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Complete Accounting Fraud


Answer: Because he is rich! Other questions?


Third Wave

From the Washington Post:

I consider the early days of AOL, from 1985 to 2000, as part of the first wave of the Internet. This was the period of building the infrastructure, connections and awareness that ushered in a connected world.

That second wave — from the turn of the century until now — involved a shift from building the Internet to building on top of the Internet. The focus moved from connecting people to creating new ways for them to access information and one another.

The third wave of the Internet is about to break. The opportunity is now shifting to integrating it into everyday life, in increasingly seamless and ubiquitous ways. These third-wave companies will take on some of the economy’s largest sectors: health care, education, transportation, energy, financial services, food and government services. These third-wave sectors — all now ripe for disruption — represent more than half of the U.S. economy.

The third wave will be different from the second — and will pay homage to some aspects of the first. Although there will be continuing opportunities for new apps and more lean start-ups, the challenges will be new in this next wave, and will require a different kind of entrepreneur.

I tell the entrepreneurs we’re working with at Revolution that to be successful during the third wave they will need to remember the three P’s:

Perseverance: Overcoming long-term structural changes within regulated sectors won’t happen overnight; entrepreneurs (and investors) will need to be more patient.

Partnerships: Just as partnerships were key in the first Internet wave, they will be key again in the third. Entrepreneurs won’t be able to go it alone in the third wave; they must go together.

Policy: Entrepreneurs will need to understand public policy in a more nuanced way. Entrepreneurs who choose to ignore government will do so at their peril, as governments aren’t just the regulators of many of the third-wave sectors — they also are large customers.

And the changes that are brewing as we enter the third wave aren’t just limited to what we do — they also will begin to shift where we do it. Although Silicon Valley will remain the most vibrant innovation region, we are beginning the see what I like to call the rise of the rest, as entrepreneurs start building great companies nationwide. And as partnerships become more important, this trend will accelerate. Coincidentally, last year, 75 percent of venture capital went to just three states: California, Massachusetts and New York. But 75 percent of our Fortune 500 companies are located in the 47 other states, and many of them will play a pivotal role in the third wave, as a new generation of partner-friendly entrepreneurs seeks strategic alliances to gain credibility and accelerate growth.

Is it just me, or is this wildly implausible and inconsistent with every bit of economic history? When region X becomes the hub for industry Y, then this first mover advantage often lasts for many decades, if not longer. NYC dominated finance 200 years ago, and it still dominates finance today. LA has been the center of the movie industry for 100 years. I would gladly bet that Silicon Valley will be just as important, relative to the “rest,” in 50 years as it is today. Who would take the opposite side of that bet? What historical parallel would give your view credence?


Winter Arts Round-Up

A few arts-related stories of note from the winter:

  • Lee-Hom Wang ’98 won three awards, including best male singer, at the Chinese Pop Music Awards.  Check out Lee-Hom in a Nikon commercial.
  • Steve Case ’80 nominated to serve on the Smithsonian Board of Regents (just one bit of news in a ridiculously busy week for Case).
  • Great Wall Street Journal (??!) feature on bassist Chris Lightcap and his band Bigmouth.  See Chris perform in the video embedded below.
  • There is a new member of the Williams Art Mafia, John Wetenhall, M.A. ’82, recently appointed President of the Carnegie Museums of Pittsburgh.
  • John Sayles ’72 has picked his next project, an adaptation of Girls Like Us.  (Thanks for pointing that out, Eric Soskin).
  • David Turner ’97 is appearing in the Broadway revival of Tom Stoppard’s Arcadia — previews beings on February 25 (unless, of course, delayed by any stunt-flying injuries).
  • Eph supergroup Darlingside has a snazzy new website.  They play February 12 in Arlington, VA, and have a number of other upcoming shows in New England.
  • Check out this Philadelphia Inquirer feature on architect Cecil Baker ’63’s home.  I really like the style of Baker’s firm, very elegant and clean, with simple yet visually arresting geometric forms and patterns.  The Louis Kahn (whom Baker studied under) influence is certainly visible in his work.
  • Great news for North Adams, as Wilco will return next summer to headline another awesome music festival.
  • WCMA needs a new director after Lisa Corrin decides to step down.  Williams certainly has no shortage of alumni to choose from for the position, should it decide to go in that direction.

Steve Case ’80 Signs on to the Giving Pledge

Class agents, take note: AOL founder Steve Case ’80 (who I assume is the wealthiest living Williams alum, but corrections welcome) signed on to the Bill Gates / Warren Buffet Giving Pledge, pursuant to which billionaires pledge to give away at least half of their net worth.  Case’s comments:

Mr. Case, 52, and his wife Jean Case, 50, said they signed the pledge because they hoped it would help philanthropists learn from each other. “It is less about what size of a check that you write and more about the outcome,” Mr. Case said.

Ms. Case said Internet entrepreneurs have a unique interest in philanthropy. “The folks that helped bring AOL to life were out to change the world,” she said. “It seems a natural thing that as they look at the role they want to play, they are giving back in big ways.”

By the way, today on Ephblog I’d like to announce that, should I ever make a billion dollars, I, too, will join the Giving Pledge.  Unfortunately for humanity, the odds of that ever happening are infinitesimal.


Ephs in Forbes 400

How many Ephs (or Eph relatives) are in the Forbes 400? I see:

#136 Edgar Bronfman ’51
#182 Robert Rich ’63
#365 Stephen Case ’80
#385 Herbert Allen ’62

Other Eph-connected folks include Robert Kraft, with two Williams sons (Jon ’86, a trustee and Josh ’89, a Bicentennial Medal winner). Any others?

Background from Forbes on the Ephs below. Previous discussions here and here. New VP of Alumni Development John Malcom ’86 will be targeting rich Ephs like these for the core of the College’s next capital campaign. Have any advice for him?
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Corner Office

Looking for a Williams connection to the mortgage meltdown? Start here.

In the four years since he stepped down as Fannie Mae’s chief executive under the shadow of a $6.3 billion accounting scandal, Franklin D. Raines has been quietly constructing a new life for himself. He has shaved eight points off his golf handicap, taken a corner office in Steve Case’s D.C. conglomeration of finance, entertainment and health-care companies and more recently, taken calls from Barack Obama’s presidential campaign seeking his advice on mortgage and housing policy matters.

Raines settled charges brought by the Office of Federal Housing Enterprise Oversight by agreeing this spring to pay $2 million and forfeiting $22.7 million in stock and other benefits. And though none of it will come out of his pocket — the payment was covered by insurance — he has not emerged unscathed. He and his wife of more than 25 years, Wendy, are separated. Their house, a 1910 colonial in Northwest Washington, is for sale. An old friend, former Time Warner chairman Richard Parsons, describes him as being “in strong recovery mode.”

Which is, perhaps, more than Fannie Mae can say. Its employees have watched the value of their stock holdings drop precipitously, and it is not clear whether the company has reached bottom. Many resent Raines and others who left in better times.

Why would Case hire someone like Raines, someone who ran Fannie Mae during its initial descent into recklessness?

Ted Leonsis, who has known Raines for 15 years from when Raines served on AOL’s board, describes him as “unflappable” and “focused,” particularly in his involvement with Revolution Money. The company, which Leonsis and Case launched last fall, is an online credit card company. It combines a Paypal-like money transfer service with a credit card that can also be linked like a debit card to a bank account.

Raines is an investor and board member in Revolution Money and Revolution Health, a health-care business launched two years ago by Case, the former chairman of AOL. Raines has an office in Revolution’s modern steel, glass and wood-paneled offices on Rhode Island Avenue Northwest and, unlike other board members and investors, is in the office several days a week.

Case said he asked Raines to come on board at the end of 2004, just a week after he stepped down from Fannie Mae, because he considers him “terrifically thoughtful and intelligent.”



Steve Case ’80, Reconsidered

No Eph has done more for his shareholders than Steve Case ’80 did for his.

Former AOL boss Steve Case practically fled to his Hawaiian pineapple farm after the AOL-Time Warner merger he engineered in 2000 vaporized much of the company’s combined market value. Now that Liberty Media Corp. Chairman John Malone is open to swapping his 2.8% stake in Time Warner Inc. for AOL’s dial-up business, the extent of Mr. Case’s heroics on behalf of AOL shareholders has become clearer.

The AOL-Time Warner deal created a $350 billion media giant. Eight years later the value of the company, including its spun-off cable arm, is a quarter of that. Much of this can be chalked up to the dot-com crash. Although AOL had only a third of the revenue of Time Warner at the time of the deal, it had twice the market capitalization.

One could argue that, had Mr. Case not engineered the merger with Time Warner, this amount [$1.6 billion] is about what AOL could be valued at today as an independent company. Instead, AOL shareholders were handed 55% of Time Warner as part of the merger. Based on the current market prices of Time Warner and Time Warner Cable, that is roughly $46 billion — or nearly 29 times Mr. Malone’s present valuation of the once-core AOL business.

AOL-Time Warner may be remembered for the buckets of shareholder money it destroyed. But by using AOL’s expensive stock to snatch a majority stake in Time Warner, Mr. Case may have pulled off the greatest heist in modern financial history.


UPDATE: Thanks to Guy for the correction on Case’s class.


Swinging for the Fences

Useful interview with Steve Case ’80.

How do you bounce back after engineering a merger widely considered the worst in history? If you’re Steve Case, you keep swinging for the fences. In 2000, Case, then chief executive of AOL, decided to buy Time Warner for more than $160 billion in AOL stock. The market cap of the combined companies at the time of the merger: $350 billion. Today, almost $300 billion of that value is gone, and Time Warner’s stock price has been stuck in the high teens for most of the past five years. Although the media generally blame Case for the mess, he privately believes that the strategic logic of the merger was correct and that Time Warner bungled the management of the new entity.

Does Case really believe that or is he just saying that to be polite? It is hard to see how the world’s best manager could have saved AOL. It was ludicrously overvalued by the stock market in 2000. When that happens, the smart manager sells. By selling to Time Warner, Case saved himself tens of millions of dollars and the shareholders of AOL tens of billions.

In any event, the article is a good read. Did you know that Case was worth about $900 million?

Exercise for the students in Purple Bull: How much did Case save himself and his shareholders? Show your work.



Steve Case ’80 offers advice.

Stephen M. Case has been making a lot of public apologies lately. Less than a year ago, in an interview with TV talk-show host Charlie Rose, the co-founder of America Online conceded that he was “sorry” for advocating the ill-fated 2000 merger of AOL and Time Warner.

Earlier this month, Mr. Case, now chairman of investment firm Revolution Partners, offered a more light-hearted mea culpa to an audience at the Ross School of Business, at the University of Michigan in Ann Arbor.

Kicking off his keynote speech at the Ross School’s May 3 commencement ceremony, the former AOL chairman apologized to parents for helping to get their children hooked on instant messaging.

“I’m sorry,” he said. “I know what it’s like as I rarely see my own children — even when they’re in the house.”

Mr. Case also advised the new M.B.A.’s not to play it safe and told them to take a lesson from baseball legend Babe Ruth.

“He was known as the home run king, but he was also the strike out king,” he said. It’s a telling observation from someone who championed the largest merger in history — and one of the most criticized.

See the link for video. Case saved the shareholders of AOL (the people he had a fiduciary responsibility to) untold millions by merging with TimeWarner. Kudos to him.


His Pipe

Andy Kessler’s overview of all things media includes this Eph reference.

In the 1983 movie Scarface, Tony Montana (Al Pacino) explains to his buddy Manny how America (and perhaps the media) works. “In this country, you gotta make the money first. Then when you get the money, you get the power. Then when you get the power, then you get the women.” Steve Case at AOL got it backwards. He had the teenage girls locked into his pipe (man, that sounds weird) but couldn’t figure out how to turn it into a sustainable media empire. Instead he merged with an existing one in TimeWarner and more or less killed them both.

Steve Case did more for the Jan 2000 shareholders of AOL than most any CEO has done for his shareholders in the last 2 decades.


16-Hour Days

AOL founder Steve Case ’80 is back.

The founder of Revolution LLC is making big promises. He’s done it before. In 2000, as chief executive officer of America Online Inc., Case pitched the acquisition of Time Warner Inc. to his shareholders, saying it would create new ways for people to shop and communicate.

Case was wrong. The biggest acquisition in history cost investors more than $100 billion from its 2001 close through July 28, according to data compiled by Bloomberg. That staggering loss hasn’t weakened Case’s stand that the deal was the right thing to do.

D’uh! It is surprising to see such a naive Bloomberg article. Case saved the shareholders of AOL billions of dollars by merging with Time Warner. He did exactly what a good, even great, CEO should do. The shareholders of Time Warner were screwed over, but Case isn’t responsible for their welfare.

Could this part be true?

Case regularly logs 16-hour workdays in his new life, as he did at AOL, and he’s just as single-minded about his pursuits, colleagues say. “Steve almost never does anything on the spur of the moment,” says Miles Gilburne, a former AOL executive who’s on Revolution’s board. “He’s very methodical.”

What is the point of having a billion dollars if you are going to work 16-hour days? I suspect that this is fluff, that Case doesn’t work that hard. He has 5 children! Doesn’t he go to their soccer games and ballet recitals? If not, he ought to learn something from the life of Vince Fuller ’52, as should we all.


Pilates with Case ’80

Steve Case ’80 is a busy guy.

America Online Inc. founder Steve Case is investing $20 million in a producer and distributor of yoga and Pilates videos, part of his ongoing bet that activities once associated with a new-age lifestyle are going mainstream.

Case is going into business with Jirka Rysavy, chief executive of Gaiam Inc., who lives in a cabin outside Boulder, Colo., with no running water and an outhouse for a master bath. Rysavy said he and Case had “an alignment in mission.”

Hat tip to Infectious Greed. More Case commentary here and here.


Case ’80 in FT

Nice aticle in the Financial Times on Steve Case ’80, former chairman of Time Warner.

Though it is hard to tell, I also suspect he is happy. He has emerged from AOL with no visible scars and a lot of money. Now he does what he loves best and is thinking up businesses to start. As well as the holiday-homes company, of which he owns 80 per cent, he has a $100m pineapple business in Hawaii and big plans to tear up the US health market. He says he doesn’t work terribly hard, and at the elderly age of 46 has finally taken up golf.

All good Ephs wish Case nothing but success in his future endeavors. The merger of his AOL with Time Warner saved the shareholders of AOL literally billions of dollars. (The shareholders of Time Warner fared less well.)

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