Monday, January 29, 2007 “The United States is losing its leading competitive position,” a private-sector commission on capital markets said in a November report, and last week Mayor Michael Bloomberg and Senator Charles Schumer released a study arguing that New York City’s financial dominance was being eroded, thus putting tens of billions of dollars and tens of thousands of jobs at risk. OVER THERE
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Forgive us for being predictable, but does anyone else find it odd that New York Gov. Eliot Spitzer was on hand to back Mayor Bloomberg and U.S. Sen. Charles Schumer, D-N.Y., as they unveiled their McKinsey report?
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They and others argue that the legislation has placed such burdens on public companies in the United States that the U.S. capital markets have become uncompetitive. Foreign corporations won't list on U.S. stock exchanges, because they then have to comply with SOX, which they find too onerous.
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Cardinal Health disclosed that founder and chairman Robert D. Walter may face civil charges brought by the Securities and Exchange Commission over a previously disclosed accounting and financial reporting matter. In a regulatory filing, Cardinal stated that Walter and four unnamed former officers had each received a Wells notice from the commission. Under SEC procedures, a Wells notice indicates that the staff has made a preliminary decision to recommend that the commission bring a civil action; recipients have the opportunity to respond to the SEC staff before a formal recommendation is finalized.
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Friday, January 26, 2007 The Public Company Accounting Oversight Board issued its 2005 inspection reports on Ernst & Young and KPMG on Thursday, citing multiple failures in audits by the two Big Four audit firms. The report on E&Y identifies 10 companies for which audits were deficient, and says that in "some cases" the errors appeared "likely to be material to the issuer's financial statements." The report on KPMG identifies 11 deficient audits, and says that in "one case" the result was likely to be material. In 2005 the PCAOB reviewed portions of more than 365 audits performed by the nine largest firms and 623 audits performed by 272 smaller firms. A PCAOB spokesman told CFO.com that the regulator does not release information on the number of inspections it conducts on each individual firm.
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Thursday, January 25, 2007 Victor Jung, 34, pleaded innocent to two counts of wire fraud today in federal court in Manhattan and was released on a $250,000 bond. His lawyer, Christopher Brennan, said Jung will ``vigorously'' fight the charges. Jung, who was indicted by a federal grand jury, faces as long as 20 years in prison. Jung, of Manhattan, spent most of the stolen money on flights to ``places such as Miami, Antigua and Turks and Caicos Islands,'' U.S. Attorney Michael Garcia said in a statement. Jung and ``his travel companions consumed catered Veuve Clicquot champagne, Grey Goose vodka, Mondavi wine, and shrimp cocktails.'' Labels: fraud, segregation of duties, theft
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Tuesday, January 23, 2007
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The SEC currently requires companies with a public market capitalization of less than $75 million to conduct a management assessment of their internal controls. Those companies will not have to have to get an internal controls audit by external auditors until 2008. Labels: extension, market capitalization, small business
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Thursday, January 18, 2007 Under the bill, passed 96-2, senators will give up gifts and free travel from lobbyists, pay more for travel on corporate jets and make themselves more accountable for the pet projects they insert into bills. Majority Leader Harry Reid, D-Nev., who made the bill his first initiative as head of the Senate, called it the "most significant legislation in ethics and lobbying reform we've had in the history of this country." The Senate did reject the idea of setting up an independent office to investigate the ethical breaches of members. But it said that lobbyists can no longer hire the spouses of members or pay for lavish parties for members at national conventions. Labels: ethics, government
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Labels: ethics
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It appears that Clark felt Sarbanes-Oxley--commonly known as SOX--had built an insurmountable wall between his status as a major shareholder and investor at Shutterfly, and his role on the board of directors. "(Sarbanes-Oxley) dictates that I not Chair any committee due to the size of my holdings, not be on the compensation committee because of the loan I once made to the company, (and) not be on the governance committee," he continued in his resignation letter. "It even dictates that some other board member must carry out the perfunctory duties of the Chairman."
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Wednesday, January 17, 2007 Because the Sarbanes-Oxley Act (SOX) is still fairly new, federal courts are just now being asked to decide what kinds of activities will be considered "protected" for purposes of triggering a whistleblower claim under the statute. A Michigan district court managed to duck the issue recently when it held that, even assuming the former employee had satisfied the "protected activity" requirement, he had failed to establish a causal connection between those activities and his termination. See Sussberg v. K-Mart Holding Corp., 2006 WL 3313766 (E.D. Mich. Nov. 17, 2006). SOX Whistleblower Protection Employees of publicly traded companies who believe they have been subjected to retaliation because they engaged in "protected" whistleblower activity may assert a claim under the Sarbanes-Oxley whistleblower provision. SOX prohibits employer retaliation against an employee who provides information or assists in an investigation regarding conduct that the employee reasonably believes constitutes a violation of federal laws and regulations relating to fraud against shareholders. 18 U.S.C. § 1514A(a)(1). The burden is on the employee to demonstrate that the protected activity was a contributing factor to the adverse employment action. Labels: law, whistleblower
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Tuesday, January 16, 2007
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The Netherlands' biggest companies are asking their accountants not to apply US accounting rules too stringently, in order to reduce their bills, the Financieele Dagblad reports on Tuesday. The paper says telecom firm KPN and five other AEX companies have already met the big accountantcy firms asking for a 'Dutch interpretation' of the rules of the Sarbanes-Oxley Act. They want the accountants to harmonise their approach to the US rules, which are currently open to different interpretations. KPN says the most 'optimal' application of Sarbanes-Oxley would cut its accountancy bill by 30%. In 2005 the company spent €14.6m on accountants fees, the FD reports.
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Sunday, January 14, 2007 "The close of this merger brings together two strategically complementary business models to accelerate product development, to deliver additional value to our customers and to meet the needs of the growing governance, risk and compliance market," said Terry Allen, Co-founder and CEO of Securac. Together, Securac and Certus deliver a broader mix of governance, risk and compliance solutions via an integrated platform that will simplify and unify practices across the enterprise. Allen added, "The combined and diverse strengths of both companies positions us to deliver tangible business value for our customers beyond regulatory compliance, into areas such as business performance and operational risk management."
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At the start of the decade, in the wake of several high-profile accounting scandals, including Enron and WorldCom, legislators crafted a series of oversight guidelines, most notably the Sarbanes-Oxley Act. Sarbanes-Oxley established strict accounting controls for all public companies and accounting firms. Some insist the costly procedures have deterred private companies from going public, while causing increased grumblings from those subjected to its measures.
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Monday, January 08, 2007
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When the new Congress began its session last week, two familiar faces were not present: Sen. Paul S. Sarbanes and Rep. Michael G. Oxley, who are both retiring. Sarbanes, a Maryland Democrat, has served for 30 years; Oxley, an Ohio Repub-lican, for 26 — and their main legacy will be their joint attack on corporate corruption, the Sarbanes-Oxley Act of 2002. The act, which was passed hastily in the wake of the Enron scandal, was surely well-intentioned. But it has proven counterproductive in the extreme, and Congress would best honor the departing lawmakers by repealing it.
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Thursday, January 04, 2007 ITEM 1A: RISK FACTORS Our business is unpredictable and unsafe. The stock market, including the market for our securities, is dangerous. Many books have been written about these dangers, and there's no way we can list them all here. Read the books. The path to success for our business is littered with land mines. Seriously-anything could happen. Our competitors try their best every day to crush us, and they could succeed. We could get rich and complacent following our IPO and fail to innovate. Our customers could abandon us. Key members of our management team could quit to sail their yachts around the world for a decade. We could grow so fast that our business spirals out of control. Any or all of these could occur and our business would go down the toilet, along with your investment. Real dangers are present even if none of the above occurs. New technologies may be developed that will render ours obsolete. A patent troll could come along who claims to own the intellectual property rights to our technology, costing us tens of millions of dollars in defense costs (best case) or destroying our entire business (worst case). Third parties such as malicious hackers could emerge to undercut our business. Even the government could torpedo us by passing new laws that hurt our business. The bottom line is that our business and the stock market are unsafe, period. Live with it or stay away. Totally unforeseen things can happen. There could be a SARS epidemic. There could be a terrorist attack. There could be a natural disaster, such as a hurricane. A herd of elephants could escape from the zoo and trample our headquarters, squashing our business and your investment you like a bug. Don't think it can't happen. Even if none of these things happen, the stock market could go down for no reason whatsoever. That is to say, you may make a wise investment, we may work our tails off, our business may thrive, and you may still lose all of your money. It happens all the time. If you engage in particularly dangerous trading such as uncovered options or naked short selling, you may lose everything you own. This is true whether you are experienced or not, trained or not, educated or not, or intelligent or not. It's a fact, such trading is extremely dangerous. If you don't like that, don't do it. You really shouldn't be doing it anyway. We do not provide supervision or instruction. We are not responsible for the financial ruin that may result. As far as we know, any of these types of trades can and will fail and send you plunging to your financial death. You're on your own. Financial bail-out services are not provided by our company. If you lose your shirt investing in our company after reading all this, don't come running to us (or your class action lawyers). We assume no responsibility. By investing in our business, you are agreeing that we owe you no duty of care other than not being crooks. We promise you nothing else. This is no joke. We won't even try to warn you about any dangerous or hazardous conditions not required of us by the SEC, whether we know about it or not. If we do decide to warn you about something, that doesn't mean we will try to warn you about anything else. We and our employees or agents may do things that are unwise and dangerous. In fact, we probably will. Sorry, we're not responsible. We may make bad decisions or give out mistaken guidance. Don't listen to us. In short, INVEST IN OUR COMPANY AT YOUR OWN RISK. And have fun!
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Wednesday, January 03, 2007 The publication of the Higgs report on corporate governance almost four years ago led to what its author now describes, with characteristic understatement, as “a spirited debate”. Critics – some of them leading figures in British business – argued its recommendations would divide executive directors from non-executives, undermine the chairman’s role and substitute box-ticking for balanced judgment. Today, Sir Derek Higgs says, such fears are acknowledged to have been greatly exaggerated. Far from damaging public companies, his reforms have won wide acceptance, are increasingly studied in other countries and are likely to prove attractive to private equity.
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'Sell in May and go away' used to be the mantra of a more leisurely class of stockbrokers. It probably doesn’t work now. And another mantra that works even less is predicting the direction in which the business world may move across this new year. But there are two themes which people ought to have uppermost in their minds as the year and their business prospects unfold. The first is the dilemma posed by private equity. In the first half of 2006, there were more funds raised through private equity than through IPOs and the public markets. Now we all know why this is. It is argued that it is much easier to pull value out of a wayward company if you can do it, as it were, behind closed doors. And all the support can be rejuvenated. As one venture capitalist often boasts, he can get the auditors in and tell them that what they did last time was a disgrace and can they, for gratis, do it again, only effectively this time round.
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As Democrats take power in Congress, speculation has swirled around the question of why Republicans lost. But there is a factor – a costly factor affecting American businesses – that has gone largely unnoticed. In the summer of 2002, in response to Enron and WorldCom, Congress passed a slew of business regulations called the Sarbanes-Oxley Act. Although it was written largely by the then-Democratic-controlled Senate, most Republicans barely criticized the law when they regained power. Even when studies showed its costs were several times greater than anticipated and it was crippling small public companies, GOP leaders were reluctant to take on the law for fear of being saddled with the albatross of Enron. But Congress’ reluctance began to change in the weeks preceding the 2006 elections. Two weeks before the election, a member of the House went on CNBC and said Sarbanes-Oxley wasn’t all it was cracked up to be. This politician said while “there’s a need for it” and “you need the transparency,” the law clearly had “unintended consequences.” The House member then said flatly, “I don’t think you need the whole package.”
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The act, which was passed hastily in the wake of the Enron scandal, was surely well intentioned. But it has proven counterproductive in the extreme, and Congress would best honor the departing lawmakers by repealing it. Sarbanes-Oxley has seriously harmed American corporations and financial markets without increasing investor confidence.
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