As we mentioned earlier, the Wall St. Journal has reported that out-going New York Attorney General Andrew Cuomo will be filing civil fraud charges against Ernst & Young related to its actions (mostly lack thereof) that led to the Lehman Brothers bankruptcy. Charges are expected this week but everyone is talking about it now obviously (and we were hoping for a quiet week).
Anyhoo, we’ve rounded up some of the early sound blog bites out there and we’ll keep you updated throughout the day. Of course, if you’re with E&Y and have any insight or hear some calming, soothing words from TPTB, email us t��������������������ore–>
In her column at Forbes, Francine McKenna is happy that Andrew Cuomo is actually doing something, which is more than can be said for the Feds:
Whether Cuomo is doing this on his own, in defiance of the Feds, or has their implicit blessing in light of the Federal Government’s seeming unwillingness to act, New York’s Attorney General is showing the world he’s the only one in the US with the nerve to shake this tree.
Fox News’s Greta Van Susteren is not so impressed, saying criminal charges are really what’s needed:
Attorney General Andrew Cuomo needs to get tough instead of this “window dressing” CIVIL business. He is soon to be the Governor of NYC and this is his last act as the State’s Attorney General. I hope this is not to appease Wall Street. Let a jury decide whether is is criminal behavior or not and whether anyone has committed a crime. As it stands now, Cuomo is blocking that determination with only civil charges.
Felix Salmon postulates that Cuomo is using the possibility of criminal charges to scare E&Y into a settlement:
On the other hand, a civil fraud suit is not a criminal prosecution. Even if E&Y fights the charges and loses, it probably won’t find itself on the receiving end of the kind of criminal charges which brought down Andersen. Still, I’m sure that Cuomo’s office is doing nothing to downplay the contingent existential threat here, in its negotiations with E&Y.
Yves Smith at Naked Capitalism is practically giddy and hopes that this will turn up the heat on Dick Fuld:
One can only hope turning up the heat on Ernst & Young will lead to the prosecution of Richard Fuld. The buck is supposed to stop with the CEO, particularly when they are paid as many bucks as Fuld received. Given the scale of looting that took place in the runup to and after the crisis, there is no hope of getting the banking industry back in its proper role of supporting the real economy until we see some senior bank executives in orange jumpsuits.
CNBC’s John Carney thinks that execs at both Lehman and E&Y should take the civil charges as good sign:
Why should executives at Lehman and Ernst & Young be relieved? Because the filing of civil charges rather than criminal charges may signal that prosecutors do not believe they can prove a criminal case. The key difference between criminal and civil charges in these contexts is the quality of evidence and it looks as if New York Attorney General Andrew Cuomo’s office has decided it doesn’t have the evidence to prove a criminal case beyond a reasonable doubt.
Fortune’s Colin Barr is appalled that E&Y’s Global CEO Jim Turley believes that there wasn’t any chicanery going on:
Take this exchange between E&Y chief Jim Turley and Fortune’s Geoff Colvin, from a September interview.
Colvin: Would it be fair to say that the crisis was caused in part by some financial firms doing misleading things that were within the rules?
Turley: I don’t know that it would be fair to say they were doing misleading things.
It’s remarkable Turley would still say that two months after the financial firm of the best and the brightest, Goldman Sachs (GS), agreed to pay $550 million to settle Securities and Exchange Commission charges that it misled investors in a bubble-era debt deal. The auditors weren’t involved in that one, but the Wall Street mindset was pretty obvious to everyone not running an audit firm.
Over at DealBook, Peter Henning has an interesting theory that the NYAG could be going after the accountants while the SEC focuses on individuals:
If the S.E.C. agreed to share the Lehman case with the New York attorney general, then it may be that the state took the accountants as the focus of its investigation while the federal government concentrates on individuals. Such a division of labor would allow each to husband resources by avoiding any duplication of effort in the investigation – and may be the reason the state is planning to file charges before the S.E.C. decides to act.
Emily Chasan at Reuters managed to get a statement out of someone (Charlie Perkins’s phone has likely exploded by now) although the firm is sticking to the talking points:
A spokeswoman for Ernst & Young said the company did not comment on speculation and repeated a previous statement made by the firm about its dealings with Lehman Brothers. “Throughout our period as the auditor of Lehman, we firmly believe our work met all applicable professional standards, applying the rules that existed at the time,” the statement said.
Matt Taibbi (whole post is worth a read) is calling for the paramedics:
My guess is that this suit is the beginning of the end for Ernst and Young and, who knows, may be the beginning of a series of investigations that ultimately take down the auditors and ratings agencies that made the financial crisis possible. Without accountants and raters signing off on all the bogus derivative math and bad bookkeeping, a lot of this mess would never have happened.
We’ll be updating this post with more reactions and as things develop.
Big 4 firms are the answer to the question “What happens when you let a bunch of accountants with no creativity, imagination, vision or charisma actually run a real company?”
If it weren’t so destructive to the accounting profession, it would be hilarious watching all the Big 4 firms falling over themselves to appear as leaders in the AI revolution rather than the uninspired followers that they all are. My favorite is the managers and directors who drank the kool-aid and are selling the AI bullshit because they think it will advance their careers, when in fact they are just hastening their own demise. Reminds me of cashiers at the supermarket who encourage customers to use the self check-out.
My fear is that rather than let the accountants run the company, the accountants have started to let the consultants run the company. Lots of vision, lots of creativity, and lots of fancy words as window-dressing for a lack of technical know-how and a detrimental focus on growth over accuracy.
The longer I work in this career, the more I learn to be wary of new tech leveraged in the tax return and/or financial statement prep process.
It’s always one side of the team understands how the tech works but barely understands the tax side and the other side of the team understands the tax/technical side but doesn’t understand the tech. Yes there are unicorns, but the only unicorns I’ve had the pleasure of working with are the ones that don’t understand the tech AND don’t understand the tax side.
AI will ultimately just create an even larger disconnect between the raw data/financials and the ultimate deliverable (tax return or audited financials statements) just like how whole cohorts of staff at the largest accounting firms probably don’t understand their debits/credits.
Pretty soon the visionless and unimaginative Big 4 firms will stop hiring accounting majors and instead bring on computer science and engineering majors to “supervise” the AI doing all the work. What could possibly go wrong at an accounting firm where only the AI (sort of) knows how to do accounting?
Aside from the fact AI is great at hallucinating information, there’s the part where every AI company is actually hemorrhaging money. They are losing on every single prompt. The energy and computing costs are far higher than what they’re being paid. It’s entirely possibly that to achieve profitability they will have to raise prices substantially, which may make the cost of using an AI constantly to be simply more than letting Steve the Associate do the work. We will see what happens, eh?