From the War on Terror to the War on Wall Street, due process violations by government agencies are proliferating like nuclear weapons. Facilitated by widespread ignorance among Americans — general public, financial professions, and the federal judiciary — the pattern of abuse threatens not only American markets but the very foundations of American life.
In April 2009, the staff of the Securities and Exchange Commission took another bite out of due process by issuing without public notice or input a “Staff Accounting Bulletin” or “SAB” for the first time since December of 2007. [continue…]
For an eloquent illustration of how accounting innovations like FAS 157’s “fair value” regime are way beyond even above-average American financial readers, try Michael Rapoport’s May 1, 2009 article entitled New FASB Rule Aims to Clarify ‘Net Income’.
Rapoport, trying to capture the meaning of the new SFAS No. 160, stumbles over one of the most basic concepts in the accounting literature — that “minority interests” in consolidated financial statements reflect the fact that “parent” companies don’t really “own” 100 percent of the assets or income of “subsidiaries” except those they wholly own. [continue…]
Lenders have been hammered by the pathologically procyclical impact of FAS 157’s mark-to-market regime. Hardly surprising, therefore, that banks and credit unions came out in force to support the latest FASB “clarification” of FAS 157. Some other commenters, mostly from the “analyst” community, emphatically disagree.
The federal False Claims Act (FCA) encourages private whistleblowers to sue, usually in partnership with the U.S. Department of Justice, to recover federal funds allegedly misspent by individuals, companies or local government agencies.
Rewards of blowing the whistle can be very substantial — up to 30% of the government’s recovery plus attorneys fees — but would-be whistleblowers must satisfy a number of stringent rules. One of these is the so-called “public disclosure bar” of 31 U.S.C. § 3730(e)(4)(A) that bars most claims based on publicly available information the disputed definition of which is now before the U.S. Supreme Court in Graham County Soil & Water District, et al., v. U.S. ex rel Wilson (08-304). [continue…]
Today, in congressional action sure to give every internal auditor and financial analyst recurring nightmares, members of the U.S. House Capital Markets Subcommittee demanded that the Financial Accounting Standards Board (FASB) demonstrate greater flexibility and speed in changing market-to-market (or “fair value”) accounting rules in the face of today’s financial industry crisis, or else. Much of the commentary came across as a congressional call for an IASB-like principles approach in place of the FASB’s detailed rules-based approach.
House Financial Services Committee Chair Barney Frank (D-Mass) and Capital Markets Subcommittee Chair Paul Kanjorski (D-Pa), each in his own way, stated that mark-to-market accounting must be applied differently to different companies and industries based on their respective circumstances that changed must happen now, not later after more “academic” study. In his opening statement, Kanjorski declared: [continue…]
When I first watched commodities traders at Chicago’s CME denounce President Obama’s Homeowner Affordability & Stability Plan, I was on board with the traders. “How dare anyone ask that I help pay off my neighbor’s mortgage? If they bit off more than they could chew, that’s their fault!” But I began to have second thoughts . . .
. . . whose misdeeds in this crisis are worse? How are the mistakes of individual home buyers morally or financially worse than similar miscalculations by these very commodities traders or by Lehman Brothers, GM, Chrysler or Citigroup? These companies and professionals are also losers, aren’t they? They arguably took risks that they should never have taken, in many cases totally abdicating their professional duties of care and due diligence, going deep into debt to buy stuff they did not understand and could not afford. [continue…]
Raising start-up capital is a tough job even in good economic times. These days, with credit so scarce, it can seem nearly impossible. Unfortunately, when entrepreneurs want to get things done “in the worst way,” they sometimes run out of patience and do just that. Raising capital in 21st century America is a bit like taking a road trip across Iraq. The road is strewn with booby traps. [continue…]
The House of Representatives this afternoon passed the 1,071-page Obama-Pelosi “economic stimulus” bill on a 246-183 vote with no Republican support and seven Democrats voting against. One clear group of winners are tax advisors who can look forward to additional work parsing the bill’s 344 pages of tax changes. [continue…]
Yesterday, the SEC announced that KBR and Halliburton have settled their Foreign Corrupt Practices Act case with the SEC and Department of Justice for total fines and disgorgement of $579 million. The underlying bribes apparently totalled far less: a mere $5 million paid to a Nigerian political party for a train contract.
At this point, a voice inside my head keeps screaming, “What about Madoff?!” The FCPA violation alleged here is essentially a victimless crime, functionally a penny-ante “bailout” of a few Nigerians that actually helped the companies’ shareholders. Yet, this SEC complaint is undersigned by no fewer than six SEC attorneys who, judging from the factual timeline, were busily engaged on this case — together with uncounted DOJ counterparts — over at least the past five years while Bernie Madoff made off with $30-50 billion belonging to investors. [continue…]
On Wednesday last week, while most of the nation was transfixed by “stimulus plan” negotiations, the U.S. House Capital Markets Subcommittee held a little-noticed hearing, featuring uber securities sleuth Harry Markopolos, that could rock U.S. securities regulation to its core. As a financial markets player, attorney and professor for over twenty years, I have seen some amazing things in domestic and international financial markets. However . . .
Nothing in my recollection quite equals the drubbing that Markopolos unleashed on the SEC last Wednesday morning. The first 64 pages of Markopolos’ written testimony should be required reading for every financial markets professional and, drumroll, every U.S. senator and representative with a hand in upcoming securities-market legislation. To hear Markopolos tell it, what we need at the SEC is not more money but more brains and fewer arrogant attorneys.
