Good morning, capital markets servants! I have some news for you.
I don’t follow the Fed these days, certainly not as dutifully and angrily as I did back when both this website and I were young, but happened to stumble across an interesting story today about a former employee of the Richmond Fed who’s going to be sentenced for insider trading.
A bank examiner, 44-year-old Robert Brian Thompson had access to non-public information that he leveraged into stock profits. Profits that he then put into savings (“I wasn’t seeking an extravagant, lavish lifestyle,” he told the judge. “My intent was financial security for my children because I wanted to prevent them from feeling the impact of parents’ struggling financially and the subsequent domino-effect.”)
For his Capital One trades, court filings state that in 2023 Thompson used information from internal Fed emails showing that the bank’s yet-to-be-released earnings would significantly exceed market estimates.
Just hours before Capital One was set to release those earnings publicly, Thompson purchased 7,500 shares of Capital One stock at a cost of $678,000, or $90.40 per share.
The stock jumped 9% the next day after the earnings release and Thompson sold his shares at $100.98 apiece, resulting in a profit of $79,000.
Then there’s this, something I think many of you can relate to:
Some of his troubles began, he said in the letter, from “mounting pressure of the job and feelings of being unappreciated professionally and financially,” at the Fed.
That led to depression and a “concerning dependence on alcohol.”
The Canadian PCAOB is going to start naming names.
Until now, the Canadian Public Accountability Board (CPAB), which oversees the accounting firms that audit publicly traded companies, has been prohibited from reporting which firms have the best and worst records in their annual inspections. In its 2023 report, CPAB said two of Canada’s four biggest audit firms fell below its standards, but did not name them.
However, CPAB says it has now secured changes to provincial regulations and laws across Canada that will allow it to release individual firm inspection reports.
CPAB chief executive officer Carol Paradine said in a statement that it is “a final step in our initiative to enhance the information we disclose and will allow us to provide greater transparency for the investing public, audit committee chairs and other stakeholders across Canada.”
Name-and-shame reports will start appearing in early 2026.
Meanwhile, the UK PCAOB is asking itself if its inspection and punishment process is working:
The UK accounting watchdog will review how it investigates misconduct at firms, including reviewing publishing findings and developing “broader” tools to use in place of some probes.
The Financial Reporting Council said on Thursday that an “end-to-end” review would consult on its investigation processes, examining every step of a probe from when one is triggered to publication of the outcome.
The review will consider whether the FRC should use “a broader and more graduated set of options” to resolve misconduct in some circumstances when an investigation might normally take place.
Evidently “accounting firms have privately complained about complex and burdensome questions from the regulator during lengthy investigations that they say tie up key partners and place them under stress,” wrote FT.
Private equity is now eyeing law firms and The Times has a story about it. They do a pretty good job of explaining how accounting firms and law firms require a different approach.
PE has historically been nervous of investing in professional services firms because they are fundamentally “people businesses”, meaning that if their star performers head for the door, it can hit a firm’s prospects overnight.
However, Neil McManus, head of business services M&A at KPMG UK, said that buyers had managed to resolve the threat to staff retention when bidding for accountancy firms.
“Typically, a partner will receive a cash windfall and some equity value in the future business [from the buyer]. They may also be tied to an earn-out, which pays out only if they stick with the firm. So there are several incentives buyers can use to keep partners from heading for the door.”
But [managing director of the investment bank Houlihan Lokey Oliver] Vaughan, who advised accountancy firm Cooper Parry on its sale last year, said that it may be more complex to sell lawyers than beancounters: “It is similar to the accounting thesis, but if you take a legal firm versus an accounting firm, they are very different … I think the legal services market is more nuanced.”
“Nuanced” could mean that the lawyers are going to extract better deals. Because they’re lawyers.
FT Alphaville tackles Tesla’s accounting in “$1.4bn is a lot to fall through the cracks, even for Tesla“:
As Tesla’s car sales and share price plummet in response to Elon Musk’s political and physical stances, we would like to draw readers’ attention to something puzzling in the group’s accounts.
Compare Tesla’s capital expenditure in the last six months of 2024 to its valuation of the assets that money was spent on, and $1.4bn appears to have gone astray.
The sum is big enough to matter even at Tesla, and comes at a moment when attention is returning to the group’s underlying numbers, now that its fully diluted stock market valuation has crashed from $1.7tn to below $800bn.
Dear consultants, you’re engineers now. That’s according to this quote in “The Big Four is betting on AI agents — and working out how they will transform consulting,” published in Business Insider:
“It is no longer acceptable at Deloitte to not take an engineering first mindset,” Wanner, who helps lead AI staff development at Deloitte, said. As the industry shifts, Deloitte employees need to act as “technologists and engineers first,” and “consultants second.”
Question. Do Germans who work at this office have to put KPMG AG Wirtschaftsprüfungsgesellschaft on their business cards and email signatures?
It apparently means “auditing firm.” What a mouthful.
EY Sustainability Global Markets Leader Gerard Gallagher said something funny: “sustainability has a new best friend, and it’s capitalism.” Sustainability Magazine writes:
This notion, while potentially controversial, underscores a fundamental shift in how businesses approach sustainability.
“We’re in this sort of time now where sustainability must be paired with value and must be bringing that in for a lot of companies to be able to be ironically, you know, sustainable long term,” John McCalla-Leacy, KPMG’s Global Head of ESG, notes.
Potentially controversial? That’s full-on getting one-star bombed on Yelp if the Reddit climate warriors find this. Maybe they’ll even boycott EY lol.
Alright that’s it. Please let me know via email or text if you see an interesting story, have a tip, or just want to complain. We love complaining here. Have a great week!
