scandals

Mortgage crisis to spawn even more Wall Street charges?

Jim Kim — Sat, 28 Jun 2008 13:33:36 -0400

Scandals always generate after-the-fact regulatory activity; Sarbanes-Oxley is just one of many examples. Now, as the great credit crunch continues to unfold, we are starting to see some interesting prosecutions--beyond the massive sweep that netted 400 charges against various low-level mortgage industry players. The charges against the two Bear Stearns hedge fund execs goes all the way back to ground zero of the crisis. The issue is whether the two execs misled investors into thinking the fund portfolio was just fine. One moved some money out of the fund, even as he was reassuring customers. In that vein, the state of Illinois has just sued troubled mortgage giant Countrywide and its CEO Angelo Mozilo. It's quite possible that the federal investigations going on--by the SEC and FBI--will lead to Sarbox charges against top executives. This is far from over.

For more:
- here's some background on Countrywide

Related Article:
Illinois to sue Countrywide; tip of iceberg?

Crazy Eddie now crusades against crime

Tue, 27 May 2008 06:59:59 -0400

Remember Crazy Eddie? He was the wildman electronics goods impresario who went nuts on those memorable TVs ads back in the 1980s. (You can always tell local TV ads.) He built a chain of 40-plus retail outlets in New York, went public in 1984, ultimately was convicted of fraud, and went to jail. But there are second acts. Now, he crusades against corporate crime, spouts on Sarbanes-Oxley (he's an ardent supporter) and just about any other related issue. The Detroit Free Press notes that he's in heavy demand as a corporate speaker and rarely disappoints. The list of convicted felons on the speaking circuit is getting crowded indeed.

For more:
- here's the Detroit Free Press article

Investment giant Fidelity's Sarbox problem

Tue, 13 May 2008 06:59:59 -0400

Fidelity Investments, the mutual fund and brokerage behemoth, is privately held, so Sarbanes-Oxley does not apply. But two employees have invoked the law's whistleblower protection clauses as they lodged charges about the way the firm conducts business. Their cause has been taken up by some consumer activists, notably the Consumer Federation of America, notes the Boston Globe. They have asked the SEC to apply Sarbanes-Oxley's whistle-blower protection rules to fund firms. Activists note that whistleblowers have brought previous scandals to light. A good example is Peter Scannell, who brought improper trading at Putnam Investments to light. The reality is that Sarbox whistleblower protection, as we know, hasn't helped many whistleblowers.

For more:
- here's the Boston Globe article

Business schools hire ex-cons

Tue, 06 May 2008 06:59:59 -0400

In the Sarbanes-Oxley era, we should not be surprised that business schools are trying to scare their students straight. Top schools are hiring convicted felons to speak to students about their experiences, according to Business Week Online. Walter A. Pavlo Jr. has a thriving second career as a speaker. He talks about his time at MCI, where he devised a money laundering scheme that landed him in jail for two years, and at his parents' house after that. Will this make a difference? Well, I'm not sure if we can eradicate corporate crime, but the stakes are higher--in part because of Sarbanes-Oxley. It's harder than ever to get away with fraud. But there will always be those who try.

For more:
- here's the Business Week Online article

Related Article:
One way to profit after compliance lapses

The flip side of the stock options scandal

Tue, 11 Mar 2008 07:59:59 -0400

Some of you would argue that Sarbanes-Oxley adequately addresses the issue of stock options backdating. By forcing disclosure within two days of grant, it makes it harder to play games with grant dates. But Sarbox does not apply to donations of stock. According to other rules, executives who give stock (to charity, for example) do not have to disclose the fact until 45 days after the fiscal year ends. The Wall Street Journal notes that his allows for some games when it comes to donations. Indeed, an NYU professor has found that some donations of stock just happen to occur right before the stock tanks. That maximizes the value of the donation and tax savings. Given all the options scandals, I'm not at all surprised by this.

For more:
- here's the Wall Street Journal item

Related Articles:
How widespread is options backdating? Article
Options scandal: Where were the auditors? Article
PwC ensnared in backdating controversy. Article
How to control for options dating miscues. Article
Union steps up war on options abuses. Article

ALSO NOTED: Stumped for more ethics training?; Deloitte launches Asia forensics team;

Tue, 11 Dec 2007 06:59:58 -0500

> Conrad Black gets 6 1/2 years. Article
> Survey: Nonprofits embrace Sarbanes Oxley. Article
> Conflicts of interest at exec pay consultants? Article
> Committee on Capital Markets Regulation issues report on competitiveness. Article
> Foreign companies flee U.S. markets. Article
> Stumped for more ethics training? Release
> Scandals ensnare HR execs. Article
> In U.K., Companies Act strikes many as kin to Sarbanes Oxley. Article
> Deloitte launches Asia forensics team. Article
> PCAOB to rely on overseas counterparts for audits? Article
> CFO optimism slumps significantly. Article
> Year-end games with working capital? Video

IT Watch:
> PCI driving better network security? Article

And finally ... CFOs: more employees raid 401(k)s. Article

Enron "whistleblower" a fraud?

Tue, 16 Oct 2007 06:59:59 -0400

Lynn Brewer has achieved fame with her new book Confessions of an Enron Executive: A Whistleblower's Story. She has given up to 200 speeches including the keynote address at a Sarbanes-Oxley conference hosted by the New York Stock Exchange. But now a USA Today investigation has raised claims about whether she has exaggerated her status as an Enron "executive" and as a "whistleblower." The paper calls her "an astute self-promoter who parlayed an undistinguished 32-month stint as an Enron employee into a lucrative career in the corporate ethics industry." Another zinger: "Her transformation from back-office researcher to international corporate governance heroine is astonishing." This is quite a story.

For more:
- here's the article

ALSO NOTED: Oxley blames the PCAOB; Conflicts of interest for directors over pay?;

Mon, 23 Apr 2007 20:01:38 -0400

> A new survey has found what we would expect: In year three, Sarbox costs should decline, automation is on the rise, as is a more risk-based approach. Interestingly, the stock options scandals have led to little change. Release

> It's not exactly man bites dog, but another Big Four audit firm (KPMG) has sued a client (Fannie Mae). Article

> A new conflict for directors: Their own pay. The average pay of a large company director is now $200,000, up 75 percent from 2000. The pay is warranted by the workload, which is higher in the Sarbox era. But as compensation mounts, more approved increases may not go over so well with shareholders. Article (sub. req.)

> Fox guarding the henhouse: Compliance office in charge of blackout dates charged with insider trading. Article

> It's well-known that Michael Oxley is not all that happy with the law that he authored. In part, he blames the PCAOB. Article

> Scrushy to pay $81 million to settle SEC suit. Article

> Biotech drumbeat for small-company reform continues. Article

> PWC's license in Russia is renewed. Article

> An interesting bit of commentary on self-service Sarbox tasks. Article

And finally... Another Enron fraud. Article

How to control for options dating miscues

Mon, 26 Feb 2007 19:01:39 -0500

It is often said that Sarbanes-Oxley has solved the options mis-dating scandals, given that the new rules basically ban improper backdating. But that would be a bit naive. The bottom line is that options controls are now something that the board must evaluate and perhaps even attest to. It would be hard not to call it a 404 issue, especially in the current climate. Of course, one could do this all manually. But many big companies will likely want to consider one of the emerging automated solutions. It boils down to a time-stamp issue in many cases, which may require a common and inexpensive time server. The thought is that a system will be able to note exactly when options were awarded and cross check that with the options' stated grant dates--all in a way that is audit-able. It may be worth looking into.

For more:
- here's an article from Wall Street Technology

Related Articles:
Options scandal: Where were the auditors? Report
Meet the man who uncovered the options scandal. Report
How much will the options scandal cost shareholders? Report

How to run a successful internal investigation

Mon, 30 Oct 2006 19:01:38 -0500

We brought you news last week that more companies are being forced to undertake the messy business of internal probes. The ongoing stock options grant date scandals is but the latest catalyst. You can never fully anticipate what happens. But some good advice in this area is be prepared--for anything. Make sure you know what your D&O insurance covers. Have some law firm prospects ready; your best bet may be to rely on an outsider. Understand that the audit committee may be the most appropriate overseer of such a probe. Be prepared to set rigid parameters and objectives. All your planning may be for naught given the specifics of the probe. God forbid you are the subject. But establishing some generic procedures now will sustain your credibility when the rubber hits the road. Tips