Category: SEC

The New Inspections Director at the SEC Will Enjoy Low Expectations

relax.jpgA little afterthought on Carlo di Florio’s new gig as the director of the Office of Compliance and Inspections and Examinations (“OCIE”). And no, we’re not caving to the request of some to go ape over the revolving door that is every financial regulatory agency.
Our thought is this man has absolutely no pressure heading into his new job. None. Look at the track record of his predecessor:

Lori Richards, who had headed OCIE since its creation in 1995, left the SEC last August. She was one of several high-level officials, including the enforcement director, who departed the agency after Schapiro took the helm in January 2009.
…
Kotz has detailed how the SEC bungled five investigations of Madoff’s brokerage business between June 1992 and December 2008, when the financier confessed to his sons that he was operating a fraudulent scheme. Top SEC officials have pledged to fix the problems and said they have made major changes.

So essentially he’s following 13 years of utter incompetence.
Plus, according to the Commission, Carlo was a dynamo at P. Dubs helping them build their “corporate governance, risk management and regulatory compliance practice[s]” and was a top dog for “[investigating] corporate fraud, corruption, conflicts of interest and money laundering.” So if he’s the jim-dandy they say he is, he’ll be finding fraud in his sleep. The SEC is in total rebuilding mode and he’s following over a decade of failure so is there anything he could possibly do to screw this up? A few decent busts a year and this guy will go down in history like Eliot Ness.
Well played, Carlo. Well played indeed.
Head of SEC Inspections Office Named [AP via NYT]

A Note to the SEC

Web CPA, October 30, 2009:

Kroeker reiterated earlier statements that he and SEC Chair Mary Schapiro had made, indicating the SEC was turning its attention this fall to the proposed IFRS roadmap. When asked about the date, Kroeker said, “There will be follow-up on the roadmap this fall.” Asked to define the word “fall,” he noted that the season ends on Dec. 21.

Fall ended at 12:47 pm EST today. Anyone seen this map?

SEC to CPAs: Consider the Investors or You Will Be Dealt With

jameskroeker.jpgServants of the capital markets, in your day to day activity have you been thinking about the investors out there that depend on you? What they need? What they want? Do you really know them? If not, the Chief Accountant would like you to start, pretty please:

Securities and Exchange Commission Chief Accountant James L. Kroeker told leaders of the accounting profession that independent auditors will be expected to consider the interests of the “investing public” — not just their audit clients — when performing their duties.
The mission of his office will be to “put investor protection at the forefront in all that we do,” he said in an address to the American Institute of CPAs’ National Conference on SEC Developments.
Under his watch, “you are likely to notice we will be more proactively seeking to understand and discuss the views of investors.” Accountants “should not be surprised when we ask you whether you have considered the perspective of the investing public.”

He does think that majority of you are a-okay and “are honest hard-working professionals who simply want to ‘do the right thing,'” but dang it, are you sure you’re thinking about investors? All the time? Like, right this second? That’s your job, you know. The OCA just wants to jump your shit remind you.
And if you’re not thinking about investors, you’ll be dealt with professionally but don’t confuse that with a regulatory rollover. Expect something more along the lines of wishing you were never born:

“You should not confuse professionalism with a notion of leniency. Those who fail to live up to their responsibilities and those who cause harm to investors or our capital markets can expect that we will take appropriate action.”

Got it? The SEC dream team will deal with you that don’t start taking this shit seriously. You see those crazy-eyes? You think he’s joking? Now get back to it, with investors on the brain.
SEC Chief Accountant Tells CPAs to Consider Investors [Web CPA]

Some Former New Century Execs Are Not Having a Good Monday

Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for 140px-United_States_Securities_and_Exchange_Commission.pngFormer executives of New Century, the Southern California subprime lender that filed for bankruptcy in 2007, are the latest examples on the SEC’s “We’re Back to Cracking Skulls” tour. The SEC has filed a civil complaint against former CEO Brad Morrice, CFO Patti Dodge, and controller David Kenneally.
From the press release:

In its complaint, the SEC alleges that New Century disclosures generally sought to assure investors that its business was not at risk and was performing better than its peers. Defendants, however, failed to disclose important negative information, including dramatic increases in early loan defaults, loan repurchases, and pending loan repurchase requests. Defendants knew this negative information from numerous internal reports they regularly received, including weekly reports that Morrice ominously entitled “Storm Watch.”
The complaint also alleges that Dodge and Kenneally fraudulently accounted for expenses related to bad loans that it had to repurchase. In the face of dramatically increasing loan repurchases and a huge, undisclosed backlog of repurchase demands, Kenneally, with Dodge’s knowledge, made changes to New Century’s accounting for loan repurchases in both the second and third quarters of 2006. These undisclosed accounting changes violated generally accepted accounting principles and resulted in New Century’s improperly avoiding substantial repurchase expenses and materially overstating its financial results.

“Violated generally accepted accounting principles” has got to make more than a few people at KPMG nervous. Especially if you’re the partner that wrote, ‘As far as I am concerned, we are done. The client thinks we are done. All we are going to do is piss everybody off.’ We’re guessing he/she wasn’t on the ‘Storm Watch’ mailing list, otherwise KPMG might not have a $1 billion lawsuit on its hands.
SEC Charges Former Officers of Subprime Lender New Century With Fraud [SEC Press Relase]
Also see:
SEC Charges Former New Century Executives With Fraud [WSJ]
S.E.C. Accuses 3 New Century Ex-Officers of Fraud [DealBook]

The Latest Badge of Honor for the SEC

[The] GAO says the SEC ended its fiscal year on Sept. 30 with ineffective internal control over financial reporting, a now recurring theme ince [sic] the SEC was first required in 2002 to submit audited financial statements to Congress and the Office of Management and Budget.
“In connection with our prior audits, GAO has made numerous recommendations to SEC to address the internal control issues that continued to persist during fiscal year 2009,” GAO wrote in its report. The deficiencies that most troubled the government auditor were problems with information security, financial reporting processes, fund balance with the U.S. Treasury, registrant deposits, budgetary resources, and risk assessment and monitoring processes.
The deficiencies add up to a material weakness, GAO said, giving good reason to wonder whether data processed by SEC’s systems are reliable and adequately protected.

SEC Gets Another Material Weakness Finding from GAO [Compliance Week]

The SEC Is Still Putting the Dream Team Together

Thumbnail image for Thumbnail image for Thumbnail image for 140px-United_States_Securities_and_Exchange_Commission.pngWhen tasked with protecting investors by going after the likes of Mark Cuban, the key players must be selected very carefully. Accordingly, the SEC continues to make key appointments in due course. The newest guardian of the investing public is Paul Beswick. He will serve as the head of the Accounting Group in the Office of the Chief Accountant (“OCA”).
For those of you not intimately familiar with the SEC’s enigmatic web, the Accounting Group is the portion of the OCA that likes to stick its beak into the biznass that matters most to accountants and auditors:

The Accounting group works closely with private-sector accounting bodies such as the Financial Accounting Standards Board. Registrants, auditors, and other divisions and offices within the SEC regularly consult with the group regarding the application of accounting standards and financial disclosure requirements.
Mr. Beswick will continue to support the Office of the Chief Accountant’s work related to oversight of the Public Company Accounting Oversight Board (PCAOB) until a replacement is named for his prior position.

Administrative matters simply do not appear to be at the top of the Commission’s to-do list. Understandably, there have been far more pressing matters, such as training employees, developing SIMS for personal finance education (with Bust Out while you wait) and appointing 20-something Chief Operating Officers. Your continued patience is appreciated.
Paul Beswick Named SEC Deputy Chief Accountant in Charge of Accounting Group [SEC.gov]

CFO of the Week: Chen Tang

CFO_insider.jpgNot to mention father of the year and buddy for life.
Chen Tang, a former CFO of a private equity fund in San Francisco, is being accused of running an insider trading ring that includes friends, relatives, and his two daughters, aged 9 and 11.
Allegedly the ring made off with $8 million trading on non-public information related to Tempuc-pedic International, Inc. and Acxiom Corporation.
Tang’s daughters are considered relief defendants, as trades were carried out in brokerage accounts opened in their names. Personally we’d like to see them charged as the masterminds in this case but nothing in the complaint indicates that they knew anything about the scam.
The SEC stays on a roll with this latest bust, however this is the first case that we’ve heard of that includes minors (but still probably have maturity levels that are above Mark Cuban’s). The SEC obviously has to maintain the blind justice concept, so no mercy will be shown on the two pre-teens who probably spent the money on Miley Cyrus tickets.
The SEC’s latest haul includes two kids, aged 9 and 11… [FT Alphaville]
SEC Charges Former CFO and Six Relatives and Friends in California-Based Insider Trading Ring [SEC Press Release]

The SEC’s Education of the Public Now Includes Video Games

Thumbnail image for Mary Schapiro.jpgJust when you thought the SEC had run out of good ideas, investor.gov comes along and just blows your mind all over again.
Nevermind Mary Schapiro’s surprisingly pleasant welcome and tips on how to avoid fraud. The Money Game page is where the real ingenuity comes into play.
Moneytopia takes a while to load, which obviously serves as proof that this latest method of educating the public has caught fire like no one could have expected.
Except for the Commission that is. Lucky for us, Schape & Co. had the foresight to realize how popular Moneytopia would be and allows you to play Bust Out while you wait.
When the game finally loads (after our horrendous score of 600), Moneytopia takes a stab at our earlier suggestion regarding financial statements, using cartoons and make believe wealth and connections to explain how to be not only a better investor but an honest investor. Like we said, another bullseye.

Ex-Deloitte Analyst Is the New Wunderkind at the SEC

Thumbnail image for gun_awkward.jpgWunderkind is a little premature but we’re hopeful! Awhile back we encouraged you to help the ailing Securities and Exchange Commission get its act together. We had really no expectation that anyone would take us seriously.
On Friday, the Commission announced that 29-year old Adam Storch would be the new Chief Operating Officer of the enforcement division. Storch joined the SEC on October 13th to assume the newly created position.


It’s pretty obvious that Storch craves letters behind his name as he has “certifications in accounting, fraud examination and auditing” according to Bloomberg. JDA isn’t impressed:

As a 28 year old myself let me tell you, this is beyond disheartening. We should not be in charge of anything, much less our nation’s regulatory enforcement. We are a generation of self-centered, lazy morons (yeah I said it) and sure there are a few exceptions but for the most part, no one my age will do anything unless they get a pat on the head and a “good boy” gold star just for pissing in the toilet instead of on the floor.

The biggest headline grabber (aside from urination accuracy) is that Storch is an ex-Goldman employee which is all fine and dandy for conspiratorial purposes but he is also an ex-Uncle Dangler where he was a, GASP, “senior analyst”. He’s definitely kicking himself for missing out on 100% free preventive healthcare.
The ‘Berg doesn’t have many other details on the Enforcement Division’s new fearless leader, so we invite any details on Mr. Storch for those that worked with him. Boxers or briefs? Boozehound or teetotaler? Does he get to carry a gun at the Commission? Since he’s in “enforcement” he’s got to be packing, especially as the COO. Khuzami probably has to take off the trigger locks for him though. Good luck man.
SEC Names Goldman’s Storch as Enforcement Unit Operations Chief [Bloomberg]

The SEC Probably Thought Madoff Victims Would Just Let the Whole Thing Slide

Thumbnail image for Thumbnail image for Thumbnail image for 140px-United_States_Securities_and_Exchange_Commission.pngFinally someone has had enough of the SEC’s new-sheriff-in-town act and is suing their asses for missing Bernie Madoff’s not so subtle Ponzi scheme.
Two victims are suing the House of Schape for their money that just up and disappeared, which amounts to $2.4 million. The suit also serves as a friendly reminder for the Commission that they sucked at their jobs big time for the better part of a decade.
According to the suit, the two victims, Phyllis Molchatsky and Steven Schneider, initially tried playing nice by filing administrative claims with the SEC but the Commission told them to get bent, thus allowing Molcahtsky and Schneider to sue in Federal court.
This may result in other Madoff victims filing suit as well, so our advice to M. Schape would be to call over to the Fed and to see if she can borrow that money printing machine.
Two Madoff victims file lawsuit against the SEC [Reuters]
See also: Madoff Victims Devise Hedging Strategy [DB]

Mary Schapiro Would Never Support Low Quality Global Accounting Standards

Mary Schapiro.jpgWhether Mary Schapiro was just craving Toblerones right out of the factory or just needed to cool off after head butting the staff involved in the Mark Cuban case to get them fired up, the Chair of the Commission is over in Basel, Switzerland letting some other Schape-types know that she’s 100% behind “a global set of high-quality accounting standards.”
That’s great and all but why do we keep hearing the phrase ‘high-quality accounting standards’? Maybe it’s our wild imagination but is there a back room somewhere filled with bizarro accountants devising a plan to develop “the biggest set of piss-poor global accounting standards you could possibly imagine”?
Is that why the convergence will take so long because there are opposing forces with their own agenda? We all want quality accounting standards M. Schape unless you’re not telling us the whole story.
SEC seeks common goal for accounts [FT]

The SEC Still Wants a Piece of Mark Cuban

markcuban.jpgThat’s right! Schape and Co. are coming heavy this time bitch. They don’t know who you think you are, Mark Cuban, but you think you can just walk away from avoiding negligible losses to your net worth and get away with it? OH HELL NO.
The Commission is going to continue pursuing your alleged insider trading ass even though they haven’t been able to present a shred of evidence that you promised to sell those shares. No matter, they’ll pull something together.
Oh, and another thing Mr. Man-Child, the Commission won’t be paying your attorney fees. They realize you’re suing out of spite and regardless their hard-on for billionaires in their 50s that wear basketball jerseys, they won’t stand for it.
S.E.C. to Appeal Court Ruling on Mark Cuban [DealBook]