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Security threats and hoaxes --- http://www.trinity.edu/its/virus/

25 Hottest Urban Legends (hoaxes) --- http://www.snopes.com/info/top25uls.asp 

Stay up on the latest and the oldest hoaxes --- http://www.snopes.com/
Cyber Museum of Scams and Frauds --- http://www.quatloos.com/

Two on Bankruptcy and Credit Bankruptcy: Maxed out in American [Real Player]

http://americanradioworks.publicradio.org/features/bankruptcy/ 

Credit Score, Reports, and Getting Ahead in America [pdf] http://www.brookings.edu/metro/pubs/20060501_creditscores.pdf

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Informercial Scams (even those carried on the main TV networks)--- http://www.infomercialscams.com/

The 10 Most Faked Artists  --- http://www.artnewsonline.com/currentarticle.cfm?type=feature&art_id=1853

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"PERFECT $TORM OF FEMA SCAMS:  BILLION-PLUS IN 'CANE RELIEF WENT FOR PORN, BOOZE & OTHER WASTE ," by Georff Earle, New York Post, June 14, 2006 --- http://www.nypost.com/news/nationalnews/perfect_torm_of_fema_scams_nationalnews_geoff_earle.htm

In a shocking rip-off of taxpayers, federal hurricane relief bought "Girls Gone Wild" videos, Caribbean vacations and French champagne, as thousands of brazen scam artists bilked the government out of $1.4 billion, a bombshell report reveals.

Although the aid was intended to shelter and clothe thousands of devastated families from hurricanes Katrina and Rita, the audit to be presented to Congress today shows a widespread criminal splurge of debauchery and excess while the feds were asleep at the switch.

One evacuee scammed a luxurious $1,000 vacation at Punta Cana, a resort area in the Dominican Republic.

Another spent $300 on "Girls Gone Wild" videos at a Santa Monica, Calif., store.

Some opted for live entertainment: An evacuee spent $600 at a "gentlemen's club" in Houston, and another doled out $400 on "adult erotica products" at a Houston store called The Pleasure Zone.

"This is an assault on the American taxpayer," said Rep. Michael McCaul (R-Texas), chairman of the House Homeland Security Committee's subcommittee on investigations. The panel will conduct the hearing today.

"Prosecutors from the federal level down should be looking at prosecuting these crimes and putting the criminals who committed them in jail for a long time."

CBS News reported last night that 7,000 people could be charged.

As much as 16 percent of the total aid was hijacked by con artists, the report concludes.

A copy of today's testimony about the audit was obtained last night by The Post.

One "victim" rode out the storm's aftermath by spending $300 at a San Antonio Hooters - and $200 for a bottle of Dom Perignon.

The feds also covered one person's three-month stay for a Honolulu hotel for $115 per night. The alleged scammer also collected $2,358 in rental assistance - despite residing in North Carolina, not New Orleans.

Anticipating the city's rebirth, another evacuee spent $2,000 on five New Orleans Saints season tickets.

But one evacuee was more practical, spending $1,000 to pay a divorce lawyer.

Closer to home, one rip-off artist double-dipped in Queens - collecting $31,000 to cover an extended $149 per night at the Ramada Plaza Hotel while also taking $2,358 in rental assistance.

Most of the hucksters used phony names and addresses to collect Katrina housing aid. Many listed post-office boxes, and some even used New Orleans cemeteries - but the hapless feds failed to check up on them.

Most fraud occurred because the Federal Emergency Management Agency "did not validate the identity of the registrant," according to investigators.

Incredibly, the feds handed out millions in emergency housing aid to 1,000 people who used the names and Social Security numbers of prison inmates in a half-dozen states across the south.

FEMA paid more than $20,000 to one prisoner who used a post-office box as the address of his "damaged property." It sent 13 payments to one person who filed claims at the same address using 13 Social Security numbers.

A federal investigator sniffing out mismanagement listed a vacant lot as a damaged address - and still got a $2,358 check.

"This is absolutely disgraceful," said Rep. Peter King (R-L.I.). FEMA "loses a billion in Katrina at the same time it's cutting 40 percent of [anti-terror] funding to New York City," he added.

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"The Winding Road to Grasso's Huge Payday," by Landon Thomas, The New York Times, June 25, 2006 --- http://www.nytimes.com/2006/06/25/business/yourmoney/25grasso.html

In the spring of 2003, the chairman of the New York Stock Exchange, Richard A. Grasso, had his eyes on a very rich prize. Although Mr. Grasso's annual compensation at the time was about $12 million, on a par with the salaries of Wall Street titans whose companies the exchange helped regulate, he had accumulated $140 million in pension savings that he wanted to cash in — while still staying on the job.

Now Henry M. Paulson Jr., the chairman of Goldman Sachs and a member of the exchange's compensation committee, was grilling Mr. Grasso about the propriety of drawing down such an enormous amount and suggested that he seek legal advice. So Mr. Grasso said he would call Martin Lipton, a veteran Manhattan lawyer and the Big Board's chief counsel on governance matters. Would it be legal, Mr. Grasso subsequently asked Mr. Lipton, to just withdraw the $140 million if the exchange's board approved it? Mr. Grasso told Mr. Lipton that he worried that a less accommodating board might not support such a move, according to an account of the conversation that Mr. Lipton recently provided to New York State prosecutors. (Mr. Grasso has denied voicing that concern.) Mr. Lipton said he told Mr. Grasso not to worry; as long as directors used their best judgment, Mr. Grasso's request was appropriate.

Mr. Grasso continued to fret. What about possible public distaste for the move? Yes, there would be some resistance from corporate governance activists, Mr. Lipton recalled telling him, but given his unique standing in the business community he was "fully deserving of the compensation."

Then Mr. Lipton, a founding partner of Wachtell Lipton Rosen & Katz and a longtime adviser to chief executives on the hot seat, dangled another, hardball option in front of Mr. Grasso. If a new board resisted a payout, Mr. Lipton advised, Mr. Grasso could just sue the board to get his $140 million. The conversation represented a pivotal moment at the exchange, occurring when corporate governance and executive compensation were already areas of public concern. Mr. Grasso eventually secured his pension funds. But the particulars surrounding the payout later spurred Mr. Paulson to organize a highly publicized palace revolt against Mr. Grasso, leading to the Big Board's most glaring crisis since Richard Whitney, a previous president, went to jail on embezzlement charges in 1938.

An examination of thousands of pages of depositions from participants in the Big Board drama, as well as other recent court filings, highlights the financial spoils available to those in Wall Street's top tier. It also shines a light on deeply flawed governance practices and clashing egos at one of America's most august financial institutions, all of which came into sharp relief as Mr. Grasso jockeyed to secure his $140 million.

ELIOT SPITZER, the New York State attorney general, sued Mr. Grasso in 2004, contending that his Big Board compensation was "unreasonable" and a violation of New York's not-for-profit laws. With a trial looming this fall, prosecutors have closely questioned both Mr. Lipton and Mr. Grasso about their phone call. Prosecutors are likely to highlight Mr. Grasso's own doubts about the propriety of cashing in his pension; on two separate occasions Mr. Grasso withdrew his pension proposal from board consideration before finally going ahead with it.

The depositions paint a portrait of Mr. Grasso as a man who paid meticulous attention to every financial perk, from items like flowers and 99-cent bags of pretzels that he billed to the exchange, to his stubborn determination to corral his $140 million nest egg. While the board ultimately approved his deal, court documents also show a roster of all-star directors, including chief executives of all the major Wall Street firms, often at odds with one another or acting dysfunctionally.

A recent filing by Mr. Spitzer contended that Mr. Grasso's chief advocate, Kenneth G. Langone, a longtime friend and chairman of the Big Board's compensation committee, was less than forthcoming in keeping the exchange's 26-member board in the loop about how Mr. Grasso's rising pay was also inflating his retirement savings.

Continued in article

Bob Jensen's fraud updates are at http://www.trinity.edu/rjensen/FraudUpdates.htm

Bob Jensen's threads on corporate governance are at http://www.trinity.edu/rjensen/Fraud001.htm#Governance

Bob Jensen's threads on outrageous executive compensation are at http://www.trinity.edu/rjensen/FraudConclusion.htm

Bob Jensen's "Rotten to the Core" threads are at http://www.trinity.edu/rjensen/FraudRotten.htm

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What is excessive compensation?

From Jim Mahar's blog on September 26, 2006 --- http://financeprofessorblog.blogspot.com/

Time to throw a penalty flag

First, the good part: Tuesday Morning QB does a great job of laying out the issue and demonstating one problem with boards setting pay .

From last week's TMQ which appeared on ESPN.com: Page 2 : The five-month NFL forecast:
 

"Much news and sports commentary focuses on the ever-larger paychecks of professional athletes. But even Peyton Manning is a day laborer compared to the modern Fortune 500 CEO....Over his last five years at the helm, he got $162 million, even as Pfizer earnings faltered. Carol Hymowitz of the Wall Street Journal reported that the head of Pfizer's "compensation committee" defended McKinnell's windfall on grounds of market forces in executive pay -- which in this context appears to mean, "CEOs at other companies are picking shareholders' pockets, too."....McKinnell's pay for his tenure atop Pfizer equates to $130,000 per work day."
 

and slightly later:
 

"...consider that executive income usually is rubber-stamped by boards of directors whose members may be engaged in self-dealings with the firm, or who have a self-interest in rising CEO pay. As Julie Creswell noted in the New York Times, "Five of the six active Home Depot board members are current or former chief executives of public corporations … CEOs benefit from one another's pay increases, because compensation packages are often based on surveys detailing what their peers are making....The board members know the more they inflate CEO pay, the more they themselves will be able to pilfer from their own shareholders"
 

Ignoring the use of the word 'pilfer', this is a well-presented valid point. However, Easterbrook's next point deserves a yellow penalty flag and further review:
 

"Recently the Business Roundtable released a study purporting to show that CEO pay rose 9.6 percent annually from 1995-2005, while stockholder returns rose 9.9 percent in the same period. So things aren't so bad, eh? The Business Roundtable said the study 'sets the record straight.' The Business Roundtable is, by its own description, 'an association of chief executive officers of leading U.S. companies.' As Gretchen Morgenson, dean of Wall Street journalists, laid it out in the New York Times, the study systematically understated the income of CEOs... 'The study counts only the value of the options and restricted stock received by executives on the dates the awards were made.'"
 

Uh, wait, isn't that what we should be doing?

True, we should take into account the non normality of the stock distribution (induced both by rewriting underwater options and by the now famous back dating of options) which causes the Black-Scholes formula to understate the true value of the grant, BUT the value at grant is what we should consider. We can debate whether the Black-Scholes formula is correct or not, but theoretically the value at grant (again presuming a fair grant) is what matters.

Moreover, while it is true that the Business Roundtable is made up of CEOs, that should not be grounds for dismissal. The actual study does have several valid, and overlooked points. Notably that medians should be used, that the media "sometimes summarizes the pay practices for all CEOs from only the very largest companies", and the seemingly inarguable point that "pay statistics should be referenced accurately and applied responsibly".

Like other things, I will take the bad with the good. Overall
Tuesday Morning QB is still my favorite sports article. Its author is Gregg Easterbrook who is a former Buffalo School teacher and who wrote the Progress Paradox, does a great job weaving many topics together in a funny, witty manner. That said, I guess I can no longer count TMQ as "finance reading". LOL.

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Outrageous Executive Audacity

"That Other Guy From Omaha," by Gretchen Morgenson, The New York Times, August 29, 2006

Mr. Gupta is, shall we say, a piece of work. He often prevents large shareholders from asking questions on conference calls. He has received compensation that was not earned under the terms of the company’s executive compensation program, according to a lawsuit that Cardinal Value Equity Partners, infoUSA’s largest outside holder, filed against the company. And, the suit alleges, his board has given him free rein to dispense stock options to whomever he likes.

Related-party transactions are also routine at infoUSA. The Cardinal lawsuit contends that infoUSA paid a company owned by Mr. Gupta about $608,000 in 2003 to buy his interest in a skybox at the University of Nebraska’s Memorial Stadium. The university is Mr. Gupta’s alma mater and home of the Cornhuskers football team. In June 2005, the suit says, infoUSA paid $2.2 million for a long-term lease of his yacht. The yacht, named American Princess, is 80 feet long and has an all-female crew, according to a report in The Triton, a monthly publication for boat captains and crews.

Leases on an H2 Hummer, a gold Honda Odyssey, a Glacier Bay Catamaran, a Mini Cooper, a Lexus 330, a Mercedes SL500 ­ all used by the Gupta clan ­ as well as rent on a Gupta family condominium on Maui have also been financed by infoUSA shareholders, the suit said.

Shareholders also paid a company owned by Mr. Gupta’s wife $64,200 for consulting services in 2003 and 2004. Shareholders have also covered the Gupta family’s personal use of a corporate jet ­ leased by infoUSA from a company owned by the family ­ to have fun in the sun in Hawaii and the Bahamas. Mr. Gupta apparently wasn’t in a mood to return the favor: during a four-year period ending in 2004, infoUSA paid $13.5 million to Mr. Gupta’s private company for use of the aircraft.

What to make of all of this? The Cardinal lawsuit contends that the carnivalesque spending amounts to unregulated perquisites and evidence of a somnambulant board. Sleepy, perhaps, but always on the move. Some 15 directors have spun through infoUSA’s boardroom door over the last decade; five of them stayed less than a year.

It wasn’t until two years ago ­ November 2004 ­ that infoUSA’s board created guidelines for the approval of related-party transactions over $60,000. The Cardinal lawsuit alleges that some of infoUSA’s related-party dealings with certain board members “did not have a sufficient record to show authorizations and whether the services could be procured from other sources at comparable prices.”

None of the infoUSA board members returned phone calls seeking comment. Mr. Gupta did not return several phone calls, either.

But Mr. Gupta’s biggest faux pas occurred in June 2005, when infoUSA warned that its earnings would not be up to expectations. The stock fell from $11.94 a share to $9.85 the day after the announcement. Less than a week later, Mr. Gupta offered to acquire infoUSA for $11.75 a share, far less than the $18 a share he had said the company was worth just a few months earlier.

A special committee of the company’s board was set up to evaluate Mr. Gupta’s offer and to field bids from other possible partners in order to secure the highest possible price for infoUSA shareholders. Almost exactly a year ago, the committee concluded that the $11.75 offer was too low and that it should be subject to a “market check.”

At a board meeting on Aug. 26, 2005, Mr. Gupta said that he would not sell any of his shares to a third party in an alternative transaction, according to the lawsuit. Some directors might have used this opportunity to give Mr. Gupta a well-earned public rebuke. But a majority of the sleepwalkers at infoUSA just got into lockstep with their chief executive.

The directors responded by deciding that there was no need for infoUSA’s special committee to exist. They voted 5 to 3 (with one abstention) to abolish it. The only directors voting for the committee’s continuance were three of its four members; the fourth abstained from voting. The stock closed that day at $10.89.

The vote was the last straw for Cardinal Value Equity Partners. It filed suit in February against Mr. Gupta, some of infoUSA’s directors and the company itself.

“Our suit says that the special committee was prematurely terminated, that they didn’t get to finish their work and that was the wrong decision by the entire board,” said Robert B. Kirkpatrick, a managing director at Cardinal Capital Management. “We’re not asking for $100 billion; we ask that the special committee be reconstituted to be able to have the time to fulfill their original mandate as dictated by the board.”

In other words, to reopen the possibility of a buyout.

IN the meantime, all is right in Mr. Gupta’s gilded world. About three weeks ago, on Aug. 4, infoUSA announced that it was buying Opinion Research, a consulting services company, for $12 a share, an almost 100 percent premium to Opinion Research’s market price the day before the announcement.

Lo and behold, who owned Opinion Research shares the day the deal was announced? The Vinod Gupta Revocable Trust, according to a regulatory filing, owned 33,000 shares. The trust, controlled by Mr. Gupta, sold 22,000 of its shares after the merger announcement sent Opinion Research’s stock rocketing.

The trust’s shares don’t represent a huge stake, but it is worth asking: Did infoUSA’s directors know that the Gupta trust was an Opinion Research shareholder when they signed off on the premium-priced deal? And what gains did the trust record when it sold into the deal-jazzed market? For now, the answers are unclear.

In coming weeks, a judge in Delaware will rule on whether the Cardinal lawsuit can proceed. InfoUSA has asked the judge to dismiss the case, saying that it has no merit.

“Unfortunately, the system is broken in this case,” said Donald T. Netter, senior managing director at Dolphin Financial Partners, a private investment partnership in Stamford, Conn., that is an infoUSA shareholder. “The board has failed to protect the unaffiliated shareholders. When the system works properly, you shouldn’t get into these situations.”

No kidding.

Bob Jensen's threads on outrageous executive compensation schemes are at http://www.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation

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Fake Invoice Fraud
The owner of the nation's largest computerized machine tool maker was arrested yesterday morning at his California home and charged with orchestrating a tax fraud that cost the government nearly $20 million as well as intimidating witnesses and a federal agent investigating the case.Gene F. Haas, 54, of Camarillo, Calif., the owner of Haas Automation and other companies, was accused in a 52-page indictment of running a bogus invoicing scheme to create fake tax deductions. Mr. Haas was held without bail after his arraignment in Federal District Court in Los Angeles.
David Cay Johnston, "Executive Accused of Tax Fraud and Witness Intimidation," The New York Times, June 20, 2006 --- http://www.nytimes.com/2006/06/20/business/20tax.html?_r=1&oref=slogin

 

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There's no fraud like U.S. Government fraud

"Limo letter is found at Homeland Security," by Dean Calbreath, The San Diego Union-Tribune, June 17, 2006 --- http://www.signonsandiego.com/uniontrib/20060617/news_1n17letter.html

A day after Homeland Security officials denied knowing about former Rep. Randy “Duke” Cunningham's attempts to gain a contract for a limousine service, Cunningham's letter praising the company surfaced in the department's files.

In the letter, Cunningham wrote of his “full support of (Shirlington Limousine's) wish to provide transportation services for the Department of Homeland Security,” or DHS.

FBI agents have been investigating whether the company – while working for Brent Wilkes, an unindicted co-conspirator in the Cunningham corruption case – helped Wilkes arrange for prostitutes for Cunningham while Wilkes was vying for federal contracts.

Wilkes and Shirlington founder Christopher Baker have denied any involvement with prostitutes. But Baker has said through his lawyer that he provided transportation for “entertainment” at Wilkes' hospitality suites in Washington from 1990 to the early part of the decade.

At a hearing of the House Homeland Security Committee on Thursday, it was revealed that Baker has been testifying before a grand jury. The committee is probing whether Cunningham pressured Homeland Security to give Shirlington a contract.

Although Baker is a convicted felon, Cunningham gave him a character reference Jan. 16, 2004.

“I have personally known Mr. Baker since the mid-1990s,” Cunningham wrote to Homeland Security. “He is dedicated to his work and has been of service to me and other Members of Congress over the years.”

At the time, the department had no plans to hire a limousine service. But within three months, the department gave Baker a $3.8 million contract. A year later, he got a contract worth up to $21.2 million.

Until recently, Homeland Security officials have denied that any legislators were involved in the contract. In May, department officials twice told Congress that they had no record of Cunningham's letter.

On Thursday, however, Baker gave Congress a sworn affidavit that he had sent the letter to the department. Homeland Security officials said they found an e-mail mentioning the letter but had no other evidence of its existence.

Yesterday the department produced the letter, saying it had been misfiled.

Continued in article

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"Antipork Progress," The Wall Street Journal, September 26, 2006; Page A14 --- http://online.wsj.com/article/SB115922994443573729.html?mod=opinion&ojcontent=otep

As Republicans lurch toward November, they're trying to reclaim their birthright as fiscal conservatives. So far they're moved up to a D from an F, with a chance to still grab a gentleman's C.

In the small favors department, the House this month passed an "earmark" reform to bring more transparency to the runaway process of sticking pork into appropriations bills. Give House Majority Leader John Boehner credit for staring down his party's Appropriations Committee barons on this one; that's more than Tom DeLay or Roy Blunt ever did when they ran the majority.

Lawmakers will now have to sign their names to earmark requests, although the loopholes in this requirement are still large. The rule applies only to non-federal earmark recipients, which means that pet projects aimed at, say, the Department of Defense will still be secret. The definition of a "tax earmark" was also deliberately kept narrow, shielding many of those expensive giveaways.

It's also no accident that the new transparency rule won't apply to the 10 spending bills the House has already passed this year. Meanwhile, the Senate has yet to act, and the new House rule expires at the end of this Congress. GOP appropriators figure that they can block its renewal in January, when the election heat is off, assuming their bad spending habits haven't cost Republicans their majority.

In a better sign of progress, President Bush will today sign the "Federal Transparency Act," which will create a searchable public database of some $1 trillion worth of federal grants, contracts and loans. The brainchild of Senators Tom Coburn (R., Oklahoma) and Barack Obama (D., Illinois), the database will help the public identify the lawmakers who sponsor these provisions. The idea is to expose these favors to public scrutiny and force their authors to defend them.

The next test of GOP spending sincerity is whether the Senate will force an up-or-down vote on the "legislative" line-item veto. This would let a President strike out individual spending items from larger legislation, sending them back to Congress for an override vote within 14 legislative days. A simple majority vote would be enough to override, so this item veto isn't as powerful as the one that Republicans gave to Bill Clinton in the 1990s and was declared unconstitutional by the Supreme Court. But it would still give the President more leverage to kill the most egregious earmarks.

The House passed the item veto in June, but the Senate has failed to act. By our count, some 65 current Senators have voted for a version of the line-item veto at some point in the past. Eleven Democrats voted to give it to Mr. Clinton, and four more Democrats voted for a version of it while in the House.

Majority Leader Bill Frist should give Senators the opportunity to pass a bill designed to end the secret earmarking that has helped produce some of the corruption scandals in this Congress. Win or lose on the floor, Republicans would at least show they're trying to swear off their own worst spending excesses.

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Interior Department suppressed auditing efforts
Four government auditors who monitor leases for oil and gas on federal property say the Interior Department suppressed their efforts to recover millions of dollars from companies they said were cheating the government. The accusations, many of them in four lawsuits that were unsealed last week by federal judges in Oklahoma, represent a rare rebellion by government investigators against their own agency. The auditors contend that they were blocked by their bosses from pursuing more than $30 million in fraudulent underpayments of royalties for oil produced in publicly owned waters in the Gulf of Mexico.
Edmund L. Andrews, "Suits Say U.S. Impeded Audits for Oil Leases," The New York Times, September 21, 2006 ---
Click Here

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Question
Why does the FDA flap come as no surprise? For decades most regulatory agencies have been overtaken by the industries that are supposed to be regulated.

The federal system for approving and regulating drugs is in serious disrepair, and a host of dramatic changes are needed to fix the problem, a blue-ribbon panel of government advisers concluded yesterday in a long-awaited report. The analysis by the Institute of Medicine shined an unsparing spotlight on the erosion of public confidence in the Food and Drug Administration, an agency that holds sway over a quarter of the U.S. economy. The report, requested by the FDA itself, found that Congress, agency officials and the pharmaceutical industry share responsibility for the problems -- and bear the burden for implementing solutions . . . "FDA's credibility is its most crucial asset, and recent concerns about the independence of advisory committee members . . . have cast a shadow on the trustworthiness of the scientific advice received by the agency," the report said. To reduce turnover and political interference, the institute said, the FDA commissioner should be appointed to a fixed six-year term. Currently, the commissioner serves at the pleasure of the president.
"FDA Told U.S. Drug System Is Broken Expert Panel Calls For Major Changes," by Shankar Vedantam, Washington Post, September 23, 2006; Page A01 --- Click Here

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Question
Why does the DEA flap come as no surprise? For decades most regulatory agencies have been overtaken by the industries that are supposed to be regulated.
Department of Education officials violated conflict of interest rules when awarding grants to states under President Bush’s billion-dollar reading initiative, and steered contracts to favored textbook publishers, the department’s inspector general said yesterday. In a searing report that concludes the first in a series of investigations into complaints of political favoritism in the reading initiative, known as Reading First, the report said officials improperly selected the members of review panels that awarded large grants to states, often failing to detect conflicts of interest. The money was used to buy reading textbooks and curriculum for public schools nationwide.
Sam Dillon, "Report Says Education Officials Violated Rules," The New York Times, September 23, 2006 --- Click Here

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June 6, 2006 message from Ganesh M. Pandit [profgmp@HOTMAIL.COM]

An  article published in the March 2006 issue of the CPA Journal says "Accounting did not cause the recent corporate scandals such as Enron and WorldCom. Unreliable financial statements were the results of management decisions, fraudulent or otherwise. To blame management's misdeeds on fraudulent financial statements casts accountants as the scapegoats and misses the real issue....". The article can be accessed at http://www.nysscpa.org/cpajournal/2006/306/essentials/p48.htm 

Any thoughts from anybody??

Ganesh M. Pandit
Adelphi University

June 6, 2006 reply from Bob Jensen

Shame on the Lin and Wu!

Enron's Chief Accounting Officer, Rick Causey, now sits in prison after having admitted to falsifying accounts. He refused to testify in the Lay/Skilling trial unless granted immunity from other prosecution.

Other Enron executives, including some accountants, have confessed to accounting fraud.

Accounting fraud committed by accountants purportedly because their bosses ordered them to knowingly participate in the fraud does not make the fraud non-accounting fraud no matter what the NYSSCPA Society tries to tell us.

The NYSSCPA Society published this Lin and Wu article. Recall that the NYSSCPA Society only took CPA licenses away from CPAs convicted of drunk driving and overlooked CPA fraud for decades in New York. I don't place much stock in this NYSSCPA Society defense of accountants. I don't find the article that you mention even worth citing. The authors did not do their homework on the Enron or Worldcom scandals.

When Andersen auditor Carl Bass sniffed out both charge-off and derivatives accounting fraud, his boss David Duncan had him removed from the Enron audit.

The Worldcom fraud was Accounting 101 where over $1 billion in expenses were knowingly capitalized by the CFO and top accounting executives. The top accountant mainly involved confessed that he knew what he did was against the law but played along because of his need for the large paycheck. Only when Worldcom internal auditor Cynthia Cooper finally figured out what was going on and refused to play along was this enormous accounting fraud brought to light.

These were huge ACCOUNTANT frauds contrary to what the Lin and Wu would like to make you believe with a whitewash article that should be beneath the professional standards of a CPA society. CPAs are under tremendous pressure to lobby on behalf of clients to water down Section 404 of SOX. The NYSSCPA is simply playing along with defending accountants who knowingly committed felonies. Now if they also had DWI convictions they'd be in bigger trouble with the NYSSCPA Society.

Bob Jensen

June 6, 2006 reply from Ganesh M. Pandit [profgmp@HOTMAIL.COM]

I don't think that this article is trying establish that this is not an accounting fraud...regardless of the title of the article. It is only saying that there were several parties in addition to the accountants who helped this fraud! :)

Ganesh

June 6, 2006 reply from Roger Collins [rcollins@TRU.CA]

Ganesh,

Let's think about this a minute...

It must be obvious from all the media reports that there were "parties in addition to the accountants". Lay was not an accountant; Skilling was not an accountant; Fastow never qualified as a CPA. So, if the Lin & Wu paper is merely stating the obvious, why publish it?

The only obvious answer is that the paper was approved for publication, not as a professional, but a political, statement. As Bob says,

"CPAs are under > tremendous pressure to lobby on behalf of clients to water down Section > 404 of SOX. The NYSSCPA is simply playing along with these clients and > their CPAs."

Think for a moment about how articles are read and interpreted. Most academic articles are published in so-called "academic" journals - to be read by other academics and thereafter consigned to the dust of history. A few establish new theories or lines of enquiry; rather more either mine an already existing line of enquiry or justify themselves in other ways such as maintaining or establishing academic reputations. Dr Johnson famously wrote "No man but a fool ever wrote, except for money" - and the money doesn't have to be a direct flow of cash. There are a few selfless souls who find academic accounting an end in itself, but they are thin on the ground.

Most professional articles are read far more widely. But they are often skimmed or "headlined", with summaries - or less - tossed around for any manner of reasons. Whether it was their intention or not, what L and W have done is to provide ammunition in the defence of a group - accountants - who, as the NYSSCPA and other professional groups, seek to deflect responsibility and accountability when they should be engaging in a much more profound examination of accounting policies, procedures and ethics. Articles such as that by L &W are harvested for sound bites by the profession's apologists and replayed ad infinitum for the benefit of any politician / lobbyist who will lend an ear.And, as Bob says, that comes down to yet more pressure to roll back the one major advance in accountability the accounting world has experienced in a very long time. All in all, its NOT "A Good Thing".

Regards,

Roger

Roger Collins
TRU School of Business PS For anyone curious about the previously-mentioned Mandy Rice-Davis... http://en.wikipedia.org/wiki/Mandy_Rice-Davies

June 6, 2006 added reply from Roger Collins [rcollins@TRU.CA]

After my last note, I came across this article, reporting on a piece of acdemic research that's in stark contrast to the W & L article...

http://money.cnn.com/2006/05/26/magazines/fortune/colvin_fortune_0612/index.htm 

A quote.... "Then came Sarbanes-Oxley, which required that option grants be reported within two business days. A new paper by Lie and Randall Heron of Indiana University, still unpublished, finds that evidence of backdating virtually disappears after Aug. 29, 2002, when the requirement took effect."

(My apologies if others have posted this previously).

Regards,

Roger

Roger Collins
TRU School of Business

Bob Jensen's threads on proposed reforms are at http://www.trinity.edu/rjensen/FraudProposedReforms.htm

Bob Jensen's Enron Quiz is at http://www.trinity.edu/rjensen/FraudEnronQuiz.htm

Bob Jensen's threads on the Enron, Worldcom, and Andersen meltdowns can be found at http://www.trinity.edu/rjensen/FraudEnron.htm

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I think Fastow's sentence should have been 60 years, one year for each million he stole
He was the worst of the worst corporate criminals and the least liked executive even within his own company.
But he's been clever enough to con the legal system into reducing his sentence to six years. Andy's still laughing at the system!

You can read the following at http://www.trinity.edu/rjensen/FraudEnronQuiz.htm#10

What set Andy Fastow and Michael Kopper apart from most of the other Enron executives prior to the illegal self declarations of bonuses from a secret bank account set up just before Enron declared bankruptcy?

Fastow and Kopper were the most dastardly criminals who repeatedly conspired to steal millions from Enron itself and got away with it due to amazing luck and/or cowardice of other executives, bankers, and auditors who suspected bad things were being engineered by Fastow but were afraid to ask.  In particular, Fastow openly promised Ken Lay, Jeff Skilling, and Enron's entire Board that he would not take fees for managing the SPEs they allowed him to set up for purposes of hedging and keeping debt off the books.  Subsequently, Fastow with the aid of Kopper managed to secretly skim off something over $60 million dollars into their hidden bank accounts.  And much of what they achieved while running the funds was obtained from insider information.  Having Fastow run these funds was a blatant conflict of interest that never should've been allowed by Enron's CEO, Enron's Board, or Enron's auditor (Andersen).

The charges against Fastow are outlined at http://www.findarticles.com/p/articles/mi_pjus/is_200210/ai_1616198674

The SEC's complaint is at http://www.sec.gov/litigation/complaints/comp17762.htm

Michael Kopper eventually confessed.  You can read part of his testimony summarized at http://www.signonsandiego.com/uniontrib/20040928/news_1b28enron.html

Long-time subscribers to the AECM may remember my quips (years ago) about Michael Kopper ---
These inspired AECMers to write their own quips about Enron and about accounting in general.
You can read some of these AECM originals at http://www.trinity.edu/rjensen/FraudEnron.htm#Humor

And don't forget about the Enron home video starring some of the real players (including Jeff Skilling) befpre they got caught --- http://www.trinity.edu/rjensen/FraudEnron.htm#HFV

Tales from the Enron trial got you down? Like Andrew Fastow's testimony of how he laundered $10,000 as a tax-free gift to his own sons? So after work you stumble home, seeking refuge from the workaday sludge in the stark competitive world of Sports Illustrated, which this week is awash in the details of the doping case against Barry Bonds, an Icarus, legend has it, who flew toward baseball heaven on wax wings made from human growth hormone. For perspective on the Bonds myth, I called Gary Wadler, a physician who has seen it all as a member of the World Anti-Doping Agency. "Bonds and Fastow were both into cooking," Dr. Wadler offered. "Bonds cooked the record books and Fastow cooked the financial books."
Daniel Henninger, "Barry Bonds, Meet Andrew Fastow, The Wall Street Journal, March 17, 2006 --- http://www.opinionjournal.com/columnists/dhenninger/?id=110008100

At last we hear from the master criminal himself --- Andy Fastow
"Excerpts from Testimony By Former Enron CFO Fastow," The Wall Street Journal, March 8, 2006 --- http://online.wsj.com/article/SB114174916581991546.html?mod=todays_us_money_and_investing 

Former Enron CFO Andy Fastow, the prosecution's star witness, testified at the Lay-Skilling trial that he ran financial partnerships designed to help Enron meet earnings targets and mask huge losses. Mr. Fastow, who hasn't spoken publicly since October 2001, is among the most highly anticipated witnesses in this trial. Following are excerpts from his testimony.

Wednesday, March 8 LAY KNEW: Fastow testified that former chairman Ken Lay was at a meeting in August 2001 in which he heard about a "hole in earnings" at Enron, just days before he gave a BusinessWeek interview claiming Enron was in its "best shape" ever. Fastow said of the Lay interview, "I think most of the statements in there are false."

* * * ON GREED: In a heated cross-examination by Skilling lawyer Daniel Petrocelli, Fastow admitted, "I believe I was extremely greedy, and that I lost my moral compass, and I've done terrible things that I very much regret."

INSIDE-OUT: Steady growth and bright prospects "was the outside view of Enron," Fastow testified. "The inside view of Enron was very different."

* * * RECURRING DREAM: Lay opted to characterize a loss on an investment in the third quarter of 2001 as "nonrecurring," even though a gain on the same holding was earlier characterized as "recurring," Fastow testified, adding, "I thought that was an incorrect accounting treatment."

* * * DEATH SPIRAL: By October 2001, Enron's suppliers refused to trade with the company and Fastow testified that he feared the company would collapse and that he and an aide went to Lay to warn him. "I said I thought this was a death spiral, a serious risk of bankruptcy. I said the majority of trades being done were to unwind positions."

* * * MORE HEROICS: "Within the culture of corruption Enron had, a culture that rewarded financial reporting rather than rewarding economic value, I believed I was being a hero. I was not. It was not a good thing. That's why I'm here today."

Tuesday, March 7 THE PROFIT PROBLEM: One of Enron's off-balance-sheet partnerships, LJM1, was designed to help the company "solve a problem," Fastow testified. "We were doing this to inflate our earnings, and I don't think we wanted to show people what we were doing.''

* * * MORE DEALS: Fastow quoted Skilling as saying, " 'Get me as much of that juice as you can,' '' after Fastow informed him that more money would need to be raised to continue making deals like LJM1. In such deals, these so-called outside entities would purchase underperforming assets from Enron to get debt off its balance sheet and boost earnings.

* * * RISKY BUSINESS: Fastow testified that partnerships like the LJMs were willing to do deals that Enron "just couldn't do with others" because they were too risky or didn't make economic sense.

* * * SKILLING'S WORD: Fastow testified about pressure from Skilling to have one of the LJMs buy a minority stake in a Brazilian power plant owned by Enron because Enron's South American unit was struggling to meet its earnings target. "I told him it was a piece of s--t, and no one would buy it,'' Fastow said, adding that he relented, in part, because Skilling assured him he wouldn't lose money on the deal. Fastow testified that there were many more "bear-hug" guarantees like this from Skilling in mid-2000.

* * * BREAKING THE LAW: Fastow testified that the LJMs were legal and did many legal deals, but "certain things I did as general partner of LJM were illegal."

* * * BELIEVE IT OR NOT: In his first day of testimony, Fastow repeatedly said that he thought he was "a hero for Enron," for coming up with these unique business deals to help the company meet Wall Street targets even when it was financially in trouble. "I thought the foundation was crumbling and we were doing everything we could to prop it up as long as we could … We were in pretty bad shape."

* * * WORRIES ABOUT PUBLICITY: Skilling was concerned, Fastow testified, that off-balance-sheet deals like the LJMs would "attract attention, and if dissected, people would see what the purpose of the partnership was, which was to mask potentially hundreds of millions of dollars of losses."

* * * FALSE TAX RETURN: Fastow tearfully admitted that he "misled" his wife about some of the money the couple earned from Enron-related deals. "She would not, in my opinion, have signed a fraudulent tax return," Fastow said. Lea Fastow served one year in federal prison for filing a false tax return.

* * * A FAMILY AFFAIR: Fastow also admitted that he had one of his top aides send $10,000 checks to each of his sons. The checks were portrayed as gifts to the boys, but really they were proceeds from a business deal. "I shouldn't have. It was the wrong thing to do."

Jensen Comment
It comes as some relief to accountants that Fastow has not yet mentioned collusion with the Andersen Auditors led by David Duncan. CFO Fastow worked in secrecy ripping off Enron itself. CAO Rick Causey worked more closely with Duncan to issue false financial statements. Rick Causey's fine for filing false Enron financial statements was $1,250,000.

Bob Jensen's Enron Updates are at http://www.trinity.edu/rjensen/FraudEnron.htm#EnronUpdates

 

From The Wall Street Journal Accounting Weekly Review on September 29, 2006

TITLE: Fastow Gets 6 Years as Judge Cites Need for Mercy
REPORTER: John R. Emshwiller and John M. Biers
DATE: Sep 27, 2006
PAGE: A3
LINK: http://online.wsj.com/article/SB115927466992074204.html?mod=djem_jiewr_ac 
TOPICS: Accounting, Accounting Fraud, Auditing

SUMMARY: In a Houston federal court, Andrew Fastow received a sentence of 6 years in prison followed by two years of community service, "significantly less than the 10 years of imprisonment that had been envisioned in the 2004 plea agreement between Mr. Fastow and federal prosecutors....'I was very surprised,' said Leslie Caldwell, the original director of the special Justice Department task force that investigated the Enron scandal."

QUESTIONS:
1.) Of what criminal actions did Andrew Fastow plead guilty? What impact did these actions have on shareholders and employees (including both current employment and retirement plans)?

2.) Access the 175 page declaration by Andrew Fastow linked through the on-line version of this article. What two accounting standards are specifically referred to on the bottom of page 2 of the declaration (page 5 of the pdf file itself)? Provide their titles and a brief statement of the topics covered by these standards.

3.) Again refer to Fastow's declaration. What financial ratios were specific targets at Enron? How might transactions that would be subject to the requirements of Statements of Financial Accounting Standards 125 and 140, as well as assistance of investment bankers, contribute to meeting those operational targets?

4.) One Enron employee, Sherron Watkins, initially wrote to Chairman and Chief Executive Kenneth Lay in protest of the financing transactions and financial reporting she observed. How difficult do you think it was for her to take an ethical action in the Enron environment at the time? What personal and professional well being did she face losing by taking her stance in the matter?

Reviewed By: Judy Beckman, University of Rhode Island

 

Bob Jensen's threads on the Enron, Worldcom, and Andersen meltdowns can be found at http://www.trinity.edu/rjensen/FraudEnron.htm

Bob Jensen's threads on why white collar crime pays big even if you get caught --- http://www.trinity.edu/rjensen/FraudConclusion.htm#CrimePays

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Yet Another Executive Looting of a Corporation
The Securities and Exchange Commission has announced the filing of securities fraud charges against three former top officers of an operator of national restaurant chains in connection with their receipt of approximately one million dollars in undisclosed compensation, participation in undisclosed related party transactions, and financial statement fraud from 2000 to 2004. The SEC charges were filed against Buca, Inc.'s former CEO, Joseph Micatrotto, the company's former CFO, Greg Gadel, and its former Controller, Daniel J. Skrypek. Buca is a Minneapolis, Minn., company that operates the Buca di Beppo and Vinny T's of Boston national restaurant chains. "Buca's top officers created a tone at the top and a corporate culture that allowed them to loot the company and engage in a financial fraud," stated Linda Thomsen, the SEC's Director of Enforcement. "Such conduct is a fundamental violation of the trust placed in corporate officers by public shareholders and cannot be countenanced."
"SEC FILES FRAUD CHARGES AGAINST FORMER RESTAURANT EXECUTIVES FOR UNDISCLOSED COMPENSATION AND ACCOUNTING FRAUD; FORMER CEO AGREES TO PAY $500,000 CIVIL PENALTY," AccountingEducation.com, June 22, 2006 --- http://accountingeducation.com/index.cfm?page=newsdetails&id=143074

Jensen Comment
In 2005 the external auditor of Buca was Deloitte and Touche.

Bob Jensen's threads on Deloitte and Touche are at http://www.trinity.edu/rjensen/fraud001.htm#Deloitte

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University of California gets a settlement from Citigroup as part of its losses in the WorldCom accounting scandal
Citigroup has agreed to pay the University of California more than $13 million to settle a lawsuit over liability for the university’s investments in WorldCom, a company that collapsed in 2002. The university sued over inaccurate analyses of WorldCom, which led UC to pay more than it would have otherwise to buy stock in the company.
Inside Higher Ed, April 7, 2006 --- http://www.insidehighered.com/news/2006/04/07/qt

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You may be paying dearly for a placebo

"Countering Counterfeits," by Carlos Gutierrez et al., The Wall Street Journal, June 20, 2006; Page A20 --- http://online.wsj.com/article/SB115076768235784783.html?mod=opinion&ojcontent=otep

The global economy for illicit goods is massive, but by definition impossible to measure. What we do know is that it is getting bigger. The number of counterfeit items seized at European Union borders has increased by more than 1,000%, rising to over 103 million in 2004 from 10 million in 1998. At U.S. borders, seizures of counterfeit goods have more than doubled since 2001. Even allowing for improved detection rates, there is little doubt that the situation is getting worse.

Today the EU and the U.S. will launch a joint action strategy on the global enforcement of intellectual-property rights. The groundbreaking agreement between the EU and the U.S. envisages closer customs cooperation, including more data sharing. There are plans for joint border enforcement actions, including in third countries, and the creation of joint networks of EU and U.S. diplomats in third countries working on intellectual-property protection.

Twenty years ago, counterfeiting might have been regarded as a problem chiefly for the makers of expensive handbags. In the 1980s, 70% of firms affected by counterfeiting were in the luxury sector. But in 2004, more than 4.4 million items of fake foodstuffs and drinks were seized at EU borders, an increase of 196% over the previous year. In the U.S., seizures of counterfeit computers and hardware tripled from 2004 to 2005. There are also fake electrical appliances, car parts and toys. Even airplane parts are being pirated: The Concorde crash of 2000 appears to have been caused by a counterfeit part that had fallen off another aircraft.

Perhaps most worrying is the booming trade in counterfeit medicines, which were reckoned to account for almost 10% of world trade in medicines in 2004. A recent study in the Lancet concluded that up to 40% of products labeled as containing the antimalarial drug artusenate contain no active ingredients. Most of these fake drugs are headed for the world's poorest countries. The World Health Organization estimates that 60% of counterfeit medicine cases occur in developing countries.

The popular view is that buying a fake is a win-win game, so long as you know what you are paying for. Everyone enjoys a bargain. But it's far too easy -- and wrong -- to write off this kind of crime as not really harmful to anyone. Counterfeiting is big business for criminal organizations that can affect entire sectors of the international economy. And when pirates move into fake medicines and fake car-parts, we move from rip-offs to potential tragedy.

The scale of counterfeiting matters enormously for the EU and the U.S., who compete on their reserves of innovation, invention and high-quality design and production. Piracy strips that comparative advantage away. Our economies are adapting to low-cost competition from the developing world. We have a right to expect that our own comparative advantages be respected.

But it is not just the developed world that has a stake in this fight. Tolerating counterfeiting almost inevitably backfires. Developing countries that tolerate the existence of a parallel illicit economy in their market will quickly lose the confidence of foreign investors and services traders, and the technology transfer that these bring with them. They also undermine the development of innovative and creative businesses in their own economy. Although China is now taking steps to better enforce its intellectual-property laws, it has for too long turned a blind eye to these problems. Ironically, customs authorities are now intercepting increasing numbers of Beijing 2008 Olympic knockoffs.

It is time for a new global strategy and a much tougher global approach. All members of the World Trade Organization have signed agreements to fight counterfeiting. The new focus has to be on enforcing the rules we already have against counterfeiting and piracy in particular. Countries that have signed up to these rules should no longer expect an easy ride if they don't implement them.

Continued in article

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Technology may change, but FCC subsidies are forever

"Bad Subsidy Call," The Wall Street Journal, June 23, 2006; Page A10 --- http://online.wsj.com/article/SB115102651468188311.html?mod=opinion&ojcontent=otep

On Wednesday, the Federal Communications Commission voted to require Internet telephone companies to contribute to the Universal Service Fund (USF). The move means higher phone bills for Internet telephone service as providers pass this new cost on to customers. But it also means that a Republican-run regulatory agency is expanding a federal subsidy that should have been phased out long ago.

The concept of "universal service" dates back more than 70 years to a time when stringing wires together to bring telephone service to loosely populated areas was expensive. The goal was to keep local phone rates low and increase subscribers. This policy long ago fulfilled its purpose: By the mid-1990s, nearly 95% of U.S. households had a telephone. A competitive telecom marketplace with proliferating wireless technologies and multiple service providers had developed.

Nevertheless, the USF lives on. What's worse, the FCC has now determined that Internet telephony should be roped in to this anachronistic regulatory framework. FCC Chairman Kevin Martin says this levy is necessary for parity purposes. But the best way to produce a level telecom playing field isn't by burdening new technologies with old regulations. It's by phasing out such regulations for everyone.

The USF has become a tool for redistributing wealth from urban phone customers to their rural counterparts, says Randolph May, a former FCC lawyer who now heads the Free State Foundation think tank. The irony, says Mr. May, "is that the subsidies tend to flow from more densely populated areas like New York or Baltimore to less densely populated areas. So, in effect, you've got many places where poor people are subsidizing rich people in Aspen." Given that near-universal service now exists, why not subsidize only those low-income customers who truly need it?

The main beneficiaries of the status quo are rural telephone companies, some of which receive as much as 70% of their revenue from the USF. More than a thousand such entities still exist nationwide, and they have powerful allies in Congress, especially Senate Commerce Chairman Ted Stevens of Alaska. We knew many in Washington were eager to classify the Internet as nothing more than a glorified telephone subject to the usual telecom taxes and rules. But we were hoping a Republican-controlled FCC wouldn't let that happen.

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Savings Fees Are Almost Fraudulent for College Savings Plans

"Not Doing Homework Costs Parents Too," AccountingWeb, March 31, 2006 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=101977

Parents who forget to do their homework before choosing a state-sponsored college savings plan are being sold funds with the highest fees, according to a survey of state-sponsored 529 college savings plans just published in the Journal of American Taxation Association. The Securities and Exchange Commission (SEC) is investigating the sales practices of 529 plans and has reportedly requested a copy of the article. “Our results are consistent with the fact that it’s so difficult to choose the right plan that people ask investment brokers for advice, and brokers are selling investors the high-fee funds,” University of Kansas (KU) professor and co-author of the survey, Raquel Alexander said in a prepared statement announcing the results.

Taxpayers have currently invested more than $65 billion in 529 college Savings Plans, which allow investors to make after-tax contributions to the plans and withdraw funds, tax-free, to use for qualified college expenses. That amount is expected to climb to $300 billion by 2010, according to Investment News.

Continued in article

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"25 Reasons Employees Lie, Cheat, and Steal," SmartPros, September 2006 --- http://accounting.smartpros.com/x54052.xml

On-the-job theft goes beyond greed, according to authorities in white-collar crime (criminologists, sociologists, auditors, risk managers, etc.), who cite a large list of reasons for employee theft.

In fact, a new edition of Fraud Auditing and Forensic Accounting lists a long list of 25 reasons -- some of which are common knowledge, but others may surprise. They include:

• The employee believes he can get away with it.
• No one has ever been prosecuted for stealing from the organization.
• Employees are not encouraged to discuss personal or financial problems at work or to seek management's advice and counsel on such matters.

Read the entire list and check out Book Corner for more details on the book.

White collar crime pays big even if you get caught --- http://www.trinity.edu/rjensen/FraudConclusion.htm#CrimePays

What Accountants Need to Know ---
http://www.trinity.edu/rjensen/FraudReporting.htm#AccountantsNeedToKnow

Bob Jensen's threads on theft and fraud are at http://www.trinity.edu/rjensen/Fraud.htm

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Not following FAS 133 can be expensive

"Freddie Settles Shareholder Suits For $410 Million," by Damian Paletta, The Wall Street Journal, April 21, 2006; Page B5 --- http://online.wsj.com/article/SB114559101617932218.html?mod=todays_us_marketplace

Freddie Mac said it will pay $410 million to settle securities class-action and shareholder derivative lawsuits stemming from its restatement of earnings from 2000 to 2002.

The announcement comes just two days after Freddie Mac announced a $3.8 million settlement with the Federal Election Commission to resolve allegations that the government-sponsored mortgage giant violated campaign-finance laws.

"Today's settlement, like the settlement announced earlier this week with the Federal Election Commission, enables this management team to resolve past issues so that we can focus squarely on meeting our important housing mission, running the business well and serving the needs of our customers," said Richard Syron, Freddie Mac's chief executive.

The $410 million payment will go into a fund that will repay several Ohio pension funds and other investors who purchased Freddie Mac stock between July 15, 1999, and Nov. 20, 2003.

Ohio Attorney General Jim Petro, who negotiated the settlement with Freddie Mac, alleged that Freddie "misrepresented its financial condition during that period."

Freddie Mac said, "the settlement is...based on corporate-governance reforms instituted by the company under its current management." It added that it didn't admit wrongdoing. Freddie Mac didn't admit wrongdoing in the Federal Election Commission case either.

Freddie Mac expects the settlement to lower its first-quarter 2005 net income by $220 million after taxes.

Bob Jensen's threads on FAS 133 accounting are at http://www.trinity.edu/rjensen/caseans/000index.htm

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One of the larger SEC civil penalties for accounting fraud
In one of the largest civil penalties the Securities and Exchange Commis