Tag: SEC

Grant Thornton Loses Its Fire in Letter to the SEC

Thumbnail image for Thumbnail image for Grant-thornton-logo.JPGDespite getting all bent out of shape in their earlier statement:

“The fraud was apparently conducted by a longtime, trusted senior financial executive who was hired and supervised by senior management,” a Grant Thornton spokeswoman said Tuesday. “The company (Koss) did not engage Grant Thornton LLP to conduct an audit or evaluation of internal controls over financial reporting. Establishing and maintaining effective internal control is management’s and the board’s responsibility.”

Grant Thornton is less enthused in their letter to the SEC:

We have read Item 4.01 of Form 8-K of Koss Corporation dated January 4, 2010, and agree with the statements concerning our Firm contained therein. We have no basis to agree or disagree with the statements and conclusions in Item 4.02(a), some of which were not disclosed to Grant Thornton LLP prior to receipt of this filing.

The only thing we read here that might be a dig at Koss is “some of which were not disclosed to Grant Thornton LLP prior to receipt of this filing.” If this is intended to be the firm’s version of the finger — straight up, at you Koss — the passive-aggressiveness is at a level that even impresses us.
At least in the Overstock letter the firm flat out called Pat Byrne and his company liars. This latest opportunity to lay the smackdown on a client in a regulatory filing seems to have been squandered.

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]

Ernst & Young Pays $8.5 Million to Settle Charges with SEC Over Bally Fraud

Thumbnail image for ey8ball.jpgSix current and former partners at Ernst & Young were charged, along with the firm, by the SEC late yesterday in relation to the audits the firm performed of Bally Total Fitness’ financial statements from 2001 to 2003.
Bally settled accounting fraud charges with the SEC in 2008 that were related to its financial statements from 1997 to 2003.
Because everyone and their dog was freaking out over Enron in screws to their clients to follow GAAP, E&Y had identified Bally as “one of E&Y’s riskiest 18 accounts and as the riskiest account in the Lake Michigan Area.”


Floyd Norris:

The firm forced Bally to stop recording revenue in an improper manner that allowed it to claim earnings earlier than was allowed by accounting rules.
But in doing that, the firm allowed Bally to not admit to having violated the rules in the past, an action that would have forced it to restate its accounts and admit that losses in previous years had been much larger.

Mr. Norris also reported that a source of his at the SEC has stated that “he knew of no previous enforcement cases in which a partner of a major firm was cited for his actions as head of a national office.”
The partner in this case is Randy G. Fletchall, the partner in charge of E&Y’s National Office. He along with Mark V. Sever, E&Y’s National Director of Area Professional Practice, and Kenneth W. Peterson, the Professional Practice Director for the Lake Michigan Area office are the current E&Y partners who settled the charges with the SEC.
The former partners include: Thomas D. Vogelsinger, the Area Managing Partner for E&Y’s Lake Michigan Area through October 2003, William J. Carpenter, the E&Y engagement partner for the 2003 audit, and John M. Kiss, the E&Y engagement partner for the 2001 and 2002 audits.
While the news of a current partner of such lofty heights is notable, an extra twist that isn’t being reported in the MSM comes from GC contributor, Francine McKenna, who tells us that Mr. Fletchall served as the former AICPA Chairman from 2007-2008 and Mr. Sever, a former chairman of the Accounting Standards Executive Committee:

What none of the stories that just hit tell you, though, is that at least two of the EY partners charged, Fletchall and Sever, held leadership positions with the AICPA in the past.
…
Did Mr. Fletchall get off with a slap on the wrist given his AICPA leadership position, AICPA PAC contributions and significant campaign contributions to Senator Christopher Dodd? Mr. Fletchall is used to telling the SEC what it should do. Quite used to it.

These are interesting questions that the SEC probably doesn’t want to address. The connection, in appearance, is shady and we can only speculate as to what happened during the negotiations of the settlement.
The Commission, remaining stoic, gave a standard issue boilerplate statement, saying:

“It is deeply disconcerting that partners, even at the highest levels of E&Y, failed to fulfill their basic obligations to the investing public by not conducting proper audits. This case is a sharp reminder to outside auditors that they must carry out their duties with due diligence. The $8.5 million settlement, one of the highest ever paid by an accounting firm, reflects the seriousness of their misconduct,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

So it appears E&Y is getting sent to their room here, despite the $8.5 million fine being “one of the highest ever paid by an accounting firm.”
The firm also agreed “to undertake measures to correct policies and practices relating to its violations, and agreed to cease and desist from violations of the securities laws.”
Were the AICPA connections enough to keep them out of really hot water? At the very least, it didn’t hurt anything. If you have any information regarding this story, get in touch with us, and we will update you with any developments.
SEC Charges Ernst & Young and Six Partners for Roles in Accounting Violations at Bally Total Fitness [SEC Press Release]
EY Settles SEC Charges Re: Bally’s Fraud-Lives To Audit Another Day [Re: The Auditors]
Ernst to Pay the S.E.C. $8.5 Million [Floyd Norris/NYT]

Preliminary Analytics | 12.10.09

Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for 140px-United_States_Securities_and_Exchange_Commission.png• SEC’s Khuzami ‘Skeptical’ of Auditors’ Claims on Privilege – Privlege shmivlege. [FEI Financial Reporting Blog]
• Obama Proposes $12,000 “Cash for Caulkers” Program – Including the most immature montage ever. [TaxProf Blog]
• Overstock.com and Patrick Byrne Have an Enemies List That Includes Friends and Family Members of Critics – Using Facebook no less. Anyone surprised? [Sam Antar/White Collar Fraud]
• Madoff Auditor Plea May Signal Other Probe – Tax charges thrown in with David Friehling’s guilty plea may indicate that prosecutors may be building a case against other Friehling clients including the Madoff sons. [WSJ]
• Broadcom Co-Founder Cleared in Backdating Probe – “U.S. District Judge Cormac J. Carney made the announcement after Samueli, owner of the NHL’s Anaheim Ducks, spent two days testifying for the defense in the fraud trial of a former executive for the telecommunications chip maker. ”You have restored my faith in the criminal justice system,” an exhilarated Samueli told the judge in federal court in Santa Ana.” Avoiding prison will do that. [AP via NYT]

Review Comments | 12.07.09

Thumbnail image for markcuban.jpg• Court Allows Cuban to Seek Discovery in S.E.C. Case – No one questions Mark Cuban’s patriotism and gets away with it. [DealBook]
• Ohio school will return Petters’ scholarship donations – Miami of Ohio is giving back $5 million that was gifted to establish the John T. Petters Center for Leadership, Ethics and Skills Development. [Pioneer Press]
• Doesn’t Sound V-Shaped to Me – The recovery that is. [Financial Armageddon]
• Fixed assets and year-end planning – Joe Kristan is getting you ready for the upcoming tax prep season. [Tax Update Blog]
• Nonprofit Executive Compensation Changes in 2009 – Charity doesn’t pay like it used to. [Mission Accountable]

Grant Thornton: Patrick Byrne’s Pants Are on Fire

patsy_byrne.jpgWant more twists out of the asylum known as Overstock.com? You got it.
Overstock.com filed an amended 8-K yesterday — after the markets closed — that included a letter from GT to the SEC. The letter, in so many words, says that OSTK lied about GT’s knowledge about the hocus-pocus accounting irdinary, every day case of client and auditor going their separate ways, the auditors letter would basically say, “Yeah, we’re cool and we’re moving on.”
But in this case, since we’re dealing with Patrick “I’ll open this letter with Nietzsche” Byrne, we’ve got an auditor saying, “Um, yes, this is what happened. In CRAZY TOWN.”


To wit (our emphasis):

We disagree with the Company’s statement in paragraph 7 “that upon further consultation and review within the firm, Grant Thornton revised its earlier position” regarding the previously filed 2009 interim financial statements. This statement is not accurate. The Company brought the overpayment to a fulfillment partner to Grant Thornton’s attention in October. After additional discussions with the Company, the predecessor auditor and receipt of additional documentation from the Company we determined that the Company’s position as to the accounting treatment for the overpayment to a fulfillment partner was in error. Further the Company’s statement does not address the fact that the consultation noted in paragraph 5 was in relation to the ongoing incomplete review of the September 30, 2009 interim financial statements.

Hang in there, GT isn’t done:

We have also read Item 4.02 of Form 8-K of Overstock.com, Inc. (“the Company”) dated November 16, 2009 and disagree with the statements concerning our Firm contained therein. During the course of our incomplete review of the Company’s September 30, 2009 financial statements, we advised the Company that disclosure should be made to prevent future reliance on its March 31, 2009 and June 30, 2009 financial statements. We advised the company to make the disclosure because we became aware that material modifications should be made to the previously filed 2009 interim financial statements to conform with US GAAP. Such modifications are necessary due to the Company having reduced its cost of goods sold in the first quarter of 2009 by receipt of a refund of an overpayment to a fulfillment partner.

There you have it. Grant Thornton, in extremely diplomatic manner, is calling Patrick Byrne and Overstock.com liars.
Now after considering both the humble servant’s story and GT’s letter, our instinct tells us to go with GT. Obviously we’re partial to the servants of the capital markets but the other mitigating factor is, let’s see, Patrick Byrne is off his rocker.
Undiagnosed mental conditions aside, we wish we could give GT more credit for calling BS on a slimy client. Fact of the matter is, they were warned by Sam Antar back in March — when they took OSTK on as a client — that they were in for trouble:

I wish that I can wish you luck with your new client. However, I cannot wish you luck because you apparently ignored the basic “smell test” in evaluating Overstock.com as a potential client.
…
Apparently Grant Thornton, like your predecessor, PricewaterhouseCoopers, did not carefully examine false claims about Overstock.com’s financial performance, dating back almost ten years by CEO Patrick Byrne. You would have discovered that Byrne has no problem habitually lying to the investors, the news media and the public.

So as you can see, this is all very awk. In GT’s case, they were explicitly warned to stay the hell away from OSTK. And any auditor worth their salt would take one look at this company and get a feeling like their body was covered in centipedes.
As for Patsy and OSTK, well, as Gary Weiss notes, “Overstock will be tossed onto the pink sheet ant hill where it really, seriously folks, really belongs.” Indeed.
We asked for a show of hands yesterday on who you thought would roll the dice with Pat and Co. and so far KPMG has the lead which seems a tad ludicrous. But hey! We’re not one to argue with the voice of the people.
Voting remains open until the end of today, so check out the latest tally and throw support behind the next firm to get tangled in the Patrick Byrne web. We’ll continue to update you on this horror show as it develops.
Open Letter to the Securities and Exchange Commission Part 3: Overstock.com Lied About Grant Thornton and Concealed Error [White Collar Fraud/Sam Antar]
Grant Thornton to SEC: Overstock.com Lied [Gary Weiss]
Also see: The Auditor Disagrees With Overstock.com [Floyd Norris/NYT]
Overstock’s Fired Accounting Firm Says Overstock Is Lying [Silicon Alley Insider]

Bob Herz and Jim Kroeker Are Avoiding the Convergence Dance

dancing_herz_Kroeker_jpeg.jpgFor the love of everything that is good and holy, would someone like to be the FASB Chairman? Or the Chief Accountant of the SEC?
We realize that they’re both thankless jobs but we need people in there that are going to make some things happen.


After Jim Kroeker said this:

“[T]he boards have agreed that the projects that they’re working on are areas that need improvement, not just under U.S. GAAP but under IFRS, then I think convergence efforts should continue or would continue without an SEC finalization of the roadmap,”

Bob Herz is now saying this:

“[T]he ball is mostly with the [SEC] at this point” … Herz noted the SEC has yet to rule on the “roadmap” for U.S. compliance with IFRS it proposed a year ago.

So, let’s get this straight: JK is said, “You go first.” Now Bob Herz is saying, “No, you go first.” Does anyone want to introduce these two clowns? Are they waiting for knighthood before they move on this?
We suggest that somebody toss Mary Schapiro in there to A) complete the trilogy of stooges and B) so she can bonk their heads together. That might get them motivated.
Herz: U.S. Convergence Ball Is in SEC’s Court [CFO]

Overstock.com Fires Grant Thornton, Files Unreviewed 10-Q, CEO Remains Humble

patrick_byrne.jpgThere’s really nothing better than an eccentric CEO throwing caution to the wind, consequences be damned.
Insert Patrick Byrne, CEO of Overstock.com (“OSTK”). He issued a letter via press release yesterday that has many people’s attention.
Byrne opens the letter by quoting Nietzsche:
“All things are subject to interpretation; whichever interpretation prevails at a given time is a function of power and not truth.”


Tragic enough but then Byrne really amps it up, droning on for eleven points about his company’s dire situation. Here’s the gist*:
• The difficult accounting treatment of an overpayment received by OSTK from a “partner”.
• Putting the audit out to bid after “eight years of fine service” from P. Dubs, and hiring GT because “my belief that changing auditors every decade or so might be healthy.”
• SEC inquiries into the accounting treatment of the overpayment.
• GT changing their minds on the accounting treament after said inquiries.
• We’re filing an unreviewed 10-Q, P. Dubs is on board for our treatment, GT is fired, anyone (and I mean anyone) want to audit us?
Byrne spends no less than six paragraphs/points explaining GT’s wishy-washy, bending-over-for-the-SEC ways. The man is nothing if not thorough.
Spineless auditors notwithstanding, Byrne will press on, the company will overcome, and he will remain committed to you, Overstock.com shareholder:

I will hold a conference call to further explain and answer questions regarding this matter on Wednesday afternoon at 5:00 p.m. EST (details below). Until then, I remain,
Your humble servant,
Patrick M. Byrne

10-Q [SEC.gov]
8-K: Dismissal of Grant Thornton [SEC.gov]
Press Release [SEC.gov]
*If you want to debate the particulars, be my guest but this isn’t the Journal of Accountancy, feel me?

Deadline Watch: 3rd Quarter 10-Qs

Thumbnail image for hairy-nascar-fan.jpgNow that you’ve enjoyed the extra hour of tomfoolery thanks to the time machine known as daylight savings time, it’s back to reality.
For auditors working on SEC filers, this means seeing less daylight from now until…well, yeah. The good news is that there’s only one week until the filing deadline for accelerated filers’ 3rd Quarter 10-Qs. For those of you on the non-accelerated types, you’ve got an extra week which could be a lifesaver or just a way to prolong…the…agony.
The bitch of the thing is that for those of you that are/will be going down to the wire, the deadlines fall on Mondays which means your weekend will likely consist of a slumber party at the client’s digs.
So for those of you that live and die by the calendar year SEC deadlines, discuss your Q3 and if it’s business as usual or if your engaging in the standard quarterly rhetoric about how you’re finding a new job right after the Q is filed.

Gun to Head, Dell Implements an ‘Accounting Code of Conduct’

interrogation.jpgWhatever the hell that is. What we’re sure of is that Dell would have never implemented such a code had they not been investigated by the SEC, starting in 2006.

Along with the code to help force the accounting policies grab-ass hands to themselves, Dell also now has a “global team of accountants to focus on revenue recognition issues”.

Again, not too familiar with this, but at most companies, this is typically known as the “accounting department.”

Dell settlement has tougher accounting oversight [AP]

PCAOB Appears to Be Taking After Big Brother

TOLD YOU.jpgThe SEC has been setting a bad example for everyone. Now the Commission’s sloth-like urgency to appoint a chief accountant seems to have led the PCAOB to think that finding new board members really isn’t a big deal.
Chuck Niemeier announced that he will be leaving his position as a board member of the P very soon, even though his term ended almost a year ago. The PCAOB’s board members are allowed to stay on the board after their terms have ended until a replacement is found.
We suppose that you could give the P credit for having the foresight to write this rule in, as it’s pretty obv that no one really wants this job. Doesn’t make much difference anyway, as it’s not really clear just what the hell they’re doing over there, except making auditors’ lives more difficult and possibly ignoring independence violations.
IFRS Critic to Leave Accounting Firm Regulator [CFO]

SEC Would Like the Stanford Receiver to Relax a Little

r.jpgRalph Janvey, the court appointed receiver in the Allen Stanford “where’s the f’n money Lebowski” case is what some people might call, shrewd.
Janvey is fighting to have certain brokerage accounts held by investors frozen because the holders of said accounts made principal withdrawals prior to the uncovering of the fraud.
The SEC kinda, maybe thinks that this is a little overboard and filed papers opposing Janvey’s suing of what the Commission calls “innocent fraud victims”.
We’re thinking that since Janvey is on the wildest of wild goose chases, he has had to resort to suing regular people that had the fortunate dumb luck to pull their money out of a Stanford Bank Institution garbage bag prior to the poop + fan.
SEC Opposes Motions in Stanford Case [WSJ]