Enron

Gartner: More Sarbox-like regulation coming

Jim Kim — Sat, 20 Sep 2008 21:30:11 -0400

Speaking of the possible new regulation to stem from the pyrotechnics on Wall Street, "the shadow will be longer than Enron, Sarbanes-Oxley, HIPAA, or any other regulation of modern times," said John Bace, VP at Gartners, to 300 CIOs. That's a pretty strong statement. I think it likely we'll see something in the wake of the credit meltdown. Hopefully, banks will have built scaleable compliance programs that accommodate new regulations. This is where your foresight can really pay off. Some people are calling for a complete overhaul of financial regulatory system. Some would scrap even the upcoming Basel II. We'll hear a lot about this going forward. The financial services industry should anticipate great change over the next few years.

For more:
- here's a CRN article
- here's a look at how the rules ought to change in the Wall Street Journal

Enron settlement a victory for shareholders?

Jim Kim — Thu, 11 Sep 2008 07:51:47 -0400

Believe it or not, Enron is still making news, the latest of which is good for many shareholders. A judge has approved a $7.2 billion settlement that will provide funds for those who purchased Enron stock between Sept. 9, 1997 and Dec. 2, 2001, the day the company went bankrupt. That ranks as the largest private securities class action settlement ever. The big winners are institutional shareholders. The University of California was the lead plaintiff. Law firm Coughlin Stoia Geller Rudman & Robbins will make $688 million plus interest for its work on the case, which started in 2001. The bulk of the funds will come from JPMorgan Chase, Citigroup and the Canadian Imperial Bank of Commerce. Smaller amounts came from Bank of America; Lehman Brothers; former Big Five auditing firm Arthur Andersen and its defunct global umbrella organization, Andersen Worldwide, reports the Houston Chronicle. So is it over? Well, Jeff Skilling's appeal is still out there.

For more:
- here's the Chronicle article

D&O insurance costs rising

Jim Kim — Wed, 20 Aug 2008 17:55:31 -0400

We've noted that boards of top financial firms haven't really been held accountable for the turbulence over the past year. But the subprime crisis is hitting home in another way: rising D&O insurance costs. Financial Week notes that so far, only banks and financial services firms have been hit with rising costs--for good reason. But the number of subprime suits has exploded, and soon other industries may feel the inflationary ripples. In the wake of the Enron scandal in the early 2000s, the cost of D&O insurance rose 260 percent over two years, driven mainly by lawsuits and the fear of lawsuits. This at a time when most directors feel the need for more Side A coverage, which reimburses directors and executive officers when lawsuits are not covered by other insurance policies.

For more:
- here's the Financial Week article

Another Fair Fund distribution sent; more to come?

Jim Kim — Mon, 23 Jun 2008 08:49:13 -0400

Recall that the Sarbanes-Oxley Act gave the Securities and Exchange Commission the authority to distribute the fines it collects from law-breaking companies to aggrieved investors. Since then, nearly $4 billion has been distributed, stemming from cases involving MCI, Enron, Qwest and others. Dow Jones, via CNNMoney.com, reports that another distribution is now underway. The SEC has sent more than $103 million to 130,000 people and 380 mutual funds that lost money because of market timing and late trading by Banc of America Capital Management and its affiliates. This is the first of several that will ultimately reimburse more than 1.5 million investors and 525 funds. We may see more distributions from mutual fund abuse cases.

For more:
- here's the Dow Jones article

Related Article:
More fraud, smaller penalties

Jeff Skilling to go free?

Jim Kim — Tue, 17 Jun 2008 12:32:43 -0400

If there was any one man responsible for the movement that led to the passage of Sarbanes-Oxley, it would be Jeff Skilling, the disgraced CEO of Enron. Word is, though, he may go free. Financial Week reports a three-judge panel in New Orleans is expected to rule soon in his appeal. Recall Skilling was sentence to 24 years in prison after his 2006 trial in which he was found guilty of 19 counts of fraud. Financial Week: "Surprisingly, some very prominent minds believe Mr. Skilling has a good shot at winning his appeal, or at least seeing a number of the 19 counts in the conviction overturned." This would be seismic news.

For more:
- here's the article

Sarbox for community hospitals?

Tue, 08 Apr 2008 06:59:59 -0400

We've noted before that many nonprofits are embracing Sarbanes-Oxley-like practices on a voluntary basis. No harm in that. Community hospitals are an interesting case. Nonprofit hospitals account for more than four-fifths of the community hospitals in the U.S., according to the new magazine Miller-McCune. They are heavily regulated in general, though their boards operate under few rules. There has been lots of talk about Sarbox-like rules in this area. But as the article points out, there is scant evidence that it would make much a difference beyond PR. In general, there's a lot of talk, but little agreement, on how to proceed. With Sarbox of course, the impetus was Enron and other frauds. Let's hope that doesn't repeat itself in the nonprofit world.

For more:
- here's the article

ALSO NOTED: Citigroup seeks more financial expertise for board;

Tue, 08 Apr 2008 06:59:58 -0400

> Jeffrey Skilling appeals the Enron decision. Article
> Security and compliance increasingly requires a global approach. Article
> H-P moves to boost e-discovery offering. Article
> Remorseful CFO gets jail time. Article
> Data centers still riding Sarbox wave. Article
> Sabanes-Oxley whistleblower protections apply to employees outside of U.S. Article
> Citigroup seeks more financial expertise for board. Article

And finally ... Finding work when times get tough. Article

KPMG liable for mortgage lender implosion

Tue, 01 Apr 2008 07:59:59 -0400

Once again, we can ask: Wasn't Sarbanes-Oxley supposed to prevent this? Mortgage fraud has been front-page news. A 581-page report by a bankruptcy court examiner has found that New Century--a subprime leader--did a lot of shady stuff. The bombshell is that the report found that auditor KPMG enabled these practices, and thus should be held accountable. The New York Times raises the spectre of Enron and Arthur Andersen. KPMG denies the allegations. There is a big inside story here. Apparently, there were some emails from the KPMG partner suggesting the client was really playing hardball. But at some point, the auditor has to stand up. We'll likely hear more soon.

For more:
- here's the New York Times article
- more on auditors caving in

Related Articles:
Analysis slams Bear Stearns' subprime activity. Article
Some hedge funds hit by subprime meltdown. Article

ALSO NOTED: CEO succession planning a good idea from Sarbox perspective;

Tue, 01 Apr 2008 07:59:58 -0400

> At Fidelity, a whistleblower emerges. Article
> CEO succession planning a good idea from Sarbox perspective. Article
> Sarbox leads to more in-house lawyers being charged. Article
> Enron still in the news. Article
> What kind of execs fail to thrive in Sarbox era? Article
> Got a grip on your telecom expenses? Article

And finally ... 10 all-time worst computer viruses. Article

Similarities between Bear Stearns and Enron?

Tue, 25 Mar 2008 07:59:59 -0400

The notion that Bear Stearns and Enron both were felled by panicked runs has been floating around recently. It's a tough issue. Enron's fall was preceded by massive fraud (according to the Lay and Skilling verdicts anyway) to inflate earnings. When the castle started falling, investors panicked. In the case of Bear Stearns, there has been no suggestion of massive corporate fraud. Still, you have to wonder what good Sarbanes-Oxley is if it can't prevent these sorts of meltdowns. There seems to be a real disconnect when it comes to the risk Bear Stearns exposed itself to, but this is a problem that reaches beyond either case.

For more:
- here's an article from the Houston Chronicle

Related Articles:
Ghost of Enron still haunts Wall Street. Article
Bear Stearns: A timeline of decline. View timeline