Tag: SEC

Despite Big Name Supporters, SEC Self-funding Falls By the Wayside

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

As President Obama gearsng financial regulatory bill, one little discussed but important potential provision that did not survive the final version would have provided for self-funding by the Securities and Exchange Commission.

This is a policy advocated by people like New York Senator Chuck Schumer and Representative Barney Frank as well as SEC chairman Mary Schapiro. It would enable the agency to use some or all of the fees and/or fines it collects to pay its bills.


In fact, other financial regulators are currently self-funded, including the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.

Wachtell Lipton Rosen & Katz points out that a proposal that the SEC should be able to fund itself based on the fees it collects was ultimately rejected. Instead, the conferees agreed that the SEC should continue to be subject to the Congressional appropriations process, and provided for certain baseline appropriations through 2015, according to the law firm. It adds that the proposed Act also requires the White House to submit unaltered to Congress the SEC’s annual budget, and establishes a $100 million reserve fund.

This is a controversial issue and current and past commissioners are divided over whether this is a good idea.

Opponents say self-funding would create a conflict of interest because it would increase the SEC’s incentive to seek the largest possible fines. Former commissioner Luis Aguilar, who supports self-funding, is sensitive to these concerns. So, he supported self funding, but only based on fees and registrations, not fines.

He had pointed out that the 2010 budget of slightly more than $1 billion is well below the $1.4 billion or so the SEC figures to bring in from those fee sources. Self-funding could also enable the SEC to attract better candidates by increasing the pay scale, something Representative Frank says he supports.

One former chairman told me last year he doubts Congress would go along with self-funding. He asserts the system of campaign finance has given the business community leverage over Congress, whose main lever of control over the SEC is its budget. “When big patrons come to see them and say stop the SEC, the power of the purse is critical to them,” the former chairman insists.

Back in June, 40 prominent securities lawyers fired off a letter asserting that a self-financed SEC “is one of the most important parts of the financial services reform legislation presently before you.”

They pointed out that from 2005 to 2009, the SEC collected about $7.4 billion from transaction and registration fees, which were turned over to the government, but Congress appropriated just $4.5 billion for the agency’s budget during that period. “The chronic under-funding of the SEC has severely impeded the SEC’s ability to keep pace with market and technology changes,” the lawyers stated. “After shrinking in size for a number of years, the SEC is only now beginning to grow again. Meanwhile, the securities industry and corporate activities it regulates have grown tremendously in size and sophistication over the last two decades.”

They noted that between 2004 and 2007 SEC enforcement and examination staff declined 10 percent and its information technology initiatives plunged 50 percent, while at the same time, trading volume doubled, the number of investment advisers jumped 50 percent and the funds they manage grew almost 60 percent.

In a speech in June, Schapiro insisted that self funding ensures independence, facilitates long-term planning, and closes the resource gap between the agency and the entities the SEC regulate. “In the process, it allows the SEC to better protect millions of investors whose savings are at stake,” she added.

Self funding also ensures an SEC that is more effective at identifying and addressing the kinds of risk that dealt a significant blow to the American economy, she told her audience.

Schapiro pointed out that in the immediate post-Enron era, the SEC saw significant increases in its budget. But funding dropped just as markets were growing in size and complexity. At the height of the pre-financial crisis frenzy, Schapiro added, the SEC was actually forced to reduce staff. “Only now can we afford to begin to develop the new technology that will allow us to evaluate, store and retrieve the kind of tip information that might stop the next major fraud,” she said.

Schapiro said self funding would have many benefits for investors: It would allow the SEC to increase its professional and technical capacity, to keep up with the financial industry’s rapid growth; It would enhance our long-term planning process, allowing the SEC to address the increasingly sophisticated technologies, products, and trading strategies adopted by the financial services industry; and, It would provide the flexibility to react to developing risks in the same way that our domestic and foreign counterparts did during the recent financial crisis, with rapid staffing and strategic responses that help control systemic damage.

She added: “To truly protect investors to the best of their abilities, they need the independence, planning ability and resources that self funding provides.”

Accounting News Roundup: Quasi-Exodus at H&R Block?; National Taxpayer Advocate Issues Report That Congress Won’t Read; SEC Might Want to Take a Closer Look at Amedisys | 07.08.10

H&R Block names Alan Bennett as CEO [AP]
This all came about since Russ Smyth resigned, made official by a two sentence 8-K filing, “On June 30, 2010, Russell P. Smyth provided H&R Block, Inc. (the “Company”) with notice of his resignation as President and Chief Executive Officer of the Company, and as a director of the Company. The effective date of Mr. Smyth’s resignation from these positions is August 29, 2010, unless the Board of Directors selects an earlier date.”

It seems like there’s a quasi-exodus in the C-Suite at HRB as General Counsned on Friday and the company is still on the hunt for a CFO after Becky Shulman left in April.

Yahoo CFO Aims to End Buy-High, Sell-Low Record on Deals [Bloomberg]
Tim Morse told Bloomberg that the company has been doing things completely bassackwards, “You’ve seen our track record on M&A with buying really high and selling pretty low,” Morse said in an interview. “We’ve got to be careful.”

Some examples of doing things exactly wrong include, “Yahoo, the second-biggest U.S. search engine, agreed to sell its HotJobs website for $225 million in February after paying about $436 million for it in 2002. In January, Yahoo sold Zimbra, an e-mail and collaboration unit, netting $100 million. Yahoo bought it in 2007 for $350 million.”

Auditors could face grillings from analysts [Accountancy Age]
“Steve Maslin, chair of the partnership oversight board at Grant Thornton, envisages an expanded audit role which may involve greater face-to-face time with stakeholders, including question and answer sessions at annual general meetings.

‘Many investors believe there is valuable information that gets discussed by the auditors with management and audit committees to which investors do not have access – and I think they are right,’ he said.”


Legg Mason CFO resigns [Baltimore Sun]
Get your resumé in now.

FEI Announces 2010 Hall of Fame Inductees [FEI Financial Reporting Blog]
Come on down! “FEI’s 2010 Hall of Fame inductees: Karl M. von der Heyden, former Vice Chairman of the Board of Directors and Chief Financial Officer of PepsiCo, Inc., and Ulyesse J. LeGrange, retired Senior Vice President and Chief Financial Officer of ExxonMobil Corporation’s U.S. Oil and Gas Operations.”

National Taxpayer Advocate Submits Mid-Year Report to Congress [IRS]
Nina Olson’s mid-year report to Congress has plenty to wade through so that means none of the members will likely read it. Fortunately the IRS narrowed the three biggies (Taxpayer Services, New Business and Tax-Exempt Organization Reporting Requirements, IRS Collection Practices) into a much more consumable version.

Open Letter to the [SEC]: Investigate Troubling Issues at Amedisys Missed by Wall Street Journal [White Collar Fraud]
In Sam Antar’s latest WTFU letter to the SEC, he details some issues at Amedisys which weren’t covered in the Journal‘s report from back in April. Since we are into the whole brevity thing, we won’t get into the number crunching here but things look fishy. Plus there’s this:

On September 3, 2009, Amedisys President and COO Larry Graham and Alice Ann Schwartz, its chief information officer, suddenly resigned from the company. Amedisys provided no reason for their resignations and simply said that the two execs “are leaving the company to pursue other interests.”

In my experience, sudden, unexpected executive departures are often a sign of problems beneath the surface. And while it could be entirely coincidental, the trends at Amedisys appear to be consistent with my experience.

But Sam doesn’t believe in coincidences.

Accounting News Roundup: IRS Probing HSBC Clients with Accounts in Asia; Saints Deny State Money Was Taxable; Pot Tax Helps Helps Another California Budget | 07.07.10

HSBC Clients With Asian Accounts Said to Face Probe [Bloomberg BusinessWeek]
“The Justice Department is conducting a criminal investigation of HSBC Holdings Plc clients who may have failed to disclose accounts in India or Singapore to the Internal Revenue Service, according to three people familiar with the matter.

‘This is a global initiative by IRS and the Department of Justice,’ said Robert McKenzie, an attorney at Arnstein & Lehr in Chicago who said he spoke to two people who got letters.

The probes show how the U.S. is expanding its crackdown on offshore tax evasion beyond Switzerland and UBS AG, the largest Swiss bank, sa tax lawyer at Greenberg Traurig LLP in New York. London-based HSBC is Europe’s biggest lender by market value.

‘It’s clear that the IRS and the Department of Justice are intending to pursue other depositors outside of Switzerland,’ Kaplan said. ‘They’ve announced it before, and they are moving forward in that regard.’ “

A.T. Kearney, Booz Call Off Merger Talks [WSJ]
“A.T. Kearney Inc. and Booz & Co. called off discussions about a possible merger that would have given the two midsize firms greater scale in a highly competitive industry.

The two have flirted with each other multiple times over the years without completing a deal. The most recent talks occurred on and off over the past six months, says a person familiar with the matter.

The combined firm would still have been smaller than market leaders such as Deloitte LLP, McKinsey & Co. and Accenture Ltd in an industry where scale is increasingly important in wooing global business.”


Did Tax Ploy Help Saints Win Super Bowl? [Forbes]
If you feel so inclined, you could probably blame this on Reggie Bush but otherwise it’s probably due to some clever tax attorneys, “In a just-filed U.S. Tax Court lawsuit, the partnership owning the Saints acknowledges that it didn’t treat an $8.5 million annual payment from the state of Louisiana as income and therefore didn’t pay taxes on the sum. Rather, the team said the money was an addition to “working capital” and a nontaxable transaction.

The Internal Revenue Service insists the money should have been included in income by the franchise, owned for a quarter-century by auto dealer Thomas M. Benson Jr. The Tax Court case challenges that position.”

Pot Tax Helping Long Beach Plug Budget Deficit Faces Vote in California [Bloomberg]
“The city council of Long Beach, California, voted last night to pursue taxes on medical marijuana dispensaries, part of what may become a wave of communities turning to such proceeds to plug budget deficits.

The Los Angeles suburb with a population of almost 500,000 scheduled a public hearing on the drug levy for Aug. 3. If the council later approves the wording, a ballot initiative establishing a 5 percent tax on the city’s 35 dispensaries could go to voters in November, according to Lori Ann Farrell, Long Beach’s director of financial management.”

IRS Disbars CPA for Relying on Client’s Income and Expense Numbers [Tax Lawyer’s Blog]
How much due diligence should a tax preparer perform to be comfortable with their clients numbers?

Ex-Qwest Accountant Says SEC Should Be Sanctioned [CBS4]
“The SEC has said [James] Kozlowski hasn’t shown that it acted in bad faith. It has accused him of ‘theatrical conduct,’ including filing ‘numerous losing motions.’ Kozlowski’s attorneys dispute that.”

What’s the Next Move in This PCAOB Situation?

Jonathan Weil over at Bloomberg has a new column up today and he is less enthusiastic about the Supreme Court decision in FEF v. PCAOB than say, everyone else.

JW is mostly wondering why we should keep having an “independent” PCAOB inside the SEC since the board members will now be at the mercy of the towing the political line inside the Commission, “While the court

Supreme Court Ruling Could Expose PCAOB to More Political Pressure

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

We’re not quite as sure as others are that yesterday’s Supreme Court decision regarding SarbOx is so utterly meaningless regarding the future of the Public Company Accounting Oversight Board.

Sure, the court said the law is still fully in effect, blah, blah, blah.

But letting the Securities and Exchange Commission fire PCAOB board members for any reason instead of “for cause” could easily subject the board to significantly more political influence.


While Floyd Norris says the commission is unlikely to fire anyone on the PCAOB, the fact is the has commission has thrown its weight around in similar fashion in the case of the Financial Accounting Standards Board when companies have complained to Washington about FASB’s accounting rule making.

What’s to stop them from complaining to the SEC that the PCAOB is being too hard on its auditors, and the SEC from succumbing to that pressure?

Much depends, of course, on who’s leading the commission. Mary Schapiro might not easily bend to the political winds, but her predecessor, Christopher Cox, clearly did just that in connection with FASB.

After all, when during a conference on accounting I asked Conrad Hewitt, the SEC’s last chief accountant under Cox, about the SEC’s threat to hold up approval of FASB’s budget unless it let the commission vet nominations to the board in advance, Hewitt said the SEC was acting properly in its heightened role as the FASB’s overseer under SarbOx.

Yet a FASB member privately insisted to me afterward that the SEC had no authority to do what it did.

And at another conference a few months later, I asked Hewitt what the White House was telling the SEC to do about exemptions for small companies from SarbOx’s requirements for internal controls, the infamous provision known as Section 404. At that, Hewitt, as somnolent a figure as ever occupied the job, sat up in his chair as if he’d just had a bucket of cold water thrown in his face, and insisted that the SEC was an independent agency.

But given what happened to Cox’s predecessor, William Donaldson, I think Hewitt’s reaction to this question was disingenuous.

And both of his answers help explain why the big argument on the court yesterday over the theory of “the unitary executive” and the ability of the president to fire “independent” agency personnel isn’t quite as irrelevant to the PCAOB’s future as most everyone else seems to think.

Were PwC and Grant Thornton Ignoring Overstock.com’s Accounting Issues?

Yesterday we briefly picked up the Overstock beat as Sam Antar pointed out that everyone’s favorite Salt Lake City resident got a little confused about when they knew about their gain contingency existed that resulted in some contradictory disclosures.

As you may misremember, this arose from the company for recoveries from underbilled fulfillment partners by improperly claiming that a ‘gain contingency’ existed under accounting rules.”

Now Sam has pointed us to some correspondence between the SEC and Overstock that indicates that PwC wasn’t concerned about the issue until the Commission pointed it out and succeeding auditor Grant Thornton was unmoved until Overstock brought it up:

Please tell us if, and the extent of, your auditors’ national accounting office involvement in these issues during audit of your 2008 financial statements or the reviews of your fiscal 2009 quarterly filings.

PwC served as our auditor during the audit of our 2008 financial statements. PwC has informed us that it did not consult with its national accounting office regarding the above issues when they were identified in Q4 2008 or Q1 2009. However, in connection with this response to your letter dated November 3, 2009, PwC has consulted with its national office in regard to both the fulfillment partner under billing and partner overpayment issues and based on context of this being an area that is a highly facts and circumstances based issue that requires significant judgment where reasonable parties have different views, PwC continues to concur with our accounting and disclosure consistent with its reflection of the underlying economics and our past practices of not billing or collecting for our billing errors, rather negotiating for future price concessions that were contingent on future sales.

Grant Thornton (“GT”) reviewed our Q1 and Q2 2009 quarterly filings. To our knowledge the GT local engagement team did not review these issues with its national accounting office at the time of our Q1 and Q2 2009 quarterly filings. In early October, as we prepared our response to your October 1 letter, we asked GT for its national office’s opinion. It was our understanding at the time that GT’s national office concurred that we had used an appropriate (if not preferred) accounting treatment. Only after we received your November 3 letter, did we become aware that GT’s previous “national office” opinion had in fact been an “informal request” only, and not a “formal request.”

In the case of PwC, it’s entirely possible that they just trusted that OSTK knew what they were doing and went along with it. Obviously a huge mistake. When the SEC came calling however, they moseyed through it again and rang up the accounting wonks at 300 Mad.

But the Grant Thornton engagement team, who came in after all this went down was seemingly on board with it without consulting with its own national accounting gurus even though the SEC was already on this like stink on a monkey. GT making an “informal request” of its national office on an SEC inquiry seems a little tepid.

HOWEVER! You have to remember that this is all in the words of Overstock which hasn’t always been forthcoming/reliable/truthful in its filings. Then again, maybe there’s something to this whole auditor “Yes men” thing.

Accounting News Roundup: G-20 to ‘Stabilize’ Debt by 2016; Auditors May Be Forced into Whistleblower Role on Banks; Yes, Taxes Are Historically Low | 06.28.10

G-20 Agrees to Cut Debt [WSJ]
“The wealthiest of the Group of 20 countries said they would halve their government deficits by the year 2013 and ‘stabilize’ their debt loads by 2016, a signal to international markets and domestic political audiences they are taking seriously the need to wean themselves from stimulus spending.”

Once you catch your breath from laughing, the President also cited the tax code specifically and his threatening to put some (i.e. Congress) in a tight spot:

“They might have to make deeper cuts in deficits to comply with its pledge. A White House statement said that government debt in the fiscal year15, would be at an “acceptable level.” President Obama said that next year he would present “very difficult choices” to the country in an effort to meet deficit goals.

The president cited his disappointment with the U.S. tax code. ‘Next year, when I start presenting some very difficult choices to the country, I hope some of these folks who are hollering about deficits and debt step up, ’cause I’m calling their bluff,’ Mr. Obama said.”

Bank auditors eyed for whistleblower role [FT]
A paper from the UK’s Financial Services Authority puts forth the discussion of requiring auditors to work more closely with regulators on irregularities found during the bank’s audit engagement.

“Experts say bank executives are nervous about the prospect of increased bilateral discussions between regulators and auditors. Auditors have been fearful the paper could thrust the profession into a regulatory spotlight it has so far avoided.”

Koss Fraud: We didn’t bother to look at the endorsements on our own checks, but Grant Thornton should have! [Fraud Files Blog]
Fraud sage Tracy Coenen presents her latest view on the Koss fraud mish-mash and how Koss management has managed to make themselves “look like absolute morons.”


BP Loses $22 Billion in Legacy of Share Buybacks [Bloomberg]
“The sum represents the hole after the 52 percent plunge in BP shares since the Deepwater Horizon exploded and sank, resulting in the worst oil spill in U.S. history. BP bought back more than $37 billion of its stock in a bid to return money to investors between 2005 and 2008. Those shares are now worth $15 billion, excluding dividends.”

Martin Ginsburg, Noted Tax Lawyer and Husband of Justice Ginsburg, R.I.P. [ATL]
Mr Ginsburg was a tax law professor at Georgetown for many years and was known for his great sense of humor, as evidenced by his faculty bio, noted by our sister site, Above the Law:

Professor Ginsburg is co-author, with Jack S. Levin of Chicago, of Mergers, Acquisitions, and Buyouts, a semi-annually updated treatise which addresses tax and other aspects of this exciting subject. The portions of the treatise written by Professor Ginsburg are, he is certain, easily identified and quite superb.

Open Letter to the Securities and Exchange Commission Part 9: Overstock.com’s Excuses Simply Don’t Add Up [White Collar Fraud]
It appears Sam Antar has caught Overstock.com in another disclosure snafu but this time it isn’t really clear whether the company gave the wrong excuse, lied to the SEC or simply doesn’t know what they’re doing, “Overstock.com’s 2008 10-K report claimed that a reportable “gain contingency” existed as of November 7, 2008. However, the company contradicted itself and claimed to the SEC reviewers that reportable reportable ‘gain contingency’ did not exist on November 7, 2008.

If Overstock.com’s 10-K disclosure is true, the company’s explanation to the SEC Division of Corporation Finance can’t be true. Likewise, if Overstock.com’s explanation to the SEC Division of Corporation Finance is true, the company’s 2008 10-K disclosure can’t be true.”

Accounts bodies revise workplan [FT]
Convergence 2.0.

Today’s taxes aren’t too bad [Don’t Mess with Taxes/Kay Bell]
Kay Bell provides some perspective on tax rates over the last century. The following graphic should help clear up any confusion.


Accounting News Roundup: New Rule from FASB, IASB Will Bring Leases on Balance Sheet; California’s Latest Revenue Idea; Madoff CFO Released to House Arrest | 06.23.10

New Accounting Rules Ruffle the Leasing Market [NYT]
The convergence efforts by the FASB and the IASB have managed to produce a consensus on lease accounting and it has repercussions on both sides of the balance sheet.

“The two boards have come up with a new standard, which will be completed next year and enacted in 2013, that will require companies to book leases as assets and liabilities on their balance sheets. Currently, American and foreign companies list many leases as footnotes in their financial statements. As a result of the change, public companies will have to put some $1.3 trillion in leases on their balance sheets, according to estimates by the See Commission. Because many private companies also follow GAAP accounting, the number could be closer to $2 trillion, experts said.”

Middle-Class Tax Boost Is Broached [WSJ]
Reaction to Steny Hoyer’s call in a speech for Congress to quit lying to themselves was not met with enthusiasm.

The Journal reports that the GOP has different ideas, including House Orange leader John Boehner is quoted in the Journal, “Mr. Hoyer’s speech brought a round of criticism from Republicans, who emphasize spending cuts instead, and oppose allowing any Bush tax cuts to expire. House GOP Leader John Boehner of Ohio said Mr. Hoyer was admitting ‘that he supports raising taxes on the middle class to pay for more government spending.’ “

Rep. Oompa Loompa obviously didn’t hear the part of the speech where Hoyer addressed the “cut spending” broken record, “The eagerness of so many to blast spending in the abstract without offering solutions that come close to measuring up to the size of the problem.”


California could turn license plates into ad revenue space [Silicon Valley/San Jose Business Journal]
The latest out of the brain trust in Sacramento, “As California faces a $19 billion deficit, the Legislature is considering whether to allow license plates to become traveling ad spaces.

When the vehicle is moving the license plate would look like the ones we’re used to now, but when the vehicle stops for more than four seconds a digital ad or other message would flash. The license plate number would always be visible.”

Madoff crony sprung [NYP]
“Earlier yesterday, former Madoff CFO Frank DiPascali Jr. was released to house arrest.

A grizzled-looking DiPascali refused to answer questions about the report in Monday’s Post that Madoff told fellow jailbirds that DiPascali knows the identity of three people the Ponzi king gave money to shortly before his arrest.

A judge initially refused prosecutors’ requests that DiPascali be released so he could assist in their ongoing probe, but in February he won a $10 million bail package based on his extensive cooperation.”

BP confirms Bob Dudley in key Gulf clean-up role [AP]
Knock ’em dead!

Business Leader Slams ‘Hostile’ Policies on Jobs [WSJ]
“In comments marking one of the sharpest breaks between top executives and the Obama White House, [Verizon Communications CEO Ivan] Seidenberg used a speech at Washington’s Economic Club to unleash a list of policy grievances over taxes, trade and financial regulation.

Mr. Seidenberg’s comments are particularly notable because he heads the Business Roundtable, a group encompassing the chief executives of the nation’s largest listed companies whose members have enjoyed frequent access to the president and his top aides. Its leaders have advised the White House on topics from economic recovery to health care to clean energy.”

SEC Self-Funding Is A Mistake! [The Summa]
“In support of SEC self-funding, SEC chairs always argue in public that they lack sufficient and consistent funding to enforce securities laws and regulations. As proof, they point out that Congress occasionally cuts back on SEC funding.

What they don’t mention is that the budgetary review process provides an opportunity for Congressional oversight of the SEC. When the SEC is performing poorly, say due to the atrocious leadership of the Chairs (i.e., Cox and Schapiro), a Congressional budget cut is a natural and effective response. Of course SEC chairs want self-funding, it gives them a pass from oversight. Who wouldn’t want that?”

Accounting News Roundup: More Execs Say Benefits Sarbanes-Oxley Outweigh Costs; New Jersey Millionaire Tax Fails; Has the SEC Learned Anything? | 06.22.10

As Congress Mulls SOX Exemption, Survey Suggests Acceptance [Compliance Week]
Just when Sarbanes-Oxley compliance was about to get torpedoed by the financial reform bill, a new study comes out that shows companies are starting to see benefits from the legislation, “In its 2010 Sarbanes-Oxley compliance survey, Protiviti says 70 percent of executives in at least their fourth year of working to comply with Sarbanes-Oxley say they believe the benefits outweigh the costs. That’s a big swing from the first year the firm asked the same question and heard only 39 percenbenefits greater than the costs.”


Showdown Over Strippers [WSJ]
Some people in the Show Me State are not interested in living up to that name, “Last month, the Republican-controlled legislature passed one of the nation’s toughest state laws aimed at strip clubs and other adult-entertainment venues. It would ban nude dancing and the serving of alcohol in adult cabarets, force strip clubs to close at midnight and forbid seminude dancers to touch patrons.”

The legislation is currently awaiting sign/veto from MO Governor Jay Nixon.

Opponents argue that the state’s very economic recovery is at stake, “Club owners and dancers say that the venues rarely attract crime, and that the new rules would be so strict that hundreds of jobs and millions of dollars in state revenue could be lost at a time when Missouri’s economy is struggling to recover from the recession.”

JP Morgan Names Doug Braunstein CFO in Shake-Up [AP]
“JPMorgan Chase said Tuesday it is shuffling the positions of three executives, including naming a new chief financial officer. The shake up is part of a program JPMorgan Chase has put in place to have executives work across multiple divisions to broaden their experience. Doug Braunstein is taking over as CFO. He was previously head of the bank’s investment banking division in the Americas. Braunstein, 49, replaces Michael Cavanagh, who had served as CFO since 2004. Cavanagh was named head of the bank’s treasury and securities services business.”

Tropical Storm May Pose Threat to BP Spill Cleanup [Bloomberg]
The first storm of the Atlantic hurricane season may enter the Gulf of Mexico as soon as next week, possibly disrupting BP Plc’s efforts to clean up the worst oil spill in U.S. history.

Thunderstorms in the Caribbean may strengthen into a tropical storm this week before heading into the Gulf between Mexico and Cuba, said Jim Rouiller, a senior energy meteorologist at Planalytics Inc. in Berwyn, Pennsylvania.

“The first named tropical storm of the 2010 season appears more likely to form over the northwestern Caribbean late this week and will go on to represent a formidable threat to the Gulf, along with heightening concerns about the oil slick,” Rouiller said in an e-mail yesterday.

Forecasters are predicting this year’s Atlantic hurricane season, which runs from June 1 to Nov. 30, may be among the most active on record and hamper the U.K. oil company’s efforts to plug the leaking well. AccuWeather Inc. forecast at least three storms will move through the region affected by the spill.

New Jersey Democrats fail to extend millionaires tax [Reuters]
Garden State millionaires rejoice!

SEC Crazy Talk [Portfolio/Gary Weiss]
Sam Antar recently turned over 37,000 documents to the Securities and Exchange Commission but not because the SEC was getting nostalgic for the Crazy Eddie days.

The SEC wanted documents, emails etc. from both Antar and Fraud Discovery Institute founder Barry Minkow on companies that have been covered by both men. The information relates mostly from information obtained from short-sellers. However, Gary Weiss writes that the SEC also asked for emails that the two exchanged with two reporters and from Antar’s ex-wife.

Gary thinks that this poking around by the Commission is all too familiar, “Well, I think what we may be seeing is a repeat of the [David] Einhorn fiasco, and then some,” referring to the SEC’s investigation into Einhorn’s criticism and short-selling of companies.

Einhorn was eventually vindicated and the companies – most notably Allied Capital – outed for their shady practices. Why the SEC is digging around the very people trying to help them isn’t quite clear but then again the SEC doesn’t have the greatest track record.

Accounting News Roundup: IASC Names New Chairman; New York Tax on Smokes To Get Even Higher; Medifast’s Revenue Recognition to Get Another Look? | 06.21.10

Accounting Body Picks New Chief [WSJ]
“Former Italian Finance Minister Tommaso Padoa-Schioppa has been named to head the group that oversees international accounting rulemakers. Mr. Padoa-Schioppa will assume the chairmanship of the trustees of the International Accounting Standards Committee Foundation in July. The foundation’s monitoring board appointed him chairman for a three-year term. The IASC Foundation oversees the London-based International Accounting Standards Board, selects its members and raises funds for its operations. It also helps promulgate the move toward a single set of accounting rules used world-wide.”

New York Reaches Deal to Raise Cigarette Tax [NYT]
Smokers might want to start hoarding cartons as Governor David Paterson and legislators have reached a tentative agreement to raise the cigarette tax in New York. Taxes on cigarettes in NYS, currently $2.75 a pack, would rise an additional $1.65. Taxes in New York City would rise to $5.85 a pack, marking the first city in America with a tax of greater than $5 on cigarettes.

The proposal would raise $440 million this year, according to the Times. The state’s budget deficit is approximately $9 billion.


Open Letter to the Securities and Exchange Commission: Is Medifast Complying with Revenue Accounting Rules? [White Collar Fraud]
Sam Antar is a little skeptical about a plethora of Medifast’s financial reporting and disclosures including: revenue recognition policy, “the company is possibly recognizing revenue up to 8 business days too early”; their low allowance for doubtful accounts, “the $100,000 reported for such an allowance does not seem reasonable enough given Medifast’s volume of revenues and the dates it either ships or delivers its orders to customers after processing them.”; and lack of deferred revenue liabilities, “Medifast’s financial reports going back to 2004 disclose no deferred revenue liabilities for customer orders processed before each fiscal year ended and either shipped or delivered after those respective fiscal years.”

This trifecta has Sam concerned enough that he’s asking the SEC to poke around a little more than they did the last SEC review in 2007, when the SEC found…nothing.

BP Chief Draws Outrage for Attending Yacht Race [NYT]
Probably seemed like a nice idea at the time, “BP officials on Saturday scrambled yet again to respond to another public relations challenge when their embattled chief executive, Tony Hayward, spent the day off the coast of England watching his yacht compete in one of the world’s largest races.”

BP, Transocean tap a well of Washington lobbyists and consultants [WaPo]
The obvious solution to CEOs attending yacht races, Joe Biden-esque articulation and such is paying someone a lot – a lot – of money to rep these companies. It’s pretty much the only option they have left.

Accounting News Roundup: UBS Set to Release More Names as Standoff Ends; SEC Drops Cassano Inquiry; Levin, McCain Want Stock Option Gap Closed | 06.17.10

Swiss Parliament Backs UBS Pact [WSJ]
After a short standoff in Swiss parliament, Swiss lawmakers approved the agreement with the U.S. to turn over the remaining names of UBS clients, per the agreement between the two countries. The lower house dropped the referendum proposal that would have delayed the release of the names and likely caused UBS to miss the August deadline which would have resulted in new charges against the Swiss behemoth.

The Journal reports that a Swiss government is prepared to release an additional 1,200 names following the initial 500 released last year.

Lawmakers Weigh Changes tostor Protections [Bloomberg BusinessWeek]
Congress is kicking around the possibility of an office within the SEC to respond to whistleblower complaints. Brilliant!


McGladrey Mourns the Loss of Former Partner Ray Krause
Mr Krause passed away on Monday after 40 years of service to both McGladrey and the accounting profession. He served on many professional standard setting groups including AICPA’s Accounting Standards Executive Committee, the Financial Accounting Standards Board’s Emerging Issues Task Force, and on the Financial Accounting Standards Advisory Council. H was memorialized by his friend and colleague Jay Hanson, McGladrey’s National Director of Accounting:

Ray died unexpectedly yesterday. He was on vacation in Orlando with his nine-year-old grandson doing what he loved—visiting Disney World.

Before his retirement six years ago, Ray spent more than 40 years with McGladrey. He practiced in a number of locations, including a long stop in the national office as national director of accounting. He retired as partner in 2004 but continued to work for the national office part-time in Rockford, Ill.

During his long career, he served in a number of professional standard setting groups, including the AICPA’s Accounting Standards Executive Committee, the Financial Accounting Standards Board’s Emerging Issues Task Force, and on the Financial Accounting Standards Advisory Council.

Ray is best remembered for being the consummate professional and his easy-going style. He was very well respected in the accounting profession. Comments coming in from those that knew him include: “Ray was one of the true gentlemen of the accounting profession,” and “Ray was about as fine a human being as there is.”

He was a great mentor to many colleagues in the national office. His style of giving his complete attention to whomever he was talking to, providing understandable explanations for complex topics, probing deeply for all the facts, and his uncanny ability to help draw a conclusion with full understanding will be greatly missed. Ray could convey the message to someone that they were getting to the wrong conclusion with such delicacy that you didn’t even feel it, and felt good about the answer. He knew many of the “back stories” about how and why some of the most complex accounting standards came about, which is often important to understand what they mean.

Ray will be greatly missed by his daughter, son, four grandchildren and other family and friends. McGladrey and the accounting profession have also suffered a great loss.

Inquiry Ends on Cassano, Once of AIG [WSJ]
The SEC has dropped its investigation of Joseph Cassano, the former head of AIG’s Financial Products Unit, which means he won’t face civil charges in the unit’s role in financial crisis. The SEC is also declining to pursue charges against another AIGFP executive, Andrew Forster, who was also under scrutiny.

Senator sees big reporting gap in stock options [AP]
Senator Carl “Shitty Deal” Levin and new Snooki BFF John McCain “have proposed legislation that would require that the tax deduction for stock options not exceed the expense for options reported in financial statements.”

The two are a little rankled about the $52 billion gap between the amount of stock option expenses recognized for financial reporting purposes and the expense reported for tax purposes. Guess who’s getting the short end on that one?

Bank auditors were fully involved in developing report [FT]
John Hitchens, head of the Institute of Chartered Accountants of England and Wales (ICAEW) and a PwC Partner would like to dispel any notion that auditors will resist reform after taking it on the chin for the financial crisis:

As chairman of the ICAEW working group that produced the proposals, I would like to correct this impression.

Bank auditors from the six largest audit firms were fully involved in developing the report and supportive of all its recommendations, including the proposal that banks develop summary risk statements which auditors would then give comfort over.

Feel better?

U.K. Scraps FSA in Biggest Bank Overhaul Since 1997 [Bloomberg]
Chancellor of the Exchequer George Osborne will do away with the Financial Services Authority, replacing it with three new regulatory bodies and giving most of its oversight powers to the Bank of England.

Intuit Works to Restore Online Access [WSJ]
Any individuals or small businesses that use TurboTax, Quicken and QuickBooks have been in a world of hurt as online access has been down, down, down. “Some Intuit websites were beginning to come back online late Wednesday afternoon,” according to an Intuit spokesperson. The situation is fluid.

Fannie Mae, Freddie Mac to delist from NYSE [CNN]
Meant to mention this yesterday since it was the DoD but you know how it goes. Anyway, see you another life FNM and FRE.

Accounting News Roundup: UK Launches Probe of E&Y’s Final Lehman Audit; Revolving Door at SEC Scrutinized; Swiss Upper House Rejects Referendum | 06.16.10

UK watchdog launches Lehman audit probe [Reuters]
The UK’s Accountancy and Actuarial Discipline Board (AADB), investigative and disciplinary body for accountants, has started an investigation into the Ernst & Young’s final audit of Lehman Brothers’ UK operations for the year ending November 30, 2007.

E&Y, completely familiar with this drill, is sticking to their guns, “Ernst & Young’s audit opinion stated that Lehman’s financial statements for that year were fairly presented in accordance with the relevant accounting standards, and we remain of that view.”


SEC ‘Revolving Door’ Under Review [WSJ]
Currently, the SEC does not have a cooling off period for former staffers that take a position with a private firm. Former staffers (i.e. lower-level employees) need only to provide a written letter disclosing the fact that they will be representing their new employer in an investigation.

The Journal reports that Senator Charles Grassley (R-IA) announced on Tuesday that an investigation into the practice had recently been launched by the Inspector General David Kotz, “[W]e are currently conducting an investigation of allegations very recently brought to our attention that a prominent law firm’s significant ties with the SEC, specifically, the prevalence of SEC attorneys leaving the agency to join this particular law firm, led to the SEC’s failure to take appropriate actions in a matter involving the law firm,” Mr Kotz said.

The Journal reports that law firm in question “could not be determined.”

There have been several instances of quick transitions of former Commission staffers to new representing their new firms, including the most recent example of an attorney leaving the Division of Trading and Markets for the Chicago-based high frequency trading firm Getco, LLC and an accountant from the enforcement division who represented his new employer in a nonpublic investigation.

IRS hatches new assault on ‘Survivor’ [Tax Watchdog]
Thanks reality TV gods, Richard Hatch is still in our lives. He still owes $1.7 million in taxes from 2000 and 2001.

The CAE’s real challenge – ethics, courage, and complacency [IIA/Marks on Governance]
Norman Marks responds to a commenter that believes that a Chief Audit Executive need not focus on auditing and communicating those results and risks but instead “be conscious of and responsive to management expectations,” and basically substantiate that internal audit isn’t a giant waste of money.

Mr Marks questions this notion in its entirety, “It’s fine to supplement essential assurance activities with the tangible value-adding programs…But, the assurance work has to be covered or (in my opinion) internal audit is failing to do its job. When that is a conscious decision, I have to question the ethics – and the courage – of the individuals involved.”

Swiss Upper House Rejects Call for Referendum on UBS Pact [WSJ]
The upper house in Swiss Parliament would like their counterparts in the lower house to leave their popular referendum idea wherever they found it. Presumably everyone understands that super secret Swiss banking as the world knows it is over and lower house is a little slow to catch on. They’re supposedly debating the referendum circa now.

Class Action Complaint against Amedisys uses Sarbanes-Oxley Act Corporate Governance Provisions to Battle Alleged Corporate Malfeasance [White Collar Fraud]
Amedisys got caught red-handed by the Wall St. Journal abusing the Medicare system and Sam Antar hopes that this is a sign of things to come:

The SEC rules under Sarbanes-Oxley for public company codes of ethics broadly define corporate malfeasance by senior financial officers, requires such companies to promptly report any misconduct, prohibits companies from ignoring any misconduct, and makes it relatively easy for investors to sue for misconduct.
…
Hopefully, more lawsuits will cite code of ethics violations by public company senior financial officers in the future.