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March 3, 2003
In Short
NEWS:
In Washington:
Nonprofits: New accounting group launched to represent public interest voice in accounting
Securities and Exchange Commission: SEC finds that company reports are as misleading as ever… SEC seeks broader fining powers… New SEC chair says he wants his agency to be like the Marines
Federal Bureau of Investigations: FBI introduces toll free white-collar crime line
Congress: Republican aides revise Bush plan to help big companies
In Business:
Scandals: World's third-largest retailer restates earnings by $500 million… Qwest executives charged with fraud by DoJ, SEC… SEC brings fraud charges against K-Mart executives… Federal bankruptcy judge nixes Enron shareholders suit… California submits more evidence of energy price gouging
Wall Street: $1.5 billion settlement hits stalemate… SEC mulls charges against Morgan Stanley over IPOs Accounting: Accounting Industry seeks ad agency to restore image
ACTION
Fighting Back: Citizens Prepare for 2nd annual Big Business Day… Gray Panthers ask SEC to reverse decision on WorldCom
This Week's Action Item: Plug into Big Business Day
NEWS:
In Washington
Nonprofits
New accounting group launched to represent public interest voice in accounting
The Association for Integrity in Accounting (AIA), a new public interest accounting group formed in the wake of the recent corporate scandals, outlined an ambitious agenda to restore integrity to the accounting profession at a D.C. press conference Monday.
The Association, founded by leading accounting professors and professionals, will focus on four main areas: 1) watching the watchdogs; 2) restoring professional independence; 3) assuring corporate accountability and disclosure; and 4) redeeming accounting education.
"The mission of the Association for Integrity in Accounting is to provide an independent forum to present and advance positions on a wide range of critical accounting and auditing issues, standards and regulations affecting the accountability and integrity of the profession and the public interest in maintaining trust and confidence in accounting," said founding member Linda Ruchala, an associate professor of accountancy at the University of Nebraska-Lincoln.
The Association held its founding meeting this weekend in Washington D.C. with members from around the world.
Citizen Works, a nonprofit that promotes citizen participation in democracy, is helping the AIA get started as part of its incubation program of needed public interest voices.
"For too long, the public interest voices in the accounting industry have been overwhelmed by corporate pressures," said Ralph Nader, founder of Citizen Works. "Today, we are pleased to introduce a new public interest voice to restore integrity to the accounting profession, to remind the profession of its public interest duty, and to make sure that we can all benefit from their work honestly and well done, no matter how large, how powerful and how demanding their corporate clients."
For complete information, including how to become a member, visit http://www.citizenworks.org.
Securities and Exchange Commission
SEC finds that company reports are as misleading as ever
The Securities and Exchange Commission has taken a look at the 2002 annual reports of the nation's 500 biggest companies and the reports are just as misleading as ever, the agency says.
Instead of clarifying financial statements, the discussion and analysis section of the reports, "simply recited financial statement information without analysis or presented boilerplate analyses that did not provide any insight into the companies' past performance or business prospect as understood by management," the SEC reported.
The SEC also said that companies continued to feature "pro-forma" accounting techniques without proper explanation. In addition, companies also did a poor job of explaining restructuring and impairment charges and pension plan assumptions, the SEC reported.
For more, see "Firms Still Fall Short on Disclosure," by Kathleen Day of the Washington Post: http://www.washingtonpost.com/wp-dyn/articles/A13605-2003Feb27.html
SEC seeks broader fining powers
Speaking before the House Financial Services Committee, Securities and Exchange Commission enforcement director Stephen Cutler last week asked Congress to change the laws so that the SEC can fine individuals and companies charged with fraud without having to go to court. In most cases, the SEC is currently required to file a federal court action to collect fines.
Cutler wants Congress to grant the SEC exemptions from state homestead laws that protect the houses of lawbreaking executives. He told the Committee that "the homestead exemptions can really stand in the way" of getting money back to investors.
Rep. Richard H Baker (R-La.) said he was planning to introduce a bill to give the SEC some of these powers.
New SEC chair says he wants his agency to be like the Marines
Speaking publicly for the first time since becoming head of the Securities and Exchange Commission, William H. Donaldson, a one-time rifle platoon commander in the Marine Corps. said that the SEC should be more like…the Marines.
"The U.S. military, especially the Marines, has been the strongest standing force in the world, ready to react to any crisis, anywhere," Donaldson said. "The U.S. military has had to evolve into a much more efficient force - quicker, more agile and more proactive. My hope is that the SEC can develop a similar new approach to our mission - that we can play offense more often, be proactive and anticipate the problems we may face."
Donaldson added that, "Corporate America and Wall Street have been given a wake-up call and told that things must change." So far, however, he has not proposed any specific reforms or changes.
For more, see: "Chartering a Corporate Course: New SEC Chairman Promises to Prod Companies to Shape Up," by Kathleen Day of the Washington Post: http://www.washingtonpost.com/wp-dyn/articles/A18572-2003Feb28.html
Federal Bureau of Investigations
FBI introduces toll free white-collar crime line
If you suspect corporate fraud, here's a new number to call: 1-888-622-0117.
This will connect you with the FBI's new corporate fraud hotline, part of the agency's corporate fraud initiative. The goal, FBI officials say, is to make it easier to report potential crimes.FBI officials will record information from calls into a database. Then, the FBI will review that database with the hopes of generating four or five investigations per month.
More than a year after Enron, this looks a little like a token effort as the FBI has done very little to make fighting corporate crime a priority.
Congress
Republican aides revise Bush plan to help big companies
President Bush's tax cut has gotten more pro-business. Last week, as Republican aides translated the President's tax plan into legislation, they added a provision that will allow corporations to deduct past payments of the corporate alternative minimum tax from current tax returns.
The cost to the Treasury is estimated at about $2 million, according to Robert McIntyre of Citizens for Tax Justice. In addition, many public interest advocates worry that this will open the doors to all kinds of corporate lobbyists who want to insert or preserve their special interest tax credits.
For more, see "GOP Aides Revise Bill to Help Big Firms," by Jonathan Weisman of the Washington Post: http://www.washingtonpost.com/wp-dyn/articles/A18439-2003Feb28.html
Also see: Bush's Tax Plan-The Dangers By Joseph E. Stiglitz in the New York Review of Books http://www.nybooks.com/articles/16116
In Business
Scandals
Europe's Enron: World's third-largest retailer restates earnings by $500 million
Dutch supermarket chain Ahold, the third-largest retailer in the world, last week restated earnings by $500 million at its U.S. Foodservice Unit. U.S. Foodservice, which owns U.S. chains Stop & Shop, Giant, BiLo, Tops, and Bruno's is now under investigation by the Securities and Exchange Commission and the U.S. Attorney's office in Manhattan.The charge is that U.S. Foodservice booked advance discounts from suppliers before it actually received the discounts. In Europe, newspapers are calling Ahold "The Enron of Europe."
While Ahold's fraud is tiny compared to Enron, it does share some qualities with the American corporate scandals. For one, Ahold was unique among European companies as an aggressive issuer of stock options. CEO Cees van der Hoeven cashed in $3 million worth of options between 2000 and 2001. CFO Michael Meurs cashed in more than $1 million. And like WorldCom and Tyco, Ahold was an aggressive acquirer - it spent $19 billion on acquisitions in the late '90s.
A number of shareholder suits have been filed. One of them also names Ahold's auditor, Deloitte Touche Tohmatsu, as a defendant.
Since The Netherlands lacks a financial oversight agency, U.S. regulators are using this as an excuse to expand their oversight, setting the stage for what could be a contentious territory battle between U.S. and E.U. regulators. While the U.S. wants to expand Sarbanes-Oxley rules to Europe, the Europeans are resisting, pointing instead to International Accounting Standards that 7,000 European companies are slated to adopt in 2005.
For more on the battle over standards, see "U.S. oversight drive seen gaining from Ahold woes" by Lisa Jucca, Reuters: http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=2294269
For more on the Ahold scandal, see "Troubles Build for Ahold, the Dutch Grocery" By GREGORY CROUCH with SUZANNE KAPNER of the New York Times http://www.nytimes.com/2003/02/27/business/worldbusiness/27GROC.html
Qwest executives charged with fraud by DoJ, SEC
Qwest executives got a double-whammy last week for inflating revenue.
First, Justice Department prosecutors charged four executives (Grant P. Graham, Thomas W. Hall, John M. Walker, and Bryan K. Treadway) with tampering with documents and misleading the outside auditor as they attempted to report $33.6 million in revenue from equipment sales to the Arizona School Facilities Board even though no equipment had been delivered.
Then the Securities and Exchange Commission brought civil fraud charges against those four executives -- and four more executives -- for also booking $109 million in phony sales and services to another telecom company. All told, the executives inflated earnings by $144 million in 2000 and 2001 to meet earnings projections and revenue expectations.
For more on the SEC's suit, see http://www.sec.gov/news/press/2003-25.htm Also, as USA Today explains, revenue recognition has become a hot topic.
See "Many restatements tied to revenue ploy," by Greg Farrell: http://www.usatoday.com/money/companies/2003-02-26-recognition_x.htm
SEC brings fraud charges against K-Mart executives
The Securities and Exchange Commission last week concluded a yearlong probe into K-Mart, charging two executives with inflating K-Mart's operating profits by $42.3 million.
The two former vice presidents, Enio A. "Tony" Montini Jr., 50, and Joseph Hofmeister, 52, allegedly improperly included a $42.3 million payment from American Greetings Corp., one of its vendors, in the second quarter of 2001. Both executives could face up to 10 years in jail and a $1 million fine for securities fraud.
For more see "Two Former Kmart VPs Indicted on Fraud" by David Runk of the Associated Press: http://story.news.yahoo.com/news?tmpl=story&u=/ap/20030227/ap_on_bi_ge/kmart_indictment_15
Federal bankruptcy judge nixes Enron shareholders suit
A federal bankruptcy judge last week said that an Enron shareholder suit could not proceed because Enron had filed for bankruptcy protection. Shareholders had been hoping that they could force big creditor banks, like Citigroup and J.P. Morgan, who helped Enron conduct many fraudulent deals, to also cover their damages if Enron couldn't pay.
In dismissing plaintiff's suit, which sought $25 billion in damages, Judge Arthur J. Gonzalez said that shareholders could pursue Enron at a later date and could also go after the banks separately.
California submits more evidence of energy price gouging
California officials have submitted more than 1,000 pages of energy price manipulation data to the Federal Energy Regulatory Commission (FERC) in an attempt to prove once and for all the energy companies like Enron cheated the state out of $9 billion through excess charges.
The evidence, which is not public, is said to provide examples of generators withholding power, energy traders and municipal utilities colluding and other price manipulation techniques. California parties are pushing for the information to become public. But a FERC administrative judge has said the findings should remain private, as to not disclose commercially sensitive trading information.
The head of FERC, Patrick H. Wood, was once Kenneth Lay's recommendation to head the agency. For more, see "State to File Price-Gouging Evidence" by Johnathan Peterson of the Los Angeles Times: http://www.latimes.com/business/la-fi-ferc3mar03,1,2602899.story?coll=la%2Dhome%2Dheadlines
Wall Street
$1.5 billion settlement hits stalemate
New Jersey and Massachusetts are unhappy with the final wording of the so-called global Wall Street settlement. A dozen banks are trying to limit the appearance of evidence against them in final documents to prevent class-action law suits.
All in all, getting agreement between a dozen banks and 52 jurisdictions (the fifty states plus Puerto Rico and Washington, D.C.) who all want to get a piece of the action is proving difficult.
Many public interest advocates have criticized the settlement as going too easy on Wall Street banks. For more on why the settlement lets Wall Street banks off the hooks, see "Corrupt banks escape with wrist-slapping" by Lee Drutman of Citizen Works in the Providence Journal: http://www.projo.com/opinion/contributors/content/projo_20030114_drut.5cf95.html
SEC mulls charges against Morgan Stanley over IPOs
The Securities and Exchange Commission has informed Morgan Stanley that it may face civil charges related to the way the bank handled its IPO offerings. Morgan Stanley is charged with "laddering." What this means is that the bank gave hot IPO shares to big customers who promised to buy more shares. This helped to inflate demand, driving prices up.
In related IPO news, The National Association of Broker Dealers fined J.P. Morgan Chase $6 million for IPO practices at its now defunct Hambrecht & Quist unit.
See "Morgan Stanley faces IPO Suit from SEC" by Steve Gelsi, CBS Marketwatch. http://cbs.marketwatch.com/news/story.asp?guid={4A7F6F72-DAA4-4088-A5E9-09BD9551D0EB}&siteid=mktw&dist=&archive=true
Accounting
Accounting Industry seeks ad agency to restore image
In the wake of the recent corporate scandals, the accounting industry's image has fallen on hard times. Last week, the American Institute of Certified Public Accountants (AICPA) decided to do something about it -- so it hired a consultant Richard Roth, to help it find an ad agency that can convince the world that CPAs are trustworthy.
Meanwhile, a noteworthy Reuters story takes a look at how the AICPA has fallen on hard times.
"A year after the Enron-Andersen debacle shook the accounting world, the American Institute of Certified Public Accountants has little to smile about," reports Deepa Babington. "It faces disgruntled members and a new corporate reform law that has snatched away much of its power, leaving many to wonder about the AICPA's new role in the industry. Pressure is also mounting on Barry Melancon, the group's president and chief executive officer, to quit. Indeed, the group that has represented accountants for more than 100 years is under fire on many fronts.
See: "Once invincible accounting trade group stumbles": http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=2312609
ACTION:
Fighting Back
Fighting Back Citizens Prepare for 2nd annual Big Business Day
On Saturday, April 5th, hundreds of communities will participate in Big Business Day by organizing local events that communicate our message of challenging corporate power. This year's theme is Stop the Corporate War on Democracy. You can add your voice to a host of others by organizing an event in your community.
Citizen Works is also jump-starting a national dialogue about the appropriate rights and responsibilities of corporations by organizing discussion groups in communities across the country.
For information about either of these projects, contact Jennifer Tucker (jtucker@citizenworks.org) or Katie Selenski (kselenski@citizenworks.org) at Citizen Works, 202-265-6164
Gray Panthers ask SEC to reverse decision on WorldCom
In November, the Securities and Exchange Commission reached a partial settlement with WorldCom on the company's more than $9 billion accounting fraud. That settlement did not include a fine. Last week, the Gray Panthers sent a letter to new SEC chairman William H. Donaldson, urging him to reverse Harvey Pitt's decision to let WorldCom off the hook.
WorldCom, wrote Gray Panthers' Corporate Accountability Project Director Will Thomas, "has committed massive fraud, falsified documents, and misled investors. The action sent entirely the wrong signal to a watchful public waiting to learn how the SEC would deal with corporate crimes." For more, see the Gray Panthers letter at http://www.graypanthers.org
This Week's Action Item
Plug into Big Business Day
Citizen Works' second annual Big Business Day is April 5. This year's theme is Stop the Corporate War on Democracy. Hundreds of communities will participate by organizing local events that challenge corporate power. But Big Business Day will only be as good as you make it. That's why Citizen Works is calling on communities across the country to organize local events.
As This Week's Action Item, we encourage you to begin planning an event in your community. Citizen Works will provide materials and assistance.
To get involved, contact Jennifer Tucker (jtucker@citizenworks.org) or Katie Selenski (kselenski@citizenworks.org) at Citizen Works, 202-265-6164
MAKE YOUR VOICE HEARD
White House Comment Line
- (202) 456-1111
White House Fax Line - (202) 456-2461
US Capitol Switchboard - (202) 224-3121
President George W.
Bush's e-mail - president@whitehouse.gov
Vice President
Dick Cheney's e-mail - vice-president@whitehouse.gov
White House Address - 1600 Pennsylvania Ave, Washington, DC 20500
Contact your senators
Contact your representative
News summaries based on original reports in other publications are prepared by Citizen Works staff and are not created, sponsored, approved or endorsed by the publications to which the original reports are attributed.
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