Borrowers generally didn't report any income until the stock was forfeited or sold. (Some might not have reported income even then, since Derivium didn't send 1099s.) The IRS and California tax authorities assert that the loans were really sales, in part because now inves-tors can't get their stock back.
In addition, it looks like much of their outstanding and unvested stock and option awards will expire unexercised or be forfeited, and no severance arrangements are in place for either executive except in the event of a change of control or death or disability.