The SEC revealed today that it charged VMWare with fraud.  .  .  then settle for next to nothing

The world of enterprise software is often a little quiet. Not today though. The Securities and Exchange Commission announced today that it has charged cloud computing giant VMware with “misleading investors about its backlog management practices, which allowed the Palo Alto, California-based technology company to direct its revenue to future quarters by delaying product deliveries to customers, concealing the company’s underperformance against its forecasts.

An agency investigation found that “early in fiscal 2019, VMware began delaying the delivery of license keys for some sales orders until the end of the quarter so that it could recognize revenue from related license sales in the following quarter.” More , the SEC says, “VMware shifted tens of millions of dollars in revenue to future quarters, building a buffer in those periods and clouding the company’s financial results as its business slowed to expectations in fiscal 2020. Although VMware publicly disclosed that its backlog was “managed based on multiple considerations,” it did not disclose to investors that it used the backlog to manage the timing of the company’s revenue recognition,” according to news release issued by the agency.

The full order it’s pretty damned. According to the SEC, VMWare fudged the numbers by a lot during the aforementioned time period. Meanwhile, analysts who inquired about the continued trend of backlog reduction—with VMware’s investor relations staff or with VMware executives at hosted IR events—were told that “[b]acklog represents only a small portion of our future revenue,” without any disclosure about the largely discretionary nature of VMware’s backlog and VMware’s use of
backlog to manage its quarterly total revenue and license revenue, the SEC says.

Before jumping to conclusions about what might happen when a company the size of VMWare is accused of fraud, the matter, the SEC adds, has already been settled. In fact, without admitting or denying the findings in the SEC order, VMWare has already agreed to a cease and desist order and will pay an $8 million fine, the SEC says. Only $8 million! (VMWare, which currently boasts a market cap of $52 billion, probably paid its lawyers the same amount.)

VMware confirmed in a own statement that it has reached a settlement with the SEC, adding that it “believes this settlement is the right course of action for the Company and remains committed to operating at the highest level of integrity, including in its public filings and communications with investors . “

We’re still trying to figure out what just happened here, but one obvious question is how chip giant Broadcom feels about this now-public development. In late May, Broadcom announced it was buying VMWare in a blockbuster deal for $61 million in cash and stock. It supposedly knew about these charges and went ahead anyway, but the company has yet to respond to our request for more information. (We’ve also contacted VMWare and have yet to hear back.)

We also wonder how these allegations and settlement news will affect the reputation of Pal Gelsinger, who spent eight years as CEO of VMware, leaving in February 2021 to become CEO of Intel.

Gelsinger said in a farewell video to employees that when he took the job in 2012 — he was previously CEO of EMC, a storage company acquired in 2016 from Dell — “I’ve never been a CEO, I’ve never been a software guy, and I didn’t really know the products or the strategy,” he said.

“How little I knew,” he added in his video address.

Some may be wondering now how much Gelsinger knew in 2019 and 2020 as well.

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