When the tech bubble burst, all that money didnt just disappear. In the ensuing stock slide, a good deal of it went into the pockets of the executives of now-failed Internet companies.
It flowed to people like Arvind Relan, former vice president at Webvan Group, the ailing online grocery company whose stock is now trading at 16 cents per share. Starting in July 2000, when he was still a Webvan employee, Relan steadily dumped shares and, by October, was $6 million richer.
Relan didnt do anything illegal. In fact, by all measures of financial prudence, he did just the right thing: sell when the going was still good. But the going got very bad shortly thereafter. Webvan was overextended with millions of dollars worth of empty warehouses, and it is now doubtful the company will survive. As for Relan, one thing is certain — he got rich. Investors got burned.
It is possible that Relan is just this minute sitting next to Alfred West at the country club. West, vice chairman at bankrupt Viatel, started his stock sell-off last November. It netted him roughly $9.6 million by May. Not a bad take for a guy who helped drive a company into the ground.
Harry Hobbs, senior vice president at PSINet, sold nearly $2 million in company stock last June. He exercised options as PSINet was on the brink of its final downfall into bankruptcy. PSINets scrip currently trades at less than 1 cent per share.
And Liz Fetter, former CEO of now-defunct NorthPoint Communications, can hold her head up, too. She sold an estimated $1.2 million in shares, starting last August.
There are scores more I could add to the dishonor roll of wealthy executives of failed Internet companies. They got rich riding the short-lived steeds of Internet investment excess. Investors fed the beasts, but ultimately ended up on the menu. It was a calculated, though oft forgotten, risk during a period when nearly everybody was hoping to become rich on the tech bull market.
Id like to think weve returned to a time when management success is rewarded and failure is punished. But looking at the myriad of golden handshakes and special deals afforded to top execs, I fear nothing has changed. Those in the corner offices truly do live by different rules.
In the meantime, keep a close eye on stock sales by corporate executives, and dont assume anybody is looking out for your financial welfare.