CNET Sets UP Again

CNET Networks (NASDAQ:CNET) filed statements and regulatory fix ups. The Company has restated historical financial statements reflecting the results of an investigation into historical stock option grant practices, and has recorded a whopping cumulative non-cash, stock compensation charges of $105.7 million associated with stock options grants made from 1996 through 2005.

As a result of the investigation the ranks of C level executives were obliterated as inappropriate behaviour was identified and dealt with.

George Mazzotta the current CFO during the conference call in prepared remarks said

“The adjustments corrected the measurement dates of approximately 41 million options out of a total 74 million granted during the ten-year time frame. The magnitude of these adjustments are the function of three variables: the elapsed time between grant date and measurement date, the volatility of our stock price during this period, and the number of options granted. It is important to know that over 99% of our total adjustments were related to stock options that were granted to prior to July 2003. “

He then laid out the very self serving statement

“We also evaluated our internal controls and processes supporting our stock option granting practices. While process deficiencies existed previously, our current controls were found by our independent auditor to be sufficient.”

While you can look at controls and senior level managers when it gets this bad the problem was at the board level. What changes have occurred at the board level as they attempt to direct this company? They hired and nurtured the previous crew. They were tricked by the previous crew. They let $106 million dollars of problems by.

Just because the statements have been tidied up and refilled may not be enough. Just because the independent auditor says the new procedures seem to be fine is not enough. What investors need to know is that the board is on the job. Management says they are on the job and that’s fine. What is the board doing to ensure problems of this magnitude do not occur again. Relying on an annual audit seems inadequate.