, or any behavior that covered the truth.†After taking a look, the general counsel said the idea smelled. Opsware didn’t adopt it.
About two years later, Mr. Horowitz says, the Securities and Exchange Commission said it was investigating the company where the chief financial officer previously worked.
The executive, who is not named in the account, was notified that the S.E.C. planned an enforcement action against her. Mr. Horowitz asked her to resign. She ultimately served 3.5 months in prison, Mr. Horowitz writes.
“Since we had the same head of finance, we almost certainly would have been investigated,†Mr. Horowitz writes.
Sharlene P. Abrams, the chief financial officer of Opsware at that time, was forced to resign in 2006 after it emerged that the S.E.C. was planning an enforcement action against her in connection to her previous employment at Mercury Interactive, an enterprise software company.
The S.E.C. claimed in 2007 that Ms. Abrams and three other former officers committed fraud by backdating stock option grants and failing to record hundreds of millions of dollars of compensation expenses. As part of a settlement with the agency in 2009, Ms. Abrams was barred from serving as an officer or a director of a public company.
She later pleaded guilty to tax evasion after a Justice Department inquiry into the stock options scheme.
An email to Ms. Abrams’s attorney at the time was not immediately returned.
