SEC

What Price Wrong-Doing? Sanctions Against KPMG Are Complicated

“Sell in May and go away” was an investors’ adage invoked as vacation strategy in a more genteel era. Returns in the summer were said to lag the rest of the year—and in any event, that’s how brokers justified their holiday cottages on the eastern seaboard. This year the maxim has twice failed my attempt […]

The SEC Removed ‘Acting’ From Sagar Teotia’s Job Title

Sagar Teotia is officially your new chief accountant at the SEC, a position he had held in an acting role since Wesley Bricker surprisingly announced he was stepping down as chief accountant in June. Teotia definitely has the chops for the chief accountant office. He had served as deputy chief accountant under Bricker since 2017 […]

SEC Says $50 Million Fine For KPMG Is ‘Significant’ and ‘Appropriate’ For All That Cheating Going On

The SEC made official today the news that Dave Michaels of the Wall Street Journal broke late last week, announcing that KPMG will pay $50 million to settle allegations that former partners “stole the test” by using confidential information that was being fed to them by a PCAOB insider to improve the firm’s performance on […]

$50 Million Fine SEC Is Reportedly Giving KPMG Over PCAOB Scandal Isn’t Big Enough

Dave Michaels of the Wall Street Journal broke some huge news late last night about a huge fine the SEC could levy against KPMG later this month because of several former partners’ involvement in one of the biggest U.S. accounting scandals in recent years—stealing secret audit inspection information from the PCAOB. KPMG LLP is preparing […]

Wesley Bricker Is Stepping Down As SEC Chief Accountant

This just in from the SEC: The Securities and Exchange Commission today announced that Wesley R. Bricker, Chief Accountant, plans to leave the agency after more than six years of distinguished service. Mr. Bricker was named as the SEC’s Chief Accountant in 2016, after serving as the deputy chief accountant. Earlier, he served as a […]

Former SEC Chief Accountant Broke His Neck In 2016 Bike Crash, Awarded $41 Million In Damages By Jury

Back in July 2016 when I was working at AccountingWEB, I remember an SEC press release coming across my virtual desk announcing that Wesley Bricker had been named interim chief accountant. I remember thinking, “Wait, what happened to James Schnurr? He had just spoken at some accounting conference, somewhere, about something, it seemed.” The July […]

Two Internal Auditors Thought They Could Get Away with Insider Trading, LOL

Two internal auditor buddies got a starring role in an SEC litigation release after they were charged with insider trading for monkeying around with secret information about their respective employers. Lloyd Schuman, a former senior internal auditor at Verso Corp., and Dane Janes, an internal auditor with Ashford Hospitality Trust Inc., agreed to pay a […]

It Seems the PCAOB and SEC Are Giving Accountants the Benefit of the Doubt More These Days

Maybe it’s because the PCAOB had a new chairman and a whole new board at the beginning of last year. Or maybe it’s because the audit regulator’s longtime enforcement chief bolted last May and the position still hasn’t been permanently filled. Whatever the reason, the PCAOB settled only 13 enforcement actions against accountants in 2018, […]

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Accounting Fraud Watch: Jumio Founder, Former College Controller, Ex-Roadrunner Execs

We arrived late to a couple accounting fraud settlement parties thrown by the SEC recently. All the Lagunitas and buffalo chicken dip were gone, and we were stuck drinking Busch Light and munching on carrot sticks. But we’ll still recap what happened at these shindigs anyway. Silicon Valley startup Jumio’s ex-CEO settles SEC fraud charges […]

As a Result of Breaking SEC Rules, Deloitte Japan Is $2 Million Lighter In the Wallet

There was some bad decision-making going on at Deloitte Touche Tohmatsu in Japan. Dozens of its employees had bank accounts at the subsidiary of a client for which Deloitte Japan issued audit reports, which is a no-no because Securities and Exchange Commission rules don’t allow accountants to have bank accounts with audit clients that have […]

New Year’s Eve Was Kind of a Bummer for Hertz

Man, I hope executives at Hertz got shitfaced on New Year’s Eve, because being told the company has to pay a $16 million civil penalty to the Securities and Exchange Commission to settle a case involving numerous accounting violations is not a stellar way to end 2018/begin 2019. An SEC cease-and-desist order filed on Dec. […]

SEC Got All Grinchy on Crowe, Four Partners for Bad Banana of an Audit

We interrupt your Christmas Eve merriment to bring you this press release from the Securities and Exchange Commission, which on Dec. 21 announced not-so-glad tidings about Crowe LLP’s audit team: The Securities and Exchange Commission today filed settled charges against national audit firm Crowe LLP, two of its partners, and two partners of a now-defunct audit […]

Longtime KPMG Client General Electric Looking to Mess Around with Another Audit Firm

109 years. That’s how long KPMG has been General Electric’s auditor. When that engagement started, the rotund William Howard Taft was in the White House, there were 46 states in the U.S., and the start of World War I and Babe Ruth’s professional baseball career were still five years away. But the spark in the […]

Elon Musk smoking a blunt

Elon Musk Made It Clear He Gives an Immaterial Number of F*cks About the SEC

ICYMI, Elon Musk appeared on 60 Minutes on Sunday, and while it wasn’t quite as good as him sparking a blunt on Joe Rogan’s podcast, it was still a tad incendiary. Musk’s beef with the SEC started in August when he tweeted that he was “considering” taking Tesla private at $420 a share (LOL 420, […]

eBay’s Former Director of SEC Reporting (and Deloitte Alum) Charged With Insider Trading By SEC

A CPA who once was the director of Securities and Exchange Commission reporting for eBay Inc. was charged with insider trading by the SEC on Sept. 28 for allegedly using insider information ahead of a PayPal Holdings acquisition to make nearly $36,000 in illegal trading profits, according to documents released on Oct. 16. Bryan Long, […]

How Do We Fraudulently Boost Revenues for Thee? Let Me Count the Ways

If you’re going to get busted for using fraudulent accounting practices to artificially inflate your company’s revenues, you might as well make it worth your while—or at least worth the fine you’re going to have to pay to the Securities and Exchange Commission. The SEC levied fraudulent accounting charges against Tangoe, formerly a public telecommunications […]

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Federal Judge Strikes Down Ex-KPMG Partners’ Request for SEC Evidence Search

If you’re dying to know what’s going on with David Britt, David Middendorf, and Thomas Whittle, the former KPMG partners who are accused of participating in a scandal in which confidential Public Company Accounting Oversight Board inspection information was leaked to the accounting firm, Law360 has an update: A group of former and would-be KPMG auditors […]

PCAOB Told SEC ‘Hold My Drink,’ Went All Enforcement-Crazy on Accountants in 2017

2017 was a banner year for the Public Company Accounting Oversight Board when it came to enforcement actions against accountants. For the Securities and Exchange Commission, not so much. The PCAOB finalized 35 enforcement actions involving “accountants”—otherwise known as CPAs employed by SEC registrants, auditors, and audit firms—last year, up from 28 in 2016, according […]

SEC Calls Off the Dogs on Exxon Mobil

Exxon Mobil Corp. is out of the Securities and Exchange Commission’s doghouse for now, as the regulator ended its two-year accounting investigation into how the company calculates the value of its assets, as well as possible oily investor disclosures about climate change. According to a Bloomberg News report, Exxon Mobil received a letter from the […]

Iced Tea

The SEC Would Like a Word With Long Blockchain

Back in my day, it was enough to take an iconic cola brand and make a clear version to boost stock prices. Of course, that didn’t exactly work out for Pepsi in the long term either. In December of last year, New York-based Long Island Iced Tea Corp. changed its name to Long Blockchain Corp. and […]

Earnings Forecasts Look Sunnier When You Put GAAP in the Shade

More and more of the largest companies in the United States are using their favorite nonstandard accounting metrics to forecast earnings, and as long as the Securities and Exchange Commission allows it, they’ll continue to do it. For example, Newell Brands Inc., which makes Sharpie markers and Rubbermaid containers, forecasts that a key measure of […]

Toshiba Seems to Have Escaped SEC Penalty After Accounting Probe Ends

It was reported in March 2016 that the Securities and Exchange Commission and the Justice Department were investigating the “accounting problems” at Toshiba Corp.’s business units in the United States. Well, according to Reuters, the SEC has completed the investigation, and Toshiba is likely breathing a sigh of relief. “We understand that all SEC investigations […]

SEC in No Rush to Make a Decision on PCAOB Chair

SEC Chair Mary Jo White said that she'll wait until two new commissioners are appointed before deciding on whether James Doty will remain the head of the PCAOB. Currently, the SEC only has three commissioners after Dan Gallagher and Luis Aguilar both left last year. But how long do we have to wait?! That all […]

At Least One SEC Commissioner Has a Sense of Humor

Michael Piwowar made a funny: Imagine a world where GAAP or other reporting standards did not exist – where management could develop its own numbers based on its own poorly-defined criteria.  Management might be tempted to create numbers that provide the illusion of performance but in reality are largely irrelevant to measuring the actual performance […]

Auditors, PCAOB Earn Attaboys From SEC Chief Accountant

SEC Chief Accountant James Schnurr says that, although "there's room for improvement" audit quality "is getting better" and the PCAOB has "deepened their expertise" and "their inspection process has matured." This explains why we've seen more deficiencies, he says. I'm sure KPMG appreciates the vote of confidence. [AT]

The SEC Put Out Its 2015 Highlight Reel

The SEC's fiscal year wrapped on September 30, so naturally, they wanted to take a victory lap with their enforcements results. Among the accounting and auditing highlights brought up are: Computer Science Corporation's manipulation of "accounting models that artificially increased its profits but had no basis in reality." Deutsche Bank's overvalued derivatives that exposed them […]

FASB Supports the SEC’s Commitment to Tiptoeing Around IFRS Adoption Indefinitely

This week, the AICPA Conference on Current SEC and PCAOB Developments is going down in Washington and unfortunately I am missing it this year as I'm due in Dallas this week for AccountingWEB Live which is exponentially more exciting (or something). Today, SEC Chief Accountant Jim Schnurr reiterated the commission's commitment to pussyfooting around any […]

A Quick and Dirty Guide to Getting Away With Insider Trading

Insider trading: the classic white collar money-making scheme. Do it right, and you’ll amass a fortune. Screw it up, and you’ll wind up stamping out license plates and teaching ethics CPE from behind bars with Scott London. We're here today to tell you how NOT to get caught because who knows, some day you may […]

This Massive SEC Whistleblower Award Will Make You Wish You’d Seen Something and Said Something

The Securities and Exchange Commission today announced an expected award of more than $30 million to a whistleblower who provided key original information that led to a successful SEC enforcement action.  The award will be the largest made by the SEC’s whistleblower program to date and the fourth award to a whistleblower living in a […]

How I Learned to Stop Hating Networking and Love Mary Schapiro

A few months ago, my boss sent me to a business conference to learn technical stuff but mostly to network. If someone had told me years ago how much networking and ass-kissing the accounting profession actually involves, maybe I would have rethought my career path and become a statistician or something. The only thing I […]

The SEC Is Tired of Procrastinating Late Filers Taking Their Sweet Ass Time

The SEC announced action yesterday against 28 officers, directors, or major shareholders for violating federal securities laws requiring them to promptly report information about their holdings and transactions in company stock. Additionally, six publicly-traded companies were charged for contributing to filing failures related to this chronic procrastibation. From the SEC release: The charges stem from […]

Former SEC Chief Accountant Predictably Curmudgeony About the SEC’s New Chief Accountant

Financial Executives International (FEI) has a pretty good piece on the struggles newly-announced SEC Chief Accountant Jim Schnurr will face in his time at our favorite porn-loving securities regulator. You should go read it. Like the whole thing. Make sure you don't miss this part: Lynn E. Turner’s take on the matter, perhaps not unsurprisingly […]

SEC Names a New Chief Accountant, You’ll Never Guess Where He Worked Before

Did you like that lame Upworthy headline? Did it get you to click on this? Sorry about that, you're about to be disappointed. The Securities and Exchange Commission today announced it has named James Schnurr as its chief accountant.  Mr. Schnurr will begin his new post in October.  He will replace Paul A. Beswick, who […]

SEC Steps In to Stop Sketchy City Comptroller From Bankrupting City on Bad Bond Deals

The city of Harvey, IL has angered the SEC with some shady bond offerings to the point that the SEC felt it appropriate to obtain an emergency court order to stop these clowns from issuing these bonds: The SEC has filed fraud charges in U.S. District Court for the Northern District of Illinois against the […]

The SEC Is On An Insider Trading Losing Streak

The U.S. Securities and Exchange Commission, in a third insider-trading trial defeat in the past year, lost its lawsuit claiming STEC Inc.’s former chief executive officer made $134 million by selling stock before divulging a sales setback to investors. Federal jurors in Santa Ana, California, returned their verdict on the first day of deliberations. The […]

SEC Working On Protecting Ridiculously Rich People From Investing In Stupid Startups

Since 1982, the SEC has defined an "accredited investor" as someone with $1 million sitting around collecting dust or annual income of $200,000 in each of the previous two years with the reasonable assumption of making at least $200,000 in the year ahead. In 2006, Chris Cox wanted to bump that up to $3 million, […]

Ex-Deloitte Chief Risk Officer Learns Not to Gamble with Independence the Hard Way

As everyone who is anyone knows, it's important to maintain independence in both fact and appearance. James T. Adams — once Chief Risk Officer at Deloitte's San Francisco office — was reminded of that part of CPA Ethics 101 today when the Securities and Exchange Commission charged him for causing violations of the auditor independence […]

The SEC Has Warned Against Investors Putting all Their Money into Marijuana

Thank goodness we have the SEC to protect us from ourselves. The SEC sent out a warning today cautioning investors to be on the lookout for shady "microcap companies that claim their operations relate to the marijuana industry after the agency suspended trading in the fifth such company within the past two months." The SEC […]

SEC Chief Accountant Paul Beswick Is Leaving For the Private Sector

The SEC announced today that Chief Accountant Paul Beswick is out, with his sights set on the private sector. He'll hang around for a bit (a "transitional period" for you corporate drones) to make sure his exit doesn't screw up all his hard work over the last 2 years. Beswick first joined the SEC in […]

SEC Charges BP Insider With Cleaning Up His Portfolio After the Deepwater Spill

The Securities and Exchange Commission today charged a former 20-year employee of BP p.l.c. and a senior responder during the 2010 Deepwater Horizon oil spill with insider trading in BP securities based on confidential information about the magnitude of the disaster.  The price of BP securities fell significantly after the April 20, 2010 explosion on […]

The SEC Wants You to Know What Ponzi Scheme YouTube Videos Look Like

It's kind of like an infomercial but with fewer incompetent idiots trying to accomplish basic tasks like using Tupperware and cracking eggs. Before we get to the video, let's get to the press release from the SEC: The Securities and Exchange Commission today announced fraud charges and an asset freeze against the operators of a […]

Retired SEC Lawyer Calls Agency Penalties “At Most a Tollbooth on the Bankster Turnpike”

James Kidney, who joined the SEC in 1986 and retired this month, offered the critique in a speech at his goodbye party. His remarks hit home with many in the crowd of SEC lawyers and alumni thanks to a part of his resume not publicly known: He had campaigned internally to bring charges against more […]

Crime May Not Pay But Whistleblowing Certainly Does

The Securities and Exchange Commission today announced that the whistleblower who received the first award under the agency’s new whistleblower program will receive an additional $150,000 payout after the SEC collected additional funds in the case. The whistleblower, who the SEC did not identify in order to protect confidentiality, has now been awarded a total […]

Investors Want Disclosures That Make Sense; Also a Pony, World Peace

This according to Compliance Week: “Investors pretty much said to a person they're not turning down disclosure,” says Kenneth Daly, president and CEO of the National Association of Corporate Directors, which recently convened an investor summit to hear from major investor groups. “At the same time, they made it abundantly clear, there are lots and […]

The SEC Wants a Bigger Allowance Because Robots

The U.S. Securities and Exchange Commission needs more money to properly police equity markets and detect potential misconduct, especially in a world of rapid-fire trading, SEC Chair Mary Jo White told lawmakers on Tuesday. "We… have focused intensively on potential misconduct in the equity markets," White told a U.S. House of Representatives appropriations panel in […]

Being a Good Husband Means Listening to Your Wife, Except When Insider Trading is Involved

Women everywhere who are convinced men never listen might gain just a small sense of satisfaction out of these two clowns who — despite getting in trouble with the SEC — prove that not all dudes check out once the lady starts talking. “Spouses and other family members may gain access to highly confidential information […]

Who Needs a CFO When You Have an Ex-KPMGer Running the Show?

Colin already got to this L&L Energy LOLery in ANR but in case you missed it, here's just a teaser from the SEC: The SEC’s Enforcement Division alleges that L&L Energy Inc., which has all of its operations in China and Taiwan, created the false appearance that the company had a professional management team in […]

Idiots Accused of Insider Trading Used Sketchy Post-It Method, Creative Digestion

Insider trading accusations are often boring, routine and totally predictable. But this reads like something out of a poorly-written detective novel, for real: The Securities and Exchange Commission today charged a stockbroker and a managing clerk at a law firm with insider trading around more than a dozen mergers or other corporate transactions for illicit […]

Deloitte Client and Trading Firm Wants to Go Public, Admits To Being Awful at Accounting

Anyone who has ever struggled through Intermediate or scored two consecutive 74s on FAR can tell you accounting is hard, man. But when you're in the financial business and hoping to go public, there is a minimum expectation that you at least have some idea what you're doing before you invite the auditors over to […]

SEC Floats the Idea That the More You Pay For an Audit, The Better the Audit Will Be

We'd say you heard it here first, kids but actually you heard it from CFO Journal: U.S. securities regulators are wary that pressure to reduce auditor fees could lead to worse audits. Regulators grow “worried” when auditor fees appear to fluctuate with economic cycles, Paul Beswick, chief accountant at the Securities and Exchange Commission, said […]

The SEC’s Four Year Plan Conspicuously Missing a Commitment to IFRS

The SEC is the worst long-distance boyfriend ever. For years it's been telling the IASB to just be patient and one day, they'll move in together, into an apartment with mostly the IASB's furniture except for the SEC's favorite ratty recliner and big screen TV. And everything will be wonderful! But the SEC's latest Strategic […]

The Allscripts Director of Corporate Audit Accused by SEC of Insider Trading Once Worked at Deloitte

Feel free to refer to our earlier post about Steven Dombrowski's trouble with the SEC. So, there wasn't much about our pal Steve in the SEC complaint, but that's what interns are for. I put my kitten to work against Google and she was able to pull up this now-removed LinkedIn profile that tells us […]

Chicago CPA Charged By SEC For Insider Trading on His Wife’s Account

OH MAN. Someone is going to be in the doghouse for quite some time. Let's take a look at what this clown allegedly did: The Securities and Exchange Commission announced that it filed a civil enforcement action against Steven M. Dombrowski, a C.P.A. and formerly Director of Corporate Audit at Allscripts Healthcare Solutions, Inc. ("Allscripts") […]

Per the SEC, Insider Trading Is Not the Right Way to Start a Hedge Fund

Meanwhile, in the land of SEC complaints: The Securities and Exchange Commission today charged a senior portfolio manager at Microsoft Corporation and his friend and business partner with insider trading ahead of company announcements. The SEC alleges that Brian D. Jorgenson, who lives in Lynwood, Wash., obtained confidential information about upcoming company news through his […]

SEC Union Warns SECers They Should Learn To Shovel Lunch Into Their Faces In a Prompt Manner

Of all the SEC's "time management" issues (I need not mention to what I am referring), is lunch really up there? Apparently so: Add the ability to eat quickly to the list of skills needed to work at the U.S. Securities and Exchange Commission. In a dispute that has sent pangs of resentment — and […]

Ex-SEC Chief Accountant Taking His Experience in Unfinished Business to the FASB

James Kroeker, 44, will be a vice chairman of the U.S. Financial Accounting Standards Board, the board's parent organization, the Financial Accounting Foundation said in a statement on Wednesday. Kroeker is known for handling difficult policy decisions during the 2008-2009 financial crisis and will face projects that have been slowed by disagreements between board members and […]

Yes, the House Bill That Bans Auditor Rotation Is Terrible But There May Be an Upside

As you know, yesterday the House of Representatives passed H.R. 1564, the Audit Integrity and Job Protection Act, with bipartisan support, 321-62. The charge was led by the bill's co-sponsors, Rep. Robert Hurt (R-VA) and Rep. Gregory Meeks (D-NY). Here's an enthusiastic statement from Rep. Hurt via Accounting Today:

SEC Creates The Accounting Fraud Untouchables (or Something)

The Financial Reporting and Audit Task Force is one of the three new initiatives in the DepartmentDivision of Enforcement that were announced by the Securities and Exchange Commission today. So if you're one of those people that cause Andrew Fastow to blush, then you're likely to be right in the FRATF's wheelhouse:  The Financial Reporting and Audit Task Force will […]

The SEC Manages to Get Softer on Big 4 Audit Firms

Incredibly, the SEC has done something I didn't think was possible. It has, in its implicit blessing of Herbalife's selection of PwC as auditor, given the Big 4 and other audit firms more leverage in future debates over independence with regard to past non-audit services. And the last thing the Big 4 needs is more […]

The SEC is Developing an Army of Robots to Replace You

You're an accountant, so I'm going to assume you have self-esteem issues. On the off chance you were starting to think that your existence might be meaningful, the SEC announced that it's working on a project that may have the potential to eventually make your job completely irrelevant. The project is called the Accounting Quality […]

It’s Not Every Day That 50 Cent Gets Mentioned in an SEC Filing

Curtis Jackson III gets a shout-out in this As Seen on TV, Inc. 8-K under "Other Events": On April 30, 2012, TV Goods Inc. (“TVG”), wholly-owned subsidiary of As Seen On TV, Inc. (the “Company”), announced that it entered into a Distribution and Marketing Agreement dated March 15, 2012 (“Distribution and Marketing Agreement”) with SMS […]

SEC Concludes That It Doesn’t Need to Kick Overstock.com on the Way Down

The financial gumshoes at the SEC have closed their investigation of Overstock.com and have concluded that no enforcement action is necessary. Naturally, former Arkham Asylum resident and current Overstock.com CEO Patrick Byrne sees this as a vindication: "We are the ones who brought all these matters to light, we made the corrections, we fully disclosed these […]

From the Sounds of It, Small Companies Better Learn to Love IFRS

SEC Chief Accountant James Kroeker is "hopeful" that the SEC can figure something out re: IFRS in the coming months but if you're a controller/CFO type at a small company who thought that this wasn't going to be your problem, Jim has news for you: He downplayed the notion of smaller firms being able to […]

Occupy the SEC Sends a 325 Page Comment Letter On the Volcker Rule

Ah, the Volcker Rule… an allegedly sublime piece of legislation that keeps the Goldman rats from doing things like betting against clients and raking in an extra million a day. Love it or hate it, you have to admit it's a step in the right direction if you're at all familiar with its intent. Of […]

Jeanette Franzel, CPA, CIA, CMA, CGFM, Is Your New Public Company Accounting Oversight Board Member UPDATE: And Not Everyone Is Impressed!

The overlords at the SEC have spoken and sweet Jesus in a manger, they like letters behind a name. Ms Franzel will replace Dan Goelzer who is a founding member of the Board and served as its perpetually acting chair from August 2009 to January 2011.  Franzel is dumping the Government Accountability Office, where she […]

PCAOB Has an Extra $20 Million to Spend on Field Trips to China

PCAOB Chairman James Doty shot the breeze with the SEC for awhile today, speaking about, among other things, how the Board would handle this boatload of Chinese filers who don't seem to know their asses from their elbows when it comes to accounting and their auditors who are similarly clueless. Doty assured the Commission that […]

Judge Would Like Someone To Look Her in the Eye and Explain Why Deloitte Isn’t Complying with a SEC Subpoena in Relation to a Company That Held Audit Workpapers Hostage

Remember Longtop Finanical? That's the Hong Kong-based company that Deloitte kicked to the curb last May for a number of sketchy reasons that included the "the unlawful detention of DTT's audit files." We came to learn later that not only were the precious audit files taken hostage but that Deloitte auditors were thisclose to becoming hostages themeselves. […]

Right Now KPMG CEO John Veihmeyer Is Locked in His Office Watching This Clip From “Rudy” Over and Over and Fighting Tears

This far from being Notre Dame's Jerry Sandusky moment but it still has to hurt.  The Securities and Exchange Commission today charged Daniel Ruettiger and 12 other participants in a scheme to deceive investors into buying stock in his sports drink company. Ruettiger is widely known for having inspired the 1993 motion picture "Rudy." According to […]

SEC Needs More Time to Get Their Heads Around IFRS

A recommendation on whether U.S. companies should switch to international accounting rules will take a few more months, the Securities and Exchange Commission’s chief accountant said Monday. The SEC’s staff had been expected to make a recommendation by year-end on whether U.S. companies should adopt the global rules, known as International Financial Reporting Standards. But the staff needs “a few additional months” to complete its work, SEC Chief Accountant James Kroeker said. [WSJ]

SEC Asking FASB About Looking Into That MF Global Accounting Thingamajig

Because, you know, it’s sorta tricky and it didn’t really turn out so well for Corzine & Co.

The SEC is in talks with the Financial Accounting Standards Board, which sets accounting standards, about “repurchase-to- maturity” agreements that MF Global used in off-balance-sheet accounting, Schapiro said today during a hearing before the U.S. Senate Agriculture Committee in Washington. “We are talking with FASB about whether we need more disclosure of those,” Schapiro said.

Senator Kent Conrad (D-ND) seems a little more urgent:

“How is it possible that someone is able to bet the farm here, multiple times, and it disappears from the balance sheet because of this repo-to-maturity technique?” asked Senator Kent Conrad, a North Dakota Democrat, noting that the technique made it appear as though the risk had been “sold.”

“That is a loophole so big you can drive a Mack truck through it,” Conrad said. “If that’s not closed, we should ask ourselves what we’re doing.”

I think we all know what a lot of people at the SEC are doing.

MF Global Accounting Technique Under Review, Schapiro Says [BBW]

The Overworked SEC Makes Time To Entertain Teenagers

If there were candy involved in this, it might be considered creepy.

The SEC hosted a shadowing event at its Washington, DC HQ yesterday (what, no invite for AG?) as well as a few regional offices to show high school students interested in finance just how cool the SEC is and how much fun it is to work for a [dot]gov in the business of protecting investors or whatever it is the SEC purports to do these days.


Participating students are involved in the Academy of Finance, one of five career-themed academies that are part of the National Academy Foundation (NAF). More than 250 students are visiting SEC offices this week in Washington, Atlanta, Boston, Denver, Los Angeles, Miami, Philadelphia, Salt Lake City, and San Francisco. The kids will hear from SEC Commissioners Elisse Walter and Troy Paredes and other SEC leaders in group discussions, and are then paired with an SEC professional to observe the workday. SEC staff members from various divisions and offices volunteered to be shadowed and, according to the press release, “are enjoying the opportunity to explain their work and interact with America’s next generation of financial professionals.”

“By shadowing an SEC employee for the day, students can learn about the SEC’s mission on behalf of investors and the work that we do on a daily basis to achieve it,” said Kathy Floyd, a Deputy Director in the SEC’s Office of Investor Education and Advocacy. “We hope to pique the students’ interest as they consider their own potential career paths in the financial services industry or in public service at an agency like the SEC.”

JD Hoye, President of the National Academy Foundation, added, “The National Academy Foundation provides students with experiences that allow them to see the real world applications of what they are learning in school and hone the skills necessary to excel in their careers. Through our partnership with the SEC, students gain a window into an important part of the financial industry, underscoring the relevance of their class work and exposing them to possible career paths.”

The shadowing program helps the SEC meet objectives in Section 342 of the Dodd-Frank Act, which calls for federal financial regulators to seek diversity in their workforce at all levels and, where feasible, to partner with inner-city high schools, girls’ high schools, and high schools with primarily minority populations to establish or enhance financial literacy programs and provide mentoring. Funny, I don’t think any of the dreadlocked teenagers that hang out on my corner are all that interested in finance and accounting beyond the math required to figure out how many 8ths are in an ounce but whatever, good for them.

It’s important to start them young. Way to go, SEC.

Former Deloitte Employee Swings to Settlement with SEC Over Insider Trading Charges

Remember Annabel McClellan? She’s the wife of former Deloitte partner Arnold McClellan who sorta got wrapped up into an insider trading mess with her sister and brother-in-law last fall. Annabel is also a former Deloitte employee who gave up the glamorous life of a Salzberg solider to be a stay-at-home mom. Oh! and she was working on swingers app called My Nookie that was on the verge of taking the scene by storm. The whole insider trading thing put those ambitions on hold due to the fact that Annabel may be looking at some jail time and she settled civil charges with the SEC yesterday for $1 million. The good news for Arnie is that if judge gives the settlement the thumbs-up, he’ll be off the hook who, prosecutors say, had no clue that the Mrs. was engaging in extracurricular activities:

McClellan, who pleaded guilty in April to one count of obstructing the SEC’s investigation, said she overhead her husband talking about the deals and passed the information to her brother-in-law, according to a transcript of her change of plea hearing.[…] McClellan told prosecutors that her husband wasn’t aware of or involved in passing information, according to documents filed in the SEC case.

Of course, if Arnie wasn’t aware that Annabel was trading under his nose, it makes you wonder with whom she was researching Amazon Squat and the Foldover.

Wife of former Deloitte partner to pay $1 million [Bloomberg]

Non-U.S. Survey: IFRS Is Getting More Popular

Global Reporting Standards are gaining popularity among investors and finance executives, according to a new report by ACCA. Around 170 senior executives and investors were questioned. More than 40% said international financial reporting standards improve access to capital, while around 25% believe the global standards have lowered capital costs. ACCA chief executive Helen Brand said: “Growing support amongst CFOs and investors for [IFRS] must be considered carefully” by US regulator the SEC as it debates converging US GAAP with international standards. “We believe a positive answer from the SEC would give a tremendous boost to the cause of financial reporting and more importantly the world economy.” [Accountancy Age, Earlier]

Deloitte All of a Sudden Caught in an Awkward Three-way with SEC, Chinese Regulators

“This is one of the biggest battlegrounds in the transnational regulation of accounting firms,” said Paul Gillis, a visiting professor of accounting at Peking University’s Guanghua School of Management. “Deloitte is between a rock and a hard place. This is a major escalation.” [WSJ, Earlier]

SEC Not Amused By Deloitte’s Failure to Produce Documents Related to Company That Held Their Audit Workpapers Hostage

Remember Longtop Financial Technologies? Deloitte resigned as auditors of the Chinese company back in May after LFT took some actions that were, shall we say, unusual for an audit client. Among them, “interference by certain members of Longtop management in DTT’s audit process; and […] the unlawful detention of DTT’s audit files.” And there may be some financial statement fraud going on, to boot. What’s even slightly weirder is Deloitte’s resignt to Longtop’s Audit Committee that laid out the specifics:

[A]s a result of intervention by the Company’s officials including the Chief Operating Officer, the confirmation process was stopped amid serious and troubling new developments including: calls to banks by the Company asserting that Deloitte was not their auditor; seizure by the Company’s staff of second round bank confirmation documentation on bank premises; threats to stop our staff leaving the Company premises unless they allowed the Company to retain our audit files then on the premises; and then seizure by the Company of certain of our working papers.

Right. The auditors-almost-taken-hostage situation. Quite a doozy, this one. Based on the history between Deloitte and Longtop, one would think that Green Dot would jump at any chance to exact a little revenge on these shady bastards. NOPE!


From the
crack squad at the SEC:

The Securities and Exchange Commission today filed a subpoena enforcement action against Deloitte Touche Tohmatsu CPA Ltd. for failing to produce documents related to the SEC’s investigation into possible fraud by the Shanghai-based public accounting firm’s longtime client Longtop Financial Technologies Limited.

According to the SEC’s application and supporting papers filed in U.S. District Court for the District of Columbia, the SEC issued a subpoena on May 27, 2011, and D&T Shanghai was required to produce documents by July 8, 2011. Although D&T Shanghai is in possession of vast amounts of documents responsive to the subpoena, it has not produced any documents to the SEC to date. As a result, the Commission is unable to gain access to information that is critical to an investigation that has been authorized for the protection of public investors.

“Compliance with an SEC subpoena is not an option, it is a legal obligation,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “The ability of the SEC to conduct swift and thorough investigations requires that subpoena recipients promptly comply with that legal obligation. Subpoena recipients who refuse to comply should expect serious legal consequences.”

Maybe the email/hand-written letter sent by carrier pigeon (whatever method of communication the Commission is using these days) got lost OR maybe no one at Deloitte Shanghai was in the translating mood that day but it seems slightly strange that Deloitte would just blow this off especially since Longtop screwed them 70 ways to Sunday. Of course these documents could show that Deloitte was really a bunch of pansies and we’re letting LFT run the show until the gross negligence got to the point that they simply couldn’t ignore it anymore. It’s anybody’s guess, really.

UPDATE: The Journal reports that Deloitte claims to be “caught in the middle of conflicting demands by two government regulators,” which could be seen as extremely convenient.

SEC Files Subpoena Enforcement Action Against Deloitte & Touche in Shanghai [SEC]
Court Filing [SEC]
Also see: S.E.C. Asks Court to Force a Release of Papers From China [NYT]

When Booking Bogus Revenue, Ideally Your CFO Is the Type to Not Give a Rat’s Ass

James Li and David Chow used to run a shop called Syntax-Brillian Company as the CEO and Chief Procurement Officer respectively. They sold high-def, LCD TVs under the Olevia brand in China. Problem was, they didn’t really sell TVs under the Olevia brand in China. According to the SEC:

[F]rom at least June 2006 through April 2008, Li and Chow engaged in a complex scheme to overstate Syntax’s financial results by publicly reporting significant sales of LCD televisions in China, when in fact the vast majority of these sales never occurred. Li and Chow initially concealed the scheme through the use of fake shipping and sales documents.

Of course, they couldn’t do it alone. They needed a CFO. A CFO who would backdate things when asked and ignore obvious signs of bogus revenue. That man was Wayne Pratt who, from the sounds of it, wasn’t too concerned about ANYTHING:

The SEC alleges that Wayne Pratt, Syntax’s Chief Financial Officer, ignored red flags of improper revenue recognition and participated in preparing backdated documentation that was provided to Syntax’s auditors to support fictitious fiscal 2006 year-end sales. Pratt also ignored indications of impaired assets, agency sales, and potential collectability issues.

So, budding criminals, get on the look out for a guy/gal who is accustomed to shrugging their shoulders and responding “Meh. Whatever.” to your demands. Should work out well for you.

Litigation Release [SEC]
Complaint [SEC]

Some Are Suggesting That the IASB Is Filled with a Bunch of Spineless Jellyfish

Representatives of large institutional investors told the Securities and Exchange Commission on Thursday that they had serious qualms about the London-based International Accounting Standards Board replacing the U.S. Financial Accounting Standards Board as the primary arbiter of accounting rules in this country.

Speaking at an SEC panel focusing on investor views of international financial reporting standards, the representatives roundly supported the goal of establishing a single set of high-quality global financial reporting standards in the United States in the form of IFRS. But they suggested that the IASB, the current promulgator of IFRS, lacks the backbone and outreach capability of FASB — qualities that would be needed for a global system to succeed. [CFO]

PCAOB, SEC to Be All Up in China’s Business Next Week

Perhaps you’ve heard that some U.S.-listed Chinese companies have had some trouble with their financial reporting. Often times this leads to CFOs quitting, auditors resigning or workpapers being held hostage. None of which are good. Occurrences such as these have been going on for a little while and more recently the SEC admitted that they had, in fact, heard something about it. Perhaps even more surprisingly, a Chinese official also confessed that some of these companies weren’t exactly on top of their shit and in some may not have the faintest idea of what they’re doing.

All this excitement has finally gotten the teams at the SEC and PCAOB worked up enough that it has been decided that they’re popping over to Beijing to meet with the country’s Ministry of Finance and the China Securities Regulatory Commission next Monday and Tuesday to see what’s what.

“This meeting is the commencement of our accelerated efforts with the People’s Republic of China to forge a cooperative resolution to cross-border auditing oversight. I believe we share a common objective with Chinese regulators to protect investors and safeguard audit quality through our mutual cooperation,” said James R. Doty, PCAOB Chairman.

The delegation will be led by Board Member Lewis H. Ferguson and include staff from the PCAOB’s Office of International Affairs and Division of Registration and Inspections, and the SEC Office of International Affairs and Office of the Chief Accountant. The delegation will meet with senior leadership of the Ministry of Finance and the CSRC.

“The purpose of this meeting is to provide an opportunity to exchange information about how each country conducts inspections of auditing firms and to move toward a bilateral agreement providing for joint inspections of China-based auditing firms registered with the PCAOB,” said PCAOB Board Member Ferguson.

Reuters reports that Ferguson considers the trip a “confidence-building exercise,” just in case you were still a little queasy on Sino-Forest, et al.

Statement on Delegation to China [PCAOB]
U.S. audit watchdog, SEC plan Beijing visit [Reuters]

Confidential to Sir David Tweedie: Mary Schapiro Isn’t Hearing Encouraging Words on IFRS

Speaking at The Wall Street Journal’s annual CFO Network meeting in Washington D.C., Schapiro readily admitted that there isn’t a big push from either multinationals or shareholders to move to international financial reporting standards.

In response to a question from Bank of America’s CFO, Chuck Noski, Schapiro said, “We have not heard from a lot of shareholders that we have to go (to IFRS). We’ve heard the contrary… ‘Why would we take this step toward international accounting standards?’” [CFOJ]

Broker-Dealers, Prepare Thyselves for More Intrusive Audits

SEC commissioners will vote today on proposed changes to broker-dealer auditing and reporting rules at a meeting in Washington. As with the 2009 rules, which tightened oversight of advisers’ custody of client assets after Bernard Madoff Ponzi scheme was exposed, the new changes increase oversight of the minority of about 300 broker-dealers who hold customers’ cash.

The proposals — which would be opened for a 60-day comment period — would require that a broker-dealer’s internal controls be checked by a registered public accounting firm and would let regulators examine the broker-dealer’s audits. Broker-dealers would have to file quarterly reports describing whether they have access to client money and how any access is controlled. [Bloomberg]

SEC Still Cleaning Up Waste Management

Former Waste Management Chief Accounting Officer Bruce Snyder settled a civil injunctive action with the SEC today. The action relates to a little incident when Brucey “among other things, prepared, reviewed, and signed a materially false or misleading Form 10-Q,” back in ’99.

Perhaps this case was handled as efficiently as possible but taking twelve years to wrap this up might be enough to encourage Mary Schapiro to ask some other people to get better at their jobs (that means, lay off the porn). [SEC]

Mary Schapiro Wants Accountants to Get Better at Their Jobs

Did you work hard this past busy season? Did you toil away for hours and hours to provide exemplary client service? Did you take one for the team when that creeper client contact wanted to dance at the end-of-the-year party? Great. Well done, good and faithful capital market servant. But guess who still isn’t satisfied? The SEC Chair, Mary Schapiro. Why? Well, it’s becuase you’re still not meeting investors expectations and the SEC is hearing about it. Everyone is demanding the best and you’re simply not cutting it right now.

“At the SEC, we have heard from investors that they are not as confident as they could be, and they have areas in which we all could expect more from accountants, from accounting standards, from regulators and from those who provide assurance through the audit process,” she said. “I believe that, when your customer asks for more, especially after the challenges of recent years, you need to listen.”

So maybe this is what KPMG is talking about when they say things are going to the next level?

SEC’s Schapiro Says Investors Expect More from Accountants [AT]

Is the SEC Actually Monitoring Social Media?

The SEC has stated its position on social media, and I use the term “social media” loosely. They have also warned of hot stock scams perpetuated through those same channels.

Remember this?

A document request list sent by the SEC to some advisers asks for a broad range of data related to social media use, according to a compliance alert from ACA Compliance Group. Among other things, the SEC is seeking to identify how often advisers use social media websites such as Facebook, Twitter, LinkedIn, YouTube, Flickr, MySpace, Digg, Redditt, as well as any blogs used by, or subscribed to, by the adviser. They are also looking at communications made by, or received by an adviser on any social media website including among others, blog postings, messages, and/or tweets.

MySpace? I doubt unscrupulous frauds will find many worthy targets there.

To me, it says that the SEC has no idea where the important information is when it comes to social media.

Look at the BlackBerry PlayBook recall. 900 units isn’t huge if you consider they moved 50,000 units on its first day. Then again, if it were an anointed Apple product, that would be a pathetic debut.

If the SEC is in the business of protecting the investor, it would want to have some kind of say in how useful, relevant and timely RIM’s information is to shareholders. Reasonable accounting authorities might also want to understand the impact of bad PR on the company’s overall financial health, instead of constantly wasting everyone’s time discussing how to account for a lease on the books. Please!

Like when the WSJ published this story about the PlayBook’s first day:

“The traffic’s not iPad crazy, but there is a buzz,” said a salesman. “We actually had 5 people in the morning when the store opened at 7.”

Early sales were also relatively strong at a Best Buy outlet in the Fenway neighborhood of Boston, where there were “only a couple” of tablets left as of midmorning, a salesman said. While he declined to say exactly how many the store started with, he said the majority had now been sold. There were people waiting to buy the tablet when the store opened, he said.

At a Staples store in downtown New York City, on Broadway, a salesman said all 10 PlayBooks it had in stock sold out within a couple of hours of opening at 7 a.m. People are still coming in to ask for it, and the store is having them order online, he said.

Shit, if I held a bunch of RIM (disclaimer: this author is long RIM) and this were a reasonable market in which I might feel safer knowing the SEC is totally protecting my interests, I might want a rule that calculates exactly what that bad PR is worth to the company I own. To a shareholder, this sort of news means my investment just took one hell of a hit. Ten PlayBooks per store? Sad.

But instead, the SEC wants to know what blogs investors are reading. I’m sure that’s a productive use of their time and far more important than monitoring the digital pulse of investing as it pumps through the veins of social media.

SEC Officially Falls Victim to PwC’s Competitive Poaching Strategy

~ Tell Kayla I’m sorry for butchering her last name for over two hours. It’s fixed now.

PwC has announced the appointment of Kayla Gillan, formerly SEC Chair Mary Schapiro’s Deputy Chief of Staff, as the firm’s head of the newly created Regulatory Relations Group. This confirms a report by Bloomberg from last week.

Ms Gillan is no lightweight as she is a founding member of the PCAOB, served as general counsel for CalPERS and Chief Administrative Officer for Risk Metrics. The ecstatic Bob Moritz: “[PwC is] extremely fortunate to gain the experience, insights and future contributions of such a highly accomplished professional, one whose career has been dedicated to serving investors and other market participants,” BoMo said, adding, “Kayla Gillan is an example of making the investment to drive this transformation.”

It’s been a busy spring for PwC landing and announcing new appointments of partners and principals starting back in February and continuing through the spring.

[via PwC]

Center for Audit Quality Thrilled That SEC Study Recommends Auditors Continue Auditing

I am pleased that the SEC’s Office of the Chief Accountant’s thoughtful study recommends retention of Section 404(b) of the Sarbanes Oxley Act for companies whose market capitalization is between $75 and $250 million. Section 404(b) requires independent auditors to attest to management’s assessment of the effectiveness of its internal controls over financial reporting […]. The study concluded that costs of Section 404(b) compliance have declined and financial reporting is more reliable when the auditor is involved with ICFR assessments. Importantly, the study found that investors generally view the auditor‘s attestation on ICFR as beneficial. [Cindy Fornelli/CAQ]

SEC Warns of Pre-IPO Investment Scams

The SEC seems awfully interested in social media these days, and we assume it has little to do with Caleb’s obnoxious Whole Foods foursquare check-ins. Their latest nemesis? Pre-IPO investment scams purporting to be offering shares in hot non-public companies like Twitter, Facebook and Groupon.

SEC staff is aware of a number of complaints and inquiries about these types of pre-IPO investment scams, which may be promoted on social media and Internet sites, by telephone, email, in person, or by other means.

In September 2010, a judgment order was entered in favor of the SEC based on allegations that a scam artist had misappropriated more than $3.7 million from 45 investors in four states by offering fake pre-IPO shares of companies, including Centerpoint, AOL/Time Warner, Inc., Google, Inc., Facebook, Inc., and Rosetta Stone, Inc. In addition, the Financial Industry Regulatory Authority (FINRA) issued a recent investor alert about these types of scams. While offerings of pre-IPO shares in a company are not uncommon, unregistered offerings may violate federal securities laws unless they meet a registration exemption, such as restricting the private offering to “accredited investors” — investors who meet certain income or net worth requirements.

Investors should be mindful of the risks involved with an offer to purchase pre-IPO shares in a company. As with any investment, we encourage investors to research thoroughly both the investment product and the professional offering the product before making any investment decision.

Since AOL/Time Warner went public in 2006, we have to assume the scam artist referenced above had been at this for quite some time before the SEC was finally able to bring down the heavy hand of justice on dat ass.

If you’re interested in further reading on the subject, check out FINRA’s Pre-IPO Offerings—These Scammers Are Not Your Friends:

In general, offerings of securities must either be registered with the SEC or meet an exemption under the federal securities laws—otherwise the offering is not legal. “Pre-IPO” speculation involves buying unregistered shares in a private company before the initial public offering of securities—and it can range from risky deals to outright frauds.

Wait, does this have anything to do with that whole Goldman Sachs Facebook embarrassment?

Beware emails from Nigerian princes selling pre-IPO shares in hot tech companies, people.

Anyone Who Gives a Rat’s Behind About IFRS Needs to Mark July 7 on Their Calendars

‘Cause there’s gonna be a roundtable.

The Securities and Exchange Commission staff announced today that it will sponsor a roundtable in July to discuss benefits or challenges in potentially incorporating International Financial Reporting Standards (IFRS) into the financial reporting system for U.S. issuers.

The July 7 event will feature three panels representing investors, smaller public companies, and regulators. The panel discussions will focus on topics such as investor understanding of IFRS and the impact on smaller public companies and on the regulatory environment of incorporating IFRS.

“We must carefully consider and deliberate whether incorporating IFRS into our financial reporting system is in the best interest of U.S. investors and markets,” said SEC Chief Accountant James Kroeker. “This roundtable will provide an excellent opportunity for investors, preparers, and regulators to provide the SEC staff with valuable information that will help the Commission in its ongoing consideration of incorporating IFRS.”

See you there. If you manage to recover from your July 4th meat sweats, that is.

The SEC Is Aware That Some Chinese Companies Have Shoddy Accounting

Or in some cases, just plain fraudulent.

In prepared remarks at an investors conference, Luis Aguilar said he is increasingly concerned about the proliferation of small private companies that elect to merge with public shell companies in lieu of more rigorous methods of becoming public, such as a traditional IPO. “While the vast majority of these companies may be legitimate businesses, a growing number of them have accounting deficiencies or are outright vessels of fraud” Aguilar said, speaking at a Council of Institutional Investors conference here.

And in case you missed it the auditing isn’t so hot either:

”There appear to be systematic concerns with quality of auditing and financial reporting,” he said. “Even though these companies are registered in the U.S., we have limitations when it comes to enforcing U.S. securities laws with them.”

US Securities Regulator Aguilar Sounds Backdoor-Merger Alarm [Dow Jones]
SEC official concerned with ‘back-door’ listings [MarketWatch]

Berkshire Hathaway CFO Would Like to Make a Bet with the SEC

Warren Buffett’s Berkshire Hathaway Inc. (BRKA, BRKB) took an accounting charge to reflect the declines of three stocks in its investment portfolio after regulators asked about the company’s policy for writing down investment losses. But Berkshire Chief Financial Officer Marc Hamburg complained that the current stock prices don’t reflect the worth of the shares, and predicted in a letter to the U.S. Securities and Exchange Commission that “each security’s market price will grow to at least the intrinsic value that existed” when Berkshire made the investments. [Dow Jones]

Be Careful What You Tweet, Mary Schapiro Might Be Watching

We’ve considered why your firm might want a social media policy in the past but it’s clear now that it’s not only wise to keep employees in check but to keep the SEC from breathing down everyone’s necks.

Regulation FD (fair disclosure) is meant to prevent selective disclosure by issuers of materialon and insider trading liability in connection with a trader’s “use” or “knowing possession” of material nonpublic information. The rules are designed to promote the full and fair disclosure of information by issuers, and to clarify and enhance existing prohibitions against insider trading.


Without a social media policy, any employee of the company tweeting or blogging about company events could broadly be assumed to be company communications. Whether or not these people are officially representing the company or not is irrelevant; selective disclosure could be as simple as a poorly-timed post about a company secret (i.e. “our awesome new product will be released in two weeks!”) on an employee’s Facebook page, which is public but limited to the employee’s 100 or so family and friends. In theory, an astute friend could take this as a buy signal, knowing X product will cause quite a storm once it hits the market. Welcome to insider trading: social media edition. Notice here that the intention is not what is important but rather the event itself. The SEC doesn’t care if the employee meant to pump up his or her employer’s stock but rather that the employee chose to selectively disclose information not readily available to the public that the employee is privy to to a limited group of people.

How far could the SEC take this?

The SEC’s guidance set forth three considerations to help determine whether information posted on corporate websites is considered “public.”

* Whether a company’s Web site is a recognized channel of distribution;
* Whether information is posted and accessible, and therefore disseminated in a manner calculated to reach investors; and
* Whether information is posted for a reasonable period so that it has been absorbed by investors.

The guidance goes on to clarify that statements made on blogs or other interactive websites are subject to the anti-fraud provisions of the federal securities laws, and companies cannot require investors to waive protections under the federal securities laws as a condition of using such interactive websites.

The only control companies have in this is to have a very clear, intelligent social media policy that either limits or forbids disclosure of non-public information through blogs and social media. This isn’t new (this interpretation was released in August of 2008) but what is new is the rumor that the SEC is beginning to send deficiency letters to registered investment advisers it examines, specifically those who do not have a social media policy in place.

A document request list sent by the SEC to some advisers asks for a broad range of data related to social media use, according to a compliance alert from ACA Compliance Group. Among other things, the SEC is seeking to identify how often advisers use social media websites such as Facebook, Twitter, LinkedIn, YouTube, Flickr, MySpace, Digg, Redditt, as well as any blogs used by, or subscribed to, by the adviser. They are also looking at communications made by, or received by an adviser on any social media website including among others, blog postings, messages, and/or tweets.

According to the WSJ, an SEC spokesman declined to comment on the deficiency letters. However, an SEC official said at a compliance conference last month that misuse of social media is an issue on their radar in SEC examinations and enforcement. Misuse being defined as investment advisers who fake information on their LinkedIn profiles to buff up their appearance to investors.

Technology at SEC Good Enough for Viewing Porn, Not Reliable Internal Controls

Last year the Government Accountability Office issued a report that called attention to the SEC’s accounting system (or lack thereof). Reuters now reports that the SEC will admit in testimony tomorrow that the material weaknesses in their accounting system are largely due to technology that would make your grandparents laugh.

“These material weaknesses are unacceptable,” the SEC’s top division directors said in prepared testimony that was viewed by Reuters. They added the “root causes” of the problems stem from “years of underinvesting in financial system technologies.”

It should be noted that while the accounting systems were not quite up to snuff for the GAO, the equipment used by employees was sufficient for viewing a metric asston of porn, which we just learned moments ago, was even more widespread than initially thought.

SEC says its accounting problems stem from technology [Reuters]

SEC Whistleblower Program Not Exactly Knocking Anyone’s Socks Off

The corporate watchdog has received just 168 complaints alleging corporate fraud in the first 6½ months of the program’s existence, according to data the SEC provided to The Post through a Freedom of Information Act request. The tally is from July 22, 2010, when the program was launched, through Feb. 2, 2011. At that rate, the SEC is receiving less than one tip a day — hardly the flood that led the agency to delay staffing the program while it pleaded with lawmakers for more funding. [NYP]

SEC’s Storied Tradition of Producing Unreliable Financial Statements Makes for an Awkward Situation

Namely, the Commission would like a bigger budget because Dodd-Frank is making their lives increasingly difficult but since they got such bad marks from the GAO the Times reports that it might be just a tad inappropriate since, ya know, the SEC’s own numbers are, arguably, unreliable:

Since the commission began producing audited statements in 2004, the Government Accountability Office has faulted its reporting almost every year. Last November, the G.A.O. said that the commission’s books were in such disarray that it had failed at some of the agency’s most fundamental tasks: accurately tracking income from fines, filing fees and the return of ill-gotten profits.

“A reasonable possibility exists that a material misstatement of S.E.C.’s financial statements would not be prevented, or detected and corrected on a timely basis,” the auditor concluded.

The auditor did not accuse the S.E.C. of cooking its books, and the mistakes were corrected before its latest financial statements were completed. But the fact that basic accounting continually bedevils the agency responsible for guaranteeing the soundness of American financial markets could prove especially awkward just as the S.E.C. is saying it desperately needs money to increase its regulatory power.

S.E.C. Hurt by Disarray in Its Books [NYT]

Enron Whistleblower: WikiLeaks > SEC

“I don’t think the SEC’s culture is one that will make this effective one iota,” said Sherron Watkins, a one-time vice president at Enron, referring to expanded protections for whistleblowers included in the Dodd-Frank financial reform law. If she was in the same situation today as 10 years ago, when Watkins approached government authorities about accounting fraud at Enron, she would probably instead take her information to an organization like WikiLeaks, Watkins said. [Paper Trail]

St. Joe’s Accounting for Real Estate Impairment to Get the ‘Informal’ SEC Inquiry Treatment

If Greenlight Capital founder David Einhorn takes issue with your accounting policies, we don’t suggest laughing it off. We could talk about Lehman Brothers but it’s probably not necessary.

The most recent company that Einhorn has pegged for sketchy reporting is The St. Joe Company, who, after acting all amused about DE shorting the company’s stock, has now received a, what we imagine to be, very nice letter from the SEC launching an “informal inquiry” about the company’s practices concerning real estate impairment. The company shared the news with the world yesterday in this 8-K:

The Securities and Exchange Commission (the “SEC”) has notified The St. Joe Company (“St. Joe”) that it is conducting an informal inquiry into St. Joe’s policies and practices concerning impairment of investment in real estate assets. St. Joe intends to cooperate fully with the SEC in connection with the informal inquiry. The notification from the SEC does not indicate any allegations of wrongdoing, and an inquiry is not an indication of any violations of federal securities laws.

Despite St. Joe’s “nothing is fucked” position, Team Greenlight insists that things remain fishy:

“St. Joe’s valuation practices remain open to question,” Jonathan Doorley, a spokesman for Greenlight Capital, said today. “It is hard to understand how the company invested hundreds of millions of dollars during the real estate bubble and hasn’t seen fit to take a material writedown.”

Ideas welcome from those that want to line up against or with Einhorn & Co. Especially anyone that’s on the KPMG audit team.

St. Joe Reports Informal SEC Inquiry of Accounting for Land Impairments [Bloomberg]

(UPDATE 2) Who Will Be the New PCAOB Board Members?

~ Update 2 includes statement from PCAOB and clips from the SEC press release.

The SEC is set to make announcement circa any minute this afternoon and rumor has it that there might be last minute changes that amount to “horse trading among commissioners.” Intrigue at the SEC that has nothing to do with porn! Who knew?!?

Francine McKenna also seems excited about it:


Your wild-ass guesses are welcome at this time. We’ll keep you updated once we hear the names.

UPDATE: Silly us. Tammy Whitehouse over at Compliance Week had the potentials yesterday and we somehow overlooked it:

The SEC is expected to name John Huber, former director of the SEC’s Division of Corporation Finance, Lewis Ferguson, former general counsel to the PCAOB, and Jay Hanson, national director of accounting for audit firm McGladrey & Pullen, to three seats that have been open at the PCAOB for more than a year. It’s not clear whether one of those three will be appointed chairman, or whether that title will be granted to Daniel Goelzer, the acting chairman who has held down the fort since Mark Olson resigned in July 2009.

Granted, there are lots of rumors swirling about this “horse trading” so we wouldn’t be surprised if one of these guys (i.e. Huber, Ferguson or Hanson) got dropped for [fill in the blank].

UPDATE 2: And now, perpetually acting PCAOB chair Dan Goelzer:

“I am very pleased that the SEC has appointed three outstanding individuals to the Board. I look forward to working with Jim Doty, Lew Ferguson, and Jay Hanson in continuing to carry out the Board’s mission to protect investors and promote public confidence in audited financial reporting.

“At the same time, I want to thank the retiring Board members, Bill Gradison and Charley Niemeier, for their immeasurable contributions as founding members of the Board and for their years of dedicated service. Investors owe them a debt of gratitude.”

So the trade was Huber for James Doty (who is taking the Chairmanship), the former SEC General Counsel. INTERESTING (at least in some circles). Fro the SEC press release:

Mr. Doty is currently a Partner at Baker Botts LLP in Washington, D.C. He has represented clients on a wide range of securities law matters. He also counsels boards of directors and audit committees on problems arising under the Sarbanes-Oxley Act and related issues. Mr. Doty served as the SEC’s General Counsel from 1990 to 1992. He received an LL.B. from Yale Law School, an M.A. from Harvard University, an A.B. from Oxford University, and a B.A. from Rice University.

Yale, Harvard, Oxford and Rice? Elijah Watt Sells winners, eat your hearts out.

IFRS: Four. More. Years.

Comments reflected “a lot of unanimity around, if we go in this direction, allowing sufficient time for companies to adjust,” said Schapiro in a question-and-answer session following her keynote address to the American Institute of Certified Public Accountants’ national conference on accounting and auditing issues for public companies. “It’s likely to be a minimum of four years,” but that’s still a point for the SEC to decide, she said, assuming it decides to incorporate IFRS into U.S. capital markets. [Compliance Week]

(UPDATE 2) SEC Charges Deloitte Tax Partner with Insider Trading

~ Update includes clarification of partner’s employment status and statements from accused’s attorneys via MarketWatch.

~ Update at circa 7:20 pm ET includes statement from Deloitte

If you thought all this insider trading fun was just for hedge funds you would be sorely mistaken. Deloitte seems to have another case of a partner who can’t seem to control himself when he gets some insider info. Earlier this year, former Deloitte Vice Chairman Tom Fla> shelled out $1.1 million to settle charges with the SEC.

This time around, it’s still a family affair – husband, wife, wife’s sister and brother-in-law job – and it went overseas:

The Securities and Exchange Commission today charged a former Deloitte Tax LLP partner and his wife with repeatedly leaking confidential merger and acquisition information to family members overseas in a multi-million dollar insider trading scheme.

The SEC alleges that Arnold McClellan and his wife Annabel, who live in San Francisco, provided advance notice of at least seven confidential acquisitions planned by Deloitte’s clients to Annabel’s sister and brother-in-law in London. After receiving the illegal tips, the brother-in-law took financial positions in U.S. companies that were targets of acquisitions by Arnold McClellan’s clients. His subsequent trades were closely timed with telephone calls between Annabel McClellan and her sister, and with in-person visits with the McClellans. Their insider trading reaped illegal profits of approximately $3 million in U.S. dollars, half of which was to be funneled back to Annabel McClellan.

The UK Financial Services Authority (FSA) has announced charges against the two relatives — James and Miranda Sanders of London. The FSA also charged colleagues of James Sanders whom he tipped with the nonpublic information in the course of his work at his London-based derivatives firm. Sanders’s tippees and clients made approximately $20 million in U.S. dollars by trading on the inside information.

So not a bad haul. The kicker is, Annabel was also employed at Deloitte, working in the London, San Jose and San Francisco offices. The McClellans provided information to the Sanders on several companies including Kronos, Inc., aQuantive, Inc. and Getty Images.

The SEC brass gave their standard scolding. First, Enforcement Chief, Robert Khuzami, “The McClellans might have thought that they could conceal their illegal scheme by having close relatives make illegal trades offshore. They were wrong.”

And San Fran Director Marc Fagel, “Deloitte and its clients entrusted Arnold McClellan with highly confidential information. Along with his wife, he abused that trust and used high-placed access to corporate secrets for the couple’s own benefit and their family’s enrichment.”

But the real story here is the second instance of insider trading charges against a Deloitte partner this year. The firm successfully sued Tom Flanagan back in January but you have to wonder if there isn’t some flaw with the firm’s internal oversight. Not long after the Flanagan suit, we reported on the 475 reprimands for internal noncompliance in 2009. Those reprimands did not mention insider trading specifically but over 200 of them were related to independence violations. Pattern? You can weigh in below.

Anyone with any knowledge on this story is invited to get in touch with us. as it is not clear if there has been any internal repercussions yet. Messages (including voicemail, carrier pigeon and morse code) left with Deloitte have not been returned (see statement below).

UPDATE: McClellan’s attorneys are not amused by the SEC’s little stunt:

Lawyers for Arnold McClellan denied charges Tuesday by the Securities and Exchange Commission that the former Deloitte Tax LLP partner was involved in a big insider trading scheme. “Arnold McClellan denies the SEC’s claims and will vigorously contest them,” Elliot Peters and Christopher Kearney of Keker & Van Nest LLP said in a statement on behalf of McClellan. “He did not trade on insider information, and there will be no evidence that he passed along any confidential information to anyone.” McClellan “had no financial incentive to commit the actions alleged,” the lawyers added. “He is a conscientious, law-abiding professional with a 23-year unblemished track record of client service at Deloitte to prove it. We will see the SEC in court.”

And just to clarify, McClellan is no longer with Deloitte, leaving the firm in June of this year. Deloitte spokesman Jonathan Gandal emailed us the firm statement (see below) still hasn’t returned our call (busy day, right?) but managed to give a statement to and was quoted by Reuters, saying that he was “shocked and saddened” by the allegations and “If the allegations prove to be true, they would represent serious violations of our strict and regularly communicated confidentiality policies.”

UPDATE 2: Here is the full statement from Deloitte:

“We are shocked and saddened by these allegations against our former tax partner and members of his family. If the allegations prove to be true, they would represent serious violations of our strict and regularly communicated confidentiality policies. Deloitte is committed to safeguarding non-public client information and has cooperated with the SEC throughout its investigation. The SEC does not allege any wrongdoing by Deloitte in this unfortunate matter.”

Complaint_Deloitte

GAO: SEC Basically Needs to Replace Their Entire Accounting System

“These material weaknesses are likely to continue to exist until the SEC’s accounting system is either significantly enhanced or replaced, key accounting activity in other systems is fully integrated with the accounting system at the transaction level, information security controls are significantly strengthened, and appropriate resources are dedicated to maintaining effective internal controls.”

~ From a report issued by the Government Accountability Office

SEC Intends to Take All the Time It Needs to Make Up Its Mind on IFRS

So any retiring knights out there feeling anxious can just cool it. And rubbing elbows with Deloitte talking about how great things will be isn’t going to make the Commission work faster.

That being said, Jim Kroeker will have you know that things are going along swimmingly, per the Commission’s press release:

“The staff has invested significant time and effort in executing the Work Plan, and we’ve made great progress to date,” said SEC Chief Accountant Jim Kroeker. “This progress report emphasizes the importance of transparency in the staff’s activities, and can help the public’s understanding of the magnitude of this project and the staff’s progress.”

So make no mistake; the SEC is on this. However, they do have some concerns, “[W]hether the international accounting rule maker is truly independent and whether IFRS is high quality.”

So if you could address those two things, that would be appreciated. Sir David.