From a month into the thing there were stories of overvalued stock on the evening news. Where I live the economy has been hopped up like a person on speed- such system can’t possibly be stable. Many dotcoms have been founded on increadably bad business principles. Fuckedcompany.com has been tracking the failure of the new economy for a year and a half. The unstability of this economy is so apparent it has become a joke for God’s sake!
tracer - My bad…found out a little more today. As it turns out, stocks purchased with stock options ARE subject to capital gains laws. In fact, one of the reasons some of the workers didn’t sell was because they had to hold the stocks for one year to qualify for the long-term capital gains tax rate, which is considerably lower than short-term. Thing is, however, the basis of the loss is the value of the stock at the date of purchase, so the realized loss is the difference between that and the price of the stocks once sold. (See, that’s why some of them didn’t sell even after the crash…they were hoping beyond hope for a recovery.) I have a feeling it’s not going to be nearly enough to cover the taxes…kind of like saying the $3 the USFL won in that dumb lawsuit wasn’t nearly enough to keep the league alive. 
Seriously, though, my opinion’s changed a bit. These workers had to have at least some idea of the risks and pitfalls of taking volatile paper as pay. Double taxation (yes, that’s what it is, and yes, it’s totally within the law), and if anything goes wrong it’s all bad (huge tax bill) and no good (no relief except for a trifling capital loss deduction, if that). Did it ever occur to them that there’s a reason stock options are usually reserved for the wealthy? Did anyone find something suspicious about a company barely off the ground giving away ESOPs? Didn’t they check the company’s financial status, the state of the stock market, the economy, etc., so they’d at least have some idea of what hit them?
I dunno. I still think they deserve a little sympathy…yet I can’t help but think that they just didn’t do enough to protect themselves.
USED to be reserved for the wealthy. They became fairly standard practice for rank-and-file technical professionals a couple decades ago. ESOP’s are “Employee Stock Ownership Plans” which have been fairly commonplace for longer than that - basically, that just means as an employee you get to buy some of the company’s shares at a moderate discount from the current price. Options are something you are issued at a locked price to vest at some future point (which means you can cough up the money (“exercise”) and buy them - since they are “options”, you can also simply ignore them if you wish). ISO’s (Incentive Stock Options) and NSO’s (Non-qualifying Stock Options) are two common types.
“Standard practice” - therein lies the rub. For the last couple of decades, software startups in particular have reserved large slices of their potential equity for an “ISO pool” to attract prospective employees.
The result is that a lot of people who never learned anything about the stock market wound up with “options”. And a lot have simply mismanaged them. Badly. Or taken huge risks in terms of stock instead of pay.