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The concept of founders' shares has its defenders. North County's Herb Greenberg, a columnist for Fortune and TheStreet.com, says founders' stock can be a good tool for emerging companies to use in attracting scientific and management talent. "I would be more concerned about the guy who runs a company and goes from startup to startup and plays the game, sucks investors in -- he can make money each time." San Diego has several such promoters, says Greenberg.

Attorney James Krause, who specializes in investment fraud, says founders' stock has its uses. For example, he doesn't criticize Naughton, who hung on to her Advanced Tissue shares. But it's a red flag if the founders got their cheap stock a couple of months before the public offering. Also, "The risk is that they go public without the hope of a product," says Krause.

In decades past, "Companies used to have book value per share before they went public," says corporate-compensation expert and former San Diegan Graef Crystal. "Now they have a lab, intellectual assets. Somebody comes up with cockamamie valuation metric. It's a dirty game -- use some phony price, go public, get a huge bump, make millions."

Securities fraud attorney Mike Aguirre says that the dumping of cheap founders' and options-acquired stock is especially noisome when earnings are puffed up through financial engineering. When con artists, parading as venture capitalists, take a bunch of companies public, get cheap shares, and bail out of them for enormous profits before the inevitable implosions, then it's a case for criminal authorities, Aguirre says.

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