Disputes Voting Machine Company's Explanations for Lowered Forecasts, Compares Company to Enron...
Points to Mismanagement, Failed Voting Equipment, Homeland Security Warnings and CEO O'Dell's $3m Salary as More Likely Causes
By Brad Friedman on 9/22/2005, 12:31pm PT  

Our still-anonymous Diebold Insider --- who we call DIEB-THROAT --- has some thoughts on Wednesday's sudden and stunning 15.5% one-day plunge in Diebold, Inc. share prices as reported earlier today by The BRAD BLOG.

"What a difference a few months makes," DIEB-THROAT wrote after the market close on Wednesday. "Back in July, Diebold told investors during its conference call the election revenues were sound and expected to grow." Yes, DIEB-THROAT was on that conference call. "Now all of a sudden Diebold's [CEO Walden] O'Dell tells investors of $10 million in lower revenues from election systems alone. Perhaps what Diebold isn't talking about is the $500,000 a month in legal fees they were spending in California, or the current rash of problems with touch screen systems that freeze up when votes are cast. Using Hurricane Katrina is a poor excuse for bad products - the last time this kind of deception occurred it was called Enron."

The blistering comments about Hurricane Katrina were in regard to Diebold's press release early Wednesday morning attributing much of their lowered forecasts for 3rd quarter and full-year earnings to the hurricane. The "freeze up" on Diebold's touch-screen voting machines has long plagued the North Canton, Ohio-based company, and a recent massive test of the equipment by California's Republican Sec. of State Bruce McPhereson confirmed that a full 20% of Diebold's machines either froze up or had printer jams.

When The BRAD BLOG spoke last week with Diebold spokesperson, David Bear about the California tests, Bear repeated several times times that "there were a total of 10 printer-jams after 11,000 votes were cast." When asked several times about similar statistics concerning the number of screen freeze-ups, Bear was unable to give us any information or numbers whatsoever.

The Tri-Valley Herald, however, had some numbers in their report on the massive California tests:

[W]hen Diebold representatives trucked in 96 brand-new TSx machines, and local elections officials voted on them July 20 in a San Joaquin County warehouse, nearly twice as many machines froze or crashed as had paper jams.
...
In all, 19 machines had 21 screen freezes or system crashes, producing a blue screen and messages about an illegal operation or a fatal exception error. A Diebold technician had to restart the machine for voting to resume. Ten machines had a total of 11 printer jams. Almost a third of all machines in the mock election had one problem or another.

Those tests, the largest of their kind, led to Sec. McPhereson's banning of the Diebold TSx touch-screen voting machines in the State of California, the largest voting "market" in the country.

Amongst other problems the company blamed on the hurricane in this morning's release, they claimed, "the impact of Hurricane Katrina is negatively affecting scheduled election systems deliveries in the Gulf region, resulting in approximately $10 million in lower elections systems revenue during the quarter."

As well, O'Dell himself is quoted in the release as suggesting "operational inefficiencies" as one of the factors contributing to lowered earnings expectations:

"I am extremely disappointed with our lack of progress in correcting our operational inefficiencies, and I am personally committed to taking immediate action to improve our effectiveness in these areas," said Walden W. O'Dell, Diebold chairman and chief executive officer.

However, O'Dell --- who took over today as President and Chief Operational Officer for Eric C. Evans who announced his resignation this morning --- didn't mention if correcting "operational inefficiencies" would include any changes to the $3,058,650 paycheck that O'Dell himself took from the company in 2004.

As well, DIEB-THROAT believes there's more bad news ahead for Diebold stockholders, pointing to the failure of stock prices to bounce back quickly today after the early morning plummet. "Typically the stock would bounce back after such a dip. This is a sure sign of a troubled company," says the source who continues to request anonymity based on a continuing sensitive relationship with the company.

More trouble in the days and weeks ahead was also predicted by DIEB-THROAT, who feels the trouble isn't as much the weather, as it is a poorly run company.

"If Hurricane Katrina was at fault this stock should go through the floor when Hurricane Rita hits. The fact of the matter is Diebold is mismanaged and unethical. The revolving door in top management we've seen in the last few months is perhaps the sprint for cover. After all who wants to be around when the feds pull back the curtain on the Homeland Security issue," said DIEB-THROAT in regard to the Cyber Alert issued last year, prior to November's election, by the U.S. Computer Emergency Readiness Team (US-CERT) --- an arm of the U.S. Dept. of Homeland Security --- as reported in a BRAD BLOG Exclusive late last week.

That "Cyber Security Bulletin", little-noticed by the media, and apparently wholly ignored by Diebold when it was originally posted in late August of 2004 is still available on the US-CERT website. It warns of an "undocumented backdoor" in Diebold's GEM Central Tabulator software used with its electronic voting machine systems. The security vulnerability could allow a local or remote user to modify vote tallies stored in the system according to the warning and corroborated by several different sources.

"This backdoor means that one malicious person can change the outcome of any Diebold election," DIEB-THROAT said in our previous article. "Diebold's election system," the source added, "is one of the greatest threats our democracy has ever known."