The sordid tale of Cisco's new board director Arun Sarin and disgraced Wall Street analyst Henry Blodget

Arun Sarin was the CEO of InfoSpace during the timeframe the SEC accused Henry Blodget of wrongdoing in his analyst coverage of InfoSpace.

Last month disgraced Silicon Alley Insider blogger Henry Blodget (who in 2003 was charged with civil securities fraud and then barred from the securities industry for life) blogged: Has Cisco's John Chambers Lost His Mind? In a wild and strange turn of events (at least in my personal opinion), Cisco announced this week the appointment of Arun Sarin to Cisco's Board of Directors. And why is this such a wild and strange event in my personal opinion? Well for starters, according to a Seattle Times story, Cisco's new board director Arun Sarin was the CEO of scandal-plagued InfoSpace from April 2000 until January 2001 when he became the Vice Chairman of InfoSpace. Even more interesting to me, it was Henry Blodget's coverage of InfoSpace as an analyst for Merrill Lynch during the timeframe Arun Sarin was CEO of InfoSpace that helped get Blodget barred for life from the securities industry. After a two-year legal battle to obtain thousands of pages of InfoSpace records that had been sealed in a local shareholder lawsuit, the Seattle Times uncovered in March 2005 that while Cisco's new board director Arun Sarin was the CEO of InfoSpace, he reported $46 million in pro-forma profits for 2000, when by U.S. Securities and Exchange Commission accounting standards, InfoSpace had actually lost $282 million. My question, does John Chambers think so highly of Arun Sarin's financial reporting skills that Chambers will lobby the board to appoint Sarin as the new Chair of Cisco's Board of Directors Audit Committee?

InfoSpace Second Quarter 2000 Financial Results - July 26, 2000:

"Today marks another historic milestone in the history of the rapid evolution of InfoSpace," said Arun Sarin, CEO, InfoSpace. "InfoSpace turns in another record quarter of rapid growth and announces the merging of two powerful entities to create the premier global company delivering the services that are fundamentally changing how people around the world communicate, access information, conduct commerce and manage their lives across rapidly converging media platforms such as wireless, DSL and broadband."
InfoSpace Third Quarter 2000 Financial Results - October 25, 2000:
"This was an excellent quarter for InfoSpace, as we continued to build upon our market leadership in the globally-expanding wireless sector," said Arun Sarin, InfoSpace CEO. "InfoSpace is better positioned than ever to leverage four parallel areas with massive promise: Wireless, merchant, broadband, and wireline consumer services. As the industry's first true cross-platform infrastructure technology and services provider, we're also very pleased to have completed our integration with Go2Net, strengthening InfoSpace's core infrastructure technologies and services assets, while adding considerable depth to our management team."
The Smoking Gun: InfoSpace Fourth Quarter 2000 Financial Guidance - December 13, 2000:
BELLEVUE, Wash.--(BUSINESS WIRE)--Dec. 13, 2000--InfoSpace (Nasdaq:INSP), a leading global provider of cross-platform merchant and consumer infrastructure services on wireless, broadband, and narrowband platforms, today reiterated its guidance for fourth quarter revenue of $66 million, and pro-forma net income of $4.9 million, which was previously announced on its quarterly conference call on October 25, 2000. "InfoSpace continues to experience momentum across all of our areas of focus, and we remain very confident with the financial guidance we have previously provided," said Arun Sarin, InfoSpace CEO. "At the same time, we are committed to expanding our profitability, while leveraging the many opportunities in our focused areas of wireless, wireline, broadband, and merchant services. This is evidenced by the fact that we have continued to execute on our existing relationships and have established new partnerships. Specifically, during the past 60 days, InfoSpace has established relationships or launched service offerings with Cingular Wireless, ALLTEL, Cincinnati Bell, Powertel, OmniSky, Lucent Technologies, Compaq, and Microsoft, among others."
Why was Arun Sarin's fourth quarter 2000 financial guidance for InfoSpace a smoking gun? Well, according to the confidential InfoSpace email below sent November 15, 2000 to Cisco's new board director Arun Sarin, there were InfoSpace Fourth Quarter 2000 revenue recognition issues. For example, the InfoSpace chief accounting officer Tammy Halstead credited InfoSpace with $1 million in revenue for services it sold to American Express, but the $1 million actually was a value she assigned to the "exclusivity" of the deal. Under accounting rules, payments for a service can't be counted as revenue until the service is performed: Accordint to the U.S. Securities and Exchange Commission civil complaint against Henry Blodget, a senior Merrill Lynch intermediate Internet group analyst spoke about InfoSpace CEO and new Cisco Board Director Arun Sarin to Blodget in a May 17, 2000 e-mail:
"We are taking InfoSpace . . . on a non-deal roadshow to introduce the new CEO. This company is very important to us from a banking perspective, in addition to our institutional franchise. . . . These non-deal roadshows are very important in my view in that they . . . have tremendous halo effect on our banking efforts."
The U.S. Securities and Exchange Commission civil complaint against Henry Blodget continued:
View the actual email from Henry Blodget below that is noted in the above SEC civil complaint where Blodget called InfoSpace a piece of junk when its CEO was Cisco's new board director Arun Sarin: InfoSpace Financial Results for the Years 2000 - 2004
Source: U.S. Securities and Exchange Commission.

Are you as amazed as I am that Arun Sarin has been newly appointed to Cisco's board of directors?

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