Accounting
Scandal Updates on
September 10,
2002
Bob
Jensen at Trinity
University
Bob Jensen's main document on the Enron
scandal and other accounting frauds is at http://www.trinity.edu/rjensen/fraud.htm
As Miklos pointed out on
September 5 in a message to
me, Andersen promised to
stop shredding evidence in
the "SEC vs. Sunbeam
Case." That was
long before the shredding of
documents in the Enron Case
--- Miklos A. Vasarhelyi [miklosv@andromeda.rutgers.edu]
"Former Sunbeam
Chief Agrees to Ban and a
Fine of $500,000," by
Floyd Norris, The New
York Times, September 5,
2002
Albert
J. Dunlap, the former chief
executive of the Sunbeam
Corporation, agreed
yesterday to pay a $500,000
fine and to accept being
banned from ever serving as
an officer or director of a
public company. Mr. Dunlap,
who earlier agreed to pay
$15 million to settle a
shareholder suit, neither
admitted nor denied
allegations by the
Securities and Exchange
Commission that he
engineered a large
accounting fraud that
inflated the profits of
Sunbeam after he was hired
to turn the company around
in 1996, when he was viewed
as a star on Wall Street.
Russell A. Kersh, 48, the
former chief financial
officer of Sunbeam, and Mr.
Dunlap's top aide before
that at the Scott Paper
Company, also settled
charges by the S.E.C.,
agreeing to pay $200,000. He
previously agreed to pay
$250,000 to settle the
shareholder suit. Mr.
Dunlap, who embraced the
nickname Chainsaw Al, became
famous in the 1990's as he
laid off thousands of
workers at Scott Paper in
what he said was a necessary
move to cut costs. His
autobiography, "Mean
Business," became a
best seller after he joined
Sunbeam. "Most C.E.O.'s
are ridiculously
overpaid," he wrote in
the book, "but I
deserved the $100 million I
took away when Scott merged
with Kimberly-Clark."
Mr. Dunlap, now 65,
presumably still has most of
that money, although, as his
lawyer noted yesterday, he
did not make any money from
selling Sunbeam stock before
those shares collapsed and
the company went into
bankruptcy last year.
Justice Department officials
would not comment yesterday
on whether Mr. Dunlap might
still face criminal charges.
The S.E.C. said the fraud
continued into 1998, so the
five-year statute of
limitations has yet to
expire. When Mr. Dunlap was
hired at Sunbeam, the
company's share price leaped
nearly 50 percent on the
announcement, and it rose
further after the company
reported a turnaround in
1997. Sunbeam's board
responded by agreeing to
double Mr. Dunlap's base
salary to $2 million a year.
E"x Official of
Vatican Pleads Guilty in
Conspiracy," by Paul
Zielbauer, The New York
Times, September 6,
2002
A
retired Vatican official
who is an expert on
Catholic canon law pleaded
guilty today to a federal
conspiracy charge for his
role in an international
insurance swindle run by
Martin R. Frankel, the
Greenwich financier who is
now in prison.
In
a signed statement, Msgr.
Emilio Colagiovanni, 82,
whose career included
sitting on the board that
provides legal counsel to
Pope John Paul II, pleaded
guilty to conspiracy to
commit wire fraud and
launder money. He faces a
maximum of five years in
prison and a $250,000
fine.
In
the six-page statement,
Monsignor Colagiovanni, an
Italian citizen and a
priest for 60 years, said
that in 1998 and 1999 he
helped Mr. Frankel defraud
American insurance
companies that Mr. Frankel
wanted to buy. His
contribution, he said, was
allowing his own
Rome-based foundation, the
Monitor Ecclesiasticus
Foundation, which
publishes a journal of
canon law edited by the
monsignor, to siphon $50
million of Mr. Frankel's
money into a second
foundation. It had been
created by Mr. Frankel
specifically to acquire
the companies, the
monsignor acknowledged.
Bob Jensen's threads
on fraud are at http://www.trinity.edu/rjensen/fraud.htm
New
York State Attorney General
Eliot Spitzer has become the
most feared man on Wall
Street. What he wants is
change--top to bottom.
"The Enforcer:
Forget the perp walks. What
he wants is change--top to
bottom," by MNark
Gimein, FORTUNE,
September 16, 2002 --- http://www.fortune.com/indexw.jhtml?channel=artcol.jhtml&doc_id=209347
On
Wall Street right now,
there may be no person as
feared as the attorney
general of New York State.
This is in some ways an
utterly banal statement,
one that probably won't
surprise anybody who has
been following press
coverage of Eliot
Spitzer's campaign against
corruption in the
financial world, a crusade
that has already netted a
$100 million fine from
Merrill Lynch and is now
continuing with an
investigation of
Citigroup's Salomon Smith
Barney. But in another way
it is quite extraordinary,
really kind of
unbelievable, because of
one very striking fact:
Spitzer has become the
most feared man on Wall
Street without arresting a
single executive and,
amazingly, without so much
as indicting one
investment bank, or a
single employee of an
investment bank.
In
this fact is encapsulated
what might be the essence
of Spitzer's character,
and the reason this
unlikely enforcer might be
the pivotal figure in the
broad-ranging rethinking
of American business. If
any single person has
goaded U.S. corporations
to change most vigorously
in the last months (well,
any single person besides
Jeffrey Skilling), it has
been Spitzer. He has done
it with a staff of no more
than 15 or 20 lawyers
working on securities law,
a legal staff smaller than
that of a third-tier
investment bank. And he
has done it without yet
prosecuting a single big
securities case.
Spitzer
has been criticized for
this as an arrogant
meddler and an opportunist
with an eye on New York's
2006 race for governor
(he's almost certain to
win a second term as
attorney general this
fall). But he has
persevered in his mission
of shaming and compelling
the investment banks and
their executives--right up
to Sandy Weill, the head
of conglomerate
Citigroup--to end the
despicable practice of
giving their clients
investment advice so
dishonest and fraught with
conflicts of interest that
it has become worthless.
At
first glance, Spitzer, 43,
hardly seems a prime
candidate for the job of
articulating the anger
over corporate corruption
that has gripped ordinary
Americans.
"Articulate" is
an Eliot Spitzer word, as
are
"rearticulate"
and
"recalibrate"
and "critique."
He is a policy enthusiast
who drags friends to
lectures and seminars on
public affairs in his
spare time. He is a
product of Princeton and
Harvard Law School, and
even spent a couple of
years working on mergers
and acquisitions at
top-tier law firm Skadden
Arps. Thanks to his
family's real estate
fortune (he owns a string
of Manhattan properties),
he can afford to live with
his wife, Silda Wall, and
three daughters in exactly
the kind of Fifth Avenue
building favored by
financial barons. He quips
that half his friends are
investment bankers and the
other half are lawyers who
represent investment
bankers.
The
last time we went through
a spasm of greed and
retribution on Wall
Street, in the late 1980s,
the iconic figure in law
enforcement was U.S.
Attorney Rudolph Giuliani.
It was Giuliani who was
responsible for putting
Ivan Boesky and Michael
Milken in jail. But it was
also Giuliani who was
responsible for pulling an
investment banker off the
floor of Kidder Peabody in
handcuffs--on charges that
were dropped because the
U.S. Attorney's office
never amassed enough
evidence for a trial.
Giuliani, by the way, now
represents Merrill Lynch
in private practice.
Spitzer,
by contrast, is the
antithesis of that stock
character of
law-enforcement legend,
the street-brawling
prosecutor.
"Prosecutors have
classically done a very
good job of putting people
in jail, but it doesn't
change anything,"
says Michael Cherkasky,
Spitzer's former boss in
the Manhattan D.A.'s
office racketeering unit.
For Spitzer, putting
people in jail is not the
point of the prosecutor's
job. Look at his biggest
case at the Manhattan
D.A.'s office, in which he
showed both his creativity
and his penchant for
thinking big. Instead of
using a mole to penetrate
New York City's closed
garment world, he opened a
full-fledged garment
factory (and in classic
Spitzerian fashion, made
sure his workers had
health insurance). He
wound up shutting down
gangster Tommy Gambino's
extortion business by
prosecuting the mob boss,
who was already facing the
prospect of jail on other
charges, on (of all
things!) antitrust grounds
and exacting a $12 million
civil penalty. That paid
for five years of
intensive oversight and
led to wholesale reform of
the trucking business in
Manhattan.
Continued at
http://www.fortune.com/indexw.jhtml?channel=artcol.jhtml&doc_id=209347
Bob Jensen's threads
on "Rotten to the
Core" are at http://www.trinity.edu/rjensen/fraud.htm#Cleland
"How
Star CSFB Banker Pressed For
Shares in IPOs for
Friends," by Randall
Smith and Susan Pulliam, The
Wall Street Journal,
September 5, 2002. An
excerpt is quoted below:
For
weeks, Salomon Smith
Barney has been probed for
directing hot new stocks
to executives whose firms
did business with the Wall
Street firm.
Soon,
the big unit of Citigroup
Inc. may have company in
the spotlight.
Frank
Quattrone, the star
technology-industry
investment banker at
Credit Suisse First
Boston, pressed for
greater allocations of
IPOs for corporate
executives whose companies
had hired his firm to do
investment-banking work,
according to e-mail
records and people
familiar with the firm.
The
e-mail records and other
accounts of Mr.
Quattrone's efforts are
likely to become part of a
probe by securities
regulators into whether
Wall Street firms
improperly used the lure
of quick profits on
initial public offerings
of stock to win
investment-banking
business during the 1990s
stock boom.
Investigators
for the National
Association of Securities
Dealers recently sought to
interview
John
Schmidt, former chief of
the brokerage group that
worked with Mr. Quattrone,
about how CSFB doled out
hot IPOs to tech-group
clients as part of a probe
into so-called spinning,
according to people
familiar with the request.
And just Wednesday,
congressional
investigators said they
were broadening their
probe into Wall Street's
IPO practices to CSFB and Goldman
Sachs Group Inc.
CSFB
and Mr. Quattrone didn't
have any immediate comment
Wednesday; the NASD also
declined to comment.
Goldman said the firm
would cooperate, but was
"surprised to have
been asked" for IPO
data, saying it allocates
IPOs properly.
Mr.
Quattrone's actions in the
tech IPO market long have
been widely watched. His
technology group helped
CSFB lead-manage the
largest number of hot IPOs
in the dot-com boom,
according to Thomson
Financial. The brokers who
worked with him, led by
Mr. Schmidt, ran a group
of accounts for more than
160 investment-banking
clients, most of whom
received between a few
hundred and 1,000 shares
of every CSFB-linked IPO,
according to people
familiar with the
accounts. Each of the
clients participated on a
proportional basis in all
the IPOs.
The
accounts' performance was
sizzling, rising by an
estimated 600% in 1999 and
100% in 2000, according to
one person familiar with
their operation. The
clients generally were
offered the chance to open
such accounts -- known as
"Friends of
Frank" accounts --
only after they had
selected CSFB to lead
their IPOs or arrange
other transactions, the
people familiar with them
said.
The
number of these plum
accounts grew to 160 in
early 2000 from 26 in
January 1999, according to
one CSFB e-mail. And the
total size of the accounts
grew to a peak of $150
million from $50 million
in early 1999, according
to a person familiar with
them. Broker who managed
accounts in the group
routinely would sell about
one-third of its
allocation a few days
after the IPO, another
third about a month later
and the rest at some
subsequent point, the same
person said.
Bob Jensen's threads
on "Rotten to the
Core" are at http://www.trinity.edu/rjensen/fraud.htm#Cleland
From
FEI Express of September 6,
2002
One
aspect of the
Sarbanes-Oxley Act seeks
to inspire good corporate
behavior rather than
impose it. Section 406 of
the bill's Title IV
(Enhanced Financial
Disclosures) directs the
SEC to issue rules that
require issuers to
disclose whether or not
(and if not, why not), an
"issuer has adopted a
code of ethics applicable
to its principal financial
officer and comptroller or
principal accounting
officer, or persons
performing similar
functions." Moreover,
public companies will also
be required to disclose
any change in or waiver of
the code of ethics for
senior financial officers.
Indeed,
many companies already
have a code of conduct
that employees are
expected to sign. The key
change from the
Sarbanes-Oxley provision
is that companies should
have a specialized code of
ethics for financial
officers. Under the Act, a
"code of ethics"
for financial officers
should include "such
standards as are
reasonably necessary to
promote- (1) honest and
ethical conduct, including
the ethical handling of
actual or apparent
conflicts of interest
between personal and
professional
relationships; (2) full,
fair, accurate, timely and
understandable disclosure
in the periodic reports
required to be filed by
the issuer; and (3)
compliance with applicable
governmental rules and
regulations."
FEI
has developed a model code
for companies to use,
based on FEI's Code of
Ethics for members. The
model is on our website
at:
http://www.fei.org/download/sampleethics.pdf
We're
proud to say that industry
leaders like United
Technologies and Dow
Chemical have already
adopted the model. We
trust this model will be
helpful to you in
complying with
Sarbanes-Oxley and in our
collective efforts to
restore investor
confidence and improve
corporate governance.
Ridge
Braunschweig
Phil Livingston
Chairman
Chief Executive Officer
From SmartPros on August
29=8, 2002 --- http://www.smartpros.com/x35132.xml
Investors
in the failed energy group
Enron Corp. said Tuesday
they had secured a $40
million settlement from
Andersen Worldwide, SC.
The
deal was announced by
University of California,
the lead plaintiff in a
class action suit against
the accountant, which
audited Enron's flawed
books.
Andersen
Worldwide is the
Swiss-based coordinating
entity of the Andersen
accounting firms. Arthur
Andersen, the US company
that actually examined
Enron's accounts, is not
covered by the settlement.
"This
substantial settlement is
a favorable result for the
class in light of the
limited role of the non-US
Andersen entities,"
University of California
general counsel James
Holst said.
It
was one of the biggest
recoveries from an
accounting firm, he said
in a statement.
"We
regard this settlement as
only a first step in
obtaining recovery for the
class, and will continue
to pursue damages from the
remaining defendants, most
of whom had far deeper
involvement in the Enron
debacle than the overseas
Andersen firms,"
Holst said.
Andersen
Worldwide did not admit
liability or wrongdoing,
the university said. The
settlement was subject to
court approval.
The
division of the Andersen
Worldwide settlement
between shareholders and
pension holders had yet to
be determined.
Enron
filed for bankruptcy in
December last year, its
reputation shattered by a
slew of accounting
scandals.
The
settlement, worked out
over the past few weeks,
included $15 million to
finance costs -- but not
attorney's fees -- of the
continuing litigation.
The
University of California
said total losses
experienced by all Enron
shareholders were
estimated at more than 25
billion dollars.
Arthur
Andersen, the US
accounting firm, was
convicted in June of
obstruction of justice for
destroying tonnes of
documents related to its
former client Enron.
The
verdict effectively ended
the audit business for
Andersen, which had been
one of the Big Five global
firms.
Prosecutors
only now are narrowing in
on Enron.
Last
week, a former Enron
executive , 37-year-old
Michael Kopper, pleaded
guilty in a court in
Houston, Texas, to
conspiracy to commit wire
fraud and money
laundering.
Prosecutors
said it was a milestone in
their efforts to build a
criminal case against the
energy trader's former
management.
September
3, 2002 message from FinanceProfessor
[FinanceProfessor@lb.bcentral.com]
Attention
returned to Worldcom this
week and what it showed
was not flattering. In
what could be called a
smoking email (giving a
new definition to flames),
Worldcom officials told
employees to not cooperate
with auditors. (in
hindsight that may be a
very costly mistake!) http://www.washingtonpost.com/wp-dyn/articles/A64786-2002Aug26.html
In
a related note, Scott
Sullivan the former CFO of
the struggling
telecommunications firm
was indicted for trying to
hide debt from regulators
and auditors.
http://news.bbc.co.uk/1/hi/business/2222137.stm
If
that wasn’t bad enough,
Salomon Brothers admitted
to giving WorldCom
officials advantages in
IPOs in order to court
WorldCom’s investment
banking business. The
total amount the
executives made on these
deals is uncertain but
Ebbers alone is reported
to have made $11 million.
Ebbers and Salomon are
going to have much
explaining to do as
evidenced already by the
SEC demanding records of
their past IPOs.
http://www.msnbc.com/news/801581.asp
http://news.bbc.co.uk/1/hi/business/2226966.stm
http://www.latimes.com/business/la-fi-worldcom31aug31.story
http://www.washingtonpost.com/wp-dyn/articles/A184-2002Aug26.html
http://slate.msn.com/?id=2070225
The
main purpose of this message
is to note the link
forwarded by George Krull
that provides a great series
on Andersen. George is a
professor (MSU PhD) who
became an executive research
partner for many years in
Grant Thornton. He has been
a long-time dedicated member
of the American Accounting
Association and is now
teaching at Bradley.
However,
I thought the old Michigan
State University faculty and
alumni might appreciate
publicizing his entire
message. For some of us,
those were the good old days
of academe --- we thought we
knew the answers in those
days.
Bob
Jensen
-----Original
Message-----
From: Krull, George [mailto:gkrull@bumail.bradley.edu]
Sent: Monday, September
02, 2002 12:02 PM
To: Jensen, Robert
Subject: The Fall of
Andersen Four-part Series
in the Chicago Tribune
September
2, 2002 12:02 CDT
Bob,
Here
is a link to an excellent
series that appears in the
Chicago Tribune ( http://www.chicagotribune.com/business/showcase/chi-andersen.special
). The series started
yesterday and concludes on
Wednesday, September 4.
It
was good to see you in San
Antonio. I was running to
a meeting when we chatted
for a brief moment. Let me
add my congratulations to
the many you received for
your Outstanding
Accounting Educator Award.
Your remarks were
moving
( http://www.trinity.edu/rjensen/000aaa/AAAaward_files/AAAaward02.htm
).
I
do remember those great
discussions and
conversations in the Teak
room at the east end of
Eppley Center. I was
blessed to be a member of
a truly great bunch of
graduate students at MSU.
Those students considered
the faculty ( you, Arens,
Miller,Salmonson, Edwards,
Windal, etc.) as our
friends and our
professors. That created a
very special learning
environment, the likes of
which I have not
experienced many times
since.
Best
regards,
George
Bob
Jensen's threads on the
Andersen explosion are at http://www.trinity.edu/rjensen/fraud.htm
"The
fall of Andersen,"
Chicago Tribune --- http://www.chicagotribune.com/business/showcase/chi-andersen.special
Chicago's
Andersen accounting firm
must stop auditing
publicly traded companies
following the firm's
conviction for obstructing
justice during the federal
investigation into the
downfall of Enron Corp.
For decades, Andersen was
a fixture in Chicago's
business community and, at
one time, the gold
standard of the accounting
industry. How did this
legendary firm disappear?
Civil
war splits Andersen
September
2, 2002. Second
of four parts
The
fall of Andersen
September
1, 2002. This
series was reported by
Delroy Alexander, Greg
Burns, Robert Manor, Flynn
McRoberts and E.A.
Torriero. It was written
by McRoberts.
Greed
tarnished golden
reputation
September
1, 2002. First
of four parts
'Merchant
or Samurai?'
September
1, 2002. Dick
Measelle, then-chief
executive of Andersen's
worldwide audit and tax
practice, explores a
corporate cultural divide
in an April 1995
newsletter essay to
Andersen partners.
"Last
Task at Andersen Turning Out
the Lights, by Jonathan D.
Glater, The Wall Street
Journal, August 30, 2002
After
89 years, Arthur Andersen
will cease to be an
auditor of public
companies tomorrow.
The
remaining tasks of the
once-proud firm
which was convicted in
June of obstructing the
government's investigation
into the collapse of Enron,
an Andersen client
are to deal with
obligations and shut
itself down. Of its
roughly 28,000 employees,
fewer than 3,000 are left;
of more than 1,200
public-company audit
clients, none will remain.
The
remarkable decline of the
firm, from its
announcement in January
that it had discovered
improper shredding of
documents related to its
audit of Enron, has
occurred in less than nine
months. The employees who
are left will have the
thankless task of coping
with lawsuits and leases.
"It's like a family
member who has terminal
cancer," said Gary
Brentlinger, the human
resources director for
Andersen's offices in
Houston, Austin, San
Antonio and New Orleans.
"We're watching the
firm die."
Today
at the firm's office in
Houston, the epicenter of
the Enron debacle, Mr.
Brentlinger will most
likely shut off the lights
on one more of the 15
floors that the firm
occupied when it had
nearly 1,700 active
employees there, instead
of the fewer than 100 now.
The offices in the other
cities he oversees have
already closed.
Partners
who are at the firm and
some who have recently
left say that it will not
file for bankruptcy
protection but will
continue to wind down its
affairs, negotiating with
landlords to get out of
leases, operating
Andersen's training
center, arguing with
former clients' new
accountants about the
accuracy of past audits,
and, of course, defending
itself in lawsuits. The
liability of current and
former partners in those
lawsuits remains
uncertain.
The firm will be supported
by revenue earned from the
audit season that
concluded this spring, the
sale of different
practices and payments
from partners getting out
of their agreements not to
compete against Andersen,
partners say.
Little
information is available
about the financial
condition of Andersen, a
private partnership, but
partners who have seen the
financial statements for
last year said that given
its reduced payroll, it
should be able to operate
until it has to pay
judgments or settlements
in lawsuits. Some also
said the firm would
convert itself from a
partnership to a
corporation, providing
those who remain at the
firm more protection
against any future
liabilities.
The
only significant, certain
revenue source for
Andersen in the future
will come from its onetime
sister consulting firm,
now known as Accenture,
which was separated from
Andersen by an
arbitrator's decision two
years ago. Partners on the
consulting side did not
want to share profits with
their less-profitable
accountant brethren.
Accenture
now has more than three
years left on a five-year
contract to send more than
10,000 employees each year
to what is called Andersen
University, the Andersen
training campus in St.
Charles, Ill. A
spokeswoman for Accenture
did not disclose the value
of the contract.
Winding
down Andersen's business
is a tremendously messy
and complicated task. Even
as many employees left or
were laid off in recent
months, others had to sort
through audit work papers
and other client files and
make sure that they could
be understood not only by
another auditor but also
by the operator of a
document storage center,
said Lisa T. Fair, a
former Andersen partner in
Atlanta who now works for
Deloitte & Touche.
"We
hold documents that
clients have for audits,
for lawsuits, for anything
like that," Ms. Fair
said, adding that the
Atlanta office of Andersen
had entrusted all its
documents to a storage
center. "We had to
make sure that those
things were easily
found" by a client's
new auditor, she said.
The process converted
Andersen's offices into a
nightmare of paper and
storage boxes, several
employees recalled.
"You
end up doing a lot more
things that you wouldn't
normally do," said
David C. Meyer, a former
Andersen partner who
landed at
PricewaterhouseCoopers in
Houston. There were fewer
people to help organize
documents, make copies or
even carry boxes, he said.
"We
probably had 20,000 files
in our office alone,"
Mr. Brentlinger said. As
people have left and the
files have gone into
storage, he said, Andersen
staff members have removed
papers from floors of its
offices in a downtown
Houston skyscraper and
turned off the lights,
leaving only furniture and
artwork. Office supplies
were donated to charities.
Negotiations over leases
remain.
Mr. Brentlinger said about
80 percent of the
professional staff members
from his office had found
new jobs.
The
support that Andersen
managed to give to its
people was impressive,
said Dean McMann, chief
executive of Ransford, an
executive recruiter and
adviser to consulting and
accounting firms.
"This has been the
most professional winding
down of a firm that I've
ever seen," he said.
"The sad thing is a
great firm went away, but
they did it in
style."
The
exit process has been
difficult emotionally and
logistically for people
trying to put Andersen's
paperwork in order while
conducting job searches.
Joseph J. Floyd, an
Andersen partner in the
Boston office, and some
colleagues managed to set
up their own consulting
firm in less than two
months, even as the
Andersen office was
closing down.
"We
were all struggling with
what to do with our
practices," Mr. Floyd
said. Packing up the
Andersen office and
setting up office space
for the Huron Consulting
Group, his new firm,
"was seven days a
week and probably most
waking hours of those
days," he said.
While setting up a new
business or negotiating
with another firm for a
job, partners leaving the
firm or their new employer
had to pay hundreds of
thousands of dollars to
get out of provisions of
their partnership
agreement that prohibited
them from competing with
Andersen. Those amounts,
which had to be
negotiated, could reach
$500,000 a partner, one
former partner said.
"It
was very dynamic, and
there were a lot of moving
parts," said E. J.
Huntley, a former Andersen
partner in Houston who
helped found Avail, a
35-memberconsulting firm.
The firm has been
operating for barely two
months. The different
negotiations to set up the
new firm took place as
Andersen was making the
transition from incredibly
busy to eerily quiet, he
said. "It was a
surreal experience."
No
piece of the shutdown,
even physically closing
offices, has been simple.
Andersen has had to
disconnect from its e-mail
system, update its
conference-calling
operations to take into
account offices that
closed, and sell all the
computers and other
hardware in the closed
offices.
Perhaps the most daunting
task for those who remain
at Andersen in the coming
months will be coping with
lawsuits. There are suits
filed by angry
shareholders and creditors
of former clients like
Enron and suits filed by
retired partners worried
about pension financing,
none of which have yet
been settled. The suits
seek billions of dollars
far more money than
Andersen has.
Andersen's
lawyers say they still
plan to appeal the firm's
criminal conviction by a
Houston jury as soon as
possible. Sentencing is
scheduled for Oct. 16.
Bob
Jensen's threads on Andersen
are at http://www.trinity.edu/rjensen/fraud.htm
The
North American Securities
Administrators Association
provides a listing of the
top 10 investment scams
being investigated by state
securities regulators. Some
of the examples published by
NASAA have involved
accountants and may serve as
current examples to use in
ethics teaching --- http://www.nasaa.org/nasaa/abtnasaa/display_top_story.asp?stid=307
"Top
10" Investment Scams
Listed by State Securities
Regulators
WASHINGTON (August 26,
2002) – State securities
regulators today released
a list of the “Top 10”
scams, risky investments
or sales practice abuses
they’re fighting. New to
the third annual list are
unscrupulous brokers,
conflicts of interest in
analyst research,
charitable gift annuities,
and oil and natural gas
scams.
“Record-low interest
rates and a bear market on
Wall Street have created a
bull market in fraud on
Main Street,” said
Joseph Borg, president of
the North American
Securities Administrators
Association (NASAA)¹ and
director of the Alabama
Securities Commission.
“Con artists know
investors are concerned
about the volatile stock
market and low yields on
bonds and bank deposits,
so they pitch their scams
as safe alternatives and
promise high returns –
an impossible
combination.”
The 2002 list was again
topped by independent
insurance agents selling
risky or fraudulent
securities. Borg said that
while most independent
insurance agents are
honest professionals, too
many are letting high
commissions lure them into
selling high risk or
fraudulent investments.
The federal war on terror
and large budget deficits
at the state level are
diverting or pinching
resources to fight
investment fraud, Borg
warned.
“Putting people in jail
gives investors the
biggest bang for their
regulatory buck,” said
Borg. “So legislators at
all levels need to ensure
that regulators and
prosecutors have
sufficient resources to
successfully bring
securities fraud cases.”
Here are the “Top 10”
investment scams, ranked
roughly in order of
prevalence or seriousness:
1. Unlicensed
individuals, such as
independent insurance
agents, selling
securities.
In hundreds of cases from
Washington state to
Florida, scam artists are
using high commissions to
entice independent
insurance agents into
selling investments they
may know little about. The
person running the scam
instructs the independent
sales force – usually
insurance agents but
sometimes investment
advisers and accountants
– to promise high
returns with little or no
risk. For example:
· In an alleged scam sold
almost entirely by
independent insurance
agents, investors in at
least 14 states lost close
to $30 million. According
to Ohio securities
regulators, money raised
from the sale of
fictitious limited
partnerships was used to
make interest payments to
another group of
promissory note investors.
Both groups were promised
double-digit returns. In
April a court issued a
preliminary injunction and
appointed a receiver in
connection with the
allegations.
(The NASAA says the
persons running these
scams are usually
independent insurance
agents, but some have been
investment advisers or accountants.)
· Earlier this month, an
Arizona insurance agent
was sentenced to 10 years
in prison for selling $1.8
million in worthless stock
and bogus promissory notes
to investors. Another
Arizona insurance agent
was sentenced in May to
five years in prison for
scamming 32 elderly
investors out of nearly $2
million by first
soliciting them to
purchase ‘living
trusts’ and then
switching them into
annuities and finally into
bogus promissory notes. A
third Arizona insurance
agent, working with his
two sons, scammed $16.2
million by selling high
risk brokered CDs,
viatical contracts, real
estate deals and equipment
leases. They were ordered
to repay all $16.2 million
and fined another
$133,000.
To verify that a person is
licensed or registered to
sell securities, call your
state securities
regulator. If the person
is not registered, don’t
invest.
2. Unscrupulous
stockbrokers.
The declining stock market
has caused some brokers to
cut corners or resort to
outright fraud, say state
securities regulators. At
the same time, some
investors have grown more
cautious and are
scrutinizing their
brokerage statements for
unexplained fees,
unauthorized trades or
other irregularities. In
North Dakota, regulators
investigated a complaint
from an investor who
received conflicting
account statements. They
discovered that two
brokers working for H.D.
Vest Investment Securities
Inc. issued phony account
statements to cover up
losses from hundreds of
unauthorized trades. The
brokers had also made
unsuitable recommendations
such as risky options
contracts. Under a
settlement with state
securities regulators, H.D.
Vest agreed to repay
clients’ out-of-pocket
losses plus 6 percent,
totaling over $3.2
million.
In New York, the attorney
general’s office took
action against seven
brokers and two firms for
bilking hundreds of
elderly investors out of
more than $12.5 million
through a pay telephone
scam. The brokers
pressured investors into
liquidating their CDs,
annuities and IRAs,
sometimes at significant
penalty, and promised them
“risk-free” 14 percent
returns. So far one firm
has agreed to pay $5.9
million in restitution.
3. Analyst research
conflicts.
In May, the New York
Attorney General’s