Accounting Scandal Updates and Other Fraud Between July 1 and September 30, 2005
Bob Jensen at
Trinity University

Bob Jensen's Main Fraud Document --- 

Bob Jensen's Enron Quiz (and answers) ---

Other Documents

Many of the scandals are documented at 

Resources to prevent and discover fraud from the Association of Fraud Examiners --- 

Self-study training for a career in fraud examination --- 

Source for United Kingdom reporting on financial scandals and other news --- 

Updates on the leading books on the business and accounting scandals --- 

I love Infectious Greed by Frank Partnoy --- 

Bob Jensen's American History of Fraud ---

Future of Auditing --- 

September 26, 2005 message from David Albrecht [albrecht@PROFALBRECHT.COM]

The Equitable Life law suit against Ernst &Young has been dismissed. This multi-billion dollar suit originally had the potential to wipe out E&Y UK. Some columnists speculated that it ahd the potential to bring down E&Y worldwide.

"Equitable's claim against Ernst & Young was centered on the accountant's alleged failure to inform the then board about the extent of the mutual's financial problems.

However, Equitable decided to abandon the case after lawyers pointed out there was a good chance the former directors would not have acted differently had Ernst & Young given different advice.",,9557-1795562,00.html

Bob Jensen's threads in E&Y legal woes are at

Another CEO looter:  Will it ever end?
Vinod Gupta, a high- living CEO pal and fundraiser to the Clintons, is being accused of looting his company's coffers and using shareholder money to fund his lavish lifestyle. Gupta, the CEO of InfoUSA, an Omaha, Neb.-based database company, is coming under fire from investors, including Cardinal Capital, the Greenwich, Conn.-based hedge fund whose last target was newspaper baron Conrad Black, for a variety of alleged offenses, including funneling InfoUSA funds through private companies he controls to pay for things such as jet travel, a fancy yacht and a...
Tim Arango, "Clinton Pal Eyballed," The New York Post, October 2, 2005 --- 

Jensen Comment:  White collar criminals commit crimes because it pays even if they get caught.  See Question Number 1 at

Update on Worldcom Fraud
Former WorldCom Investors can now claim back some of the billions of dollars they lost in a massive accounting fraud, after a federal judge approved legal settlements of "historic proportions." The deal approved Wednesday by U.S. District Judge Denise Cote, will divide payments of $6.1 billion among approximately 830,000 people and institutions that held stocks or bonds in the telecommunications company around the time of its collapse in 2002.
Larry Neumeister, "Judge OKs $6.1B in WorldCom Settlements," The Washington Post, September 22, 2005 --- 

Bob Jensen's threads on the Worldcom fraud are at

Tyco Fraud Update

First a quote from 2004
PricewaterhouseCoopers also fell prone to faulty risk assessments. In July, the SEC forced Tyco, the industrial conglomerate, to restate its profits, which it inflated by $1.15 billion, pretax, from 1998 to 2001. The next month, the SEC barred the lead partner on the firm's Tyco audits from auditing publicly registered companies. His alleged offense: fraudulently representing to investors that his firm had conducted a proper audit. The SEC in its complaint said that the auditor, Richard Scalzo, who settled without admitting or denying the allegations, saw warning signs about top Tyco executives' integrity but never expanded his team's audit procedures.

"Behind Wave of Corporate Fraud: A Change in How Auditors Work:  'Risk Based' Model Narrowed Focus of Their Procedures, Leaving Room for Trouble,' " by Jonathan Weil, The Wall Street Journal, March 25, 2004, Page A1
You can read a longer part of the above article at

Jensen Comment:
Dennis Kozlowski is eligible for parole in eight years on a 25-year sentence.  This is far to lenient and once again shows how white collar crime is punished much to lightly ---
But at least Dennis is not going to do his 8/25 in Club Fed (of course in Club Fed he would probably not get such an early parole opportunity.

"Tyco Endgame," The Wall Street Journal, September 20, 2005; Page A16 ---,,SB112718329059445833,00.html?mod=opinion&ojcontent=otep

There aren't any $6,000 shower curtains in New York state prisons, where Tyco felons Dennis Kozlowski and Mark Swartz will be enjoying all or part of the next 25 years. The former CEO and CFO were sentenced yesterday for their roles in looting $600 million from their company and paying off one or more directors to avert their eyes. They won't become eligible for parole until about seven years.

Thus concludes one of the sorrier chapters in U.S. business history. And while it took a while -- the first Tyco trial ended in mistrial -- the outcome strikes us as just. Not because of their greed -- there's no law against lavish living yet -- but because of their crimes. Messrs. Kozlowski and Swartz were convicted in June on 22 counts of grand larceny and conspiracy. The verdicts were a victory for Manhattan District Attorney Robert Morgenthau, who last week survived a tough primary challenge.

Of all the fin de siècle corporate scandals, the Tyco heist has always seemed the most audacious, a case of stealing money in plain sight. If you want to liven up the conversation at a business lunch, mention former Enron CEO Jeffrey Skilling and Chairman Ken Lay and whether they were complicit in the fraud for which several former executives have been convicted. There are still those who believe former WorldCom CEO Bernard Ebbers was unaware of the fraud that was taking place under his nose, despite his conviction. The Tyco scandal didn't inspire such ambiguities.

Messrs. Kozlowski and Swartz aren't headed for Club Fed by the way; under New York correctional policy, criminals with their sentences usually serve their time in maximum-security prisons. In addition, they were ordered to pay restitution and fines of $175 million. A case of justice in plain sight.

Bob Jensen's threads on Tyco can be found in various places at 

Nigerian Scams Spin Katrina ---
In one scheme, the writer claims to be a Mexican national working on a rescue team in New Orleans in need of money.

For U.S., a Counterfeiting Problem in China Is Old and Very Real
New problems come and go between China and the United States, but when leaders of the two countries meet in Washington shortly, protection of intellectual property will be on the agenda - as it has been for years. Joining DVD's and cheap knockoffs of brand-name clothing and computer software are new, upscale lines of counterfeit goods. Shoppers can find "Callaway Big Bertha" golf clubs, and "Ikea" furniture. Shanghai bar and nightclub operators say they are often sold fake bottles of Chivas Regal or Johnnie Walker Scotch, which are slipped in among bottles of the genuine item in the cases they buy from wholesalers. Pharmacies and drug makers say copies of Western medicines - far beyond just Viagra clones - are common. Garages say fake auto parts are widespread. There are even knockoff cars. General Motors says the Shanghai-based Chery Automobile Company's QQ model is a copy of a model it produces in South Korea. A newer Chery sport utility vehicle, the Tiggo, is a dead ringer for Toyota's RAV4.
Howard W. French, "For U.S., a Counterfeiting Problem in China Is Old and Very Real," The New York Times, September 4, 2005 ---

Beware of those unregulated hedge funds
The Connecticut hedge-fund firm under scrutiny in what authorities believe may have been a massive fraud emptied five Citibank accounts over the course of six days in July 2004 in withdrawals totaling $161 million, bank records show. About $100 million of that money is the subject of a court fight between Stamford-based Bayou Fund LLC and Arizona authorities who seized the funds after concluding that there was reason to believe they were being used in a fraud. The remaining $60 million -- and possibly much more -- remains unaccounted for. The Citibank accounts in New York held money for all four of Bayou's hedge funds, but the bulk of the money was in the fifth account, under the name of its money-management arm, Bayou Management LLC, the records show.
Ian McDonald, "Bayou Drained Accounts in '04 Of $161 Million," The Wall Street Journal, September 1, 2005; Page C1---,,SB112550792590328009,00.html?mod=todays_us_money_and_investing 

AOL keeps billing and billing and billing
America Online will pay $1.25 million in penalties and reform some of its customer service practices to settle an investigation by New York Attorney General Eliot Spitzer. Around 300 consumers had filed complaints with Spitzer's office accusing AOL, a subsidiary of Time Warner Inc., of ignoring demands to cancel service and stop billing.
"AOL Settles With Spitzer:  Internet Provider Agrees to Reform Handling of Cancellation Requests," The Wall Street Journal,  August 25, 2005; Page B5

Saks settles
Saks Inc., facing investigations by the Securities and Exchange Commission and federal prosecutors, said it will repay vendors about $48 million after an internal audit found that the luxury retailer improperly collected markdown allowances from 1996 to 2003. Saks also faced corporate litigation over these issues. Aug. 8, the company, based in Birmingham, Ala., settled a suit on improper vendor allowances filed by Onward Kashiyama USA, a unit of Japanese apparel company Onward Kashiyama Co. that held the Michael Kors license from 1999 to 2003. "We're pleased the matter has been resolved," said Christopher Owen, a lawyer for Onward Kashiyama, who declined to discuss the settlement amount, citing a confidentiality agreement.
Ellen Byron, "Saks to Pay Vendors $48 Million Over Improper Markdown Sums," The Wall Street Journal, August 25, 2005; Page B8 ---,,SB112493269357222632,00.html?mod=todays_us_marketplace

Canadian Audits Need Improvement Says Oversight Board
The Canadian Public Accountability Board (CPAB) recently released its second public report on its examinations of public accounting firms, finding that audits by these firms needed significant improvements. Problems cited in the report included lack of effective internal control, high risk clients, auditor independence and inadequate training on current accounting and auditing rules, according to Investment Executive.
"Canadian Audits Need Improvement Says Oversight Board," AccountingWeb, August 24, 2005 ---

Kozlowski Hall
Dennis Kozlowski’s lavish spending while he was chief executive of Tyco Inc. led to a series of criminal charges — and a conviction in a New York court this year for which he could face 30 years in prison. He also spent on colleges, which were thrilled with his attention when he was a powerful executive, but are now a little shy about the connection to a felon. Seton Hall University, Kozlowski’s alma mater, announced Thursday that it had removed his name from an academic building that houses its colleges of business and of education and human services. From now on, the building will not be Kozlowski Hall, but Jubilee Hall, to honor the university’s sesquicentennial. The Kozlowski name is also being removed from the rotunda of the university’s library.
Scott Jaschik, "Seton Hall Drops Name of Donor/Felon," Inside Higher Ed, August 19, 2005 ---

Talk about conflicts of interest in auditing
Investors who are worried about the fate of the money they turned over to the Bayou Group, a Connecticut firm that is under investigation by federal and state authorities, will not be happy to learn that there were close ties between the firm and the auditor of its hedge funds. Public documents show that the chief financial officer and head of compliance for the Bayou Group was also a principal in an accounting firm that audited the hedge funds' books.
Gretchen Morgensen, "At Defunct Fund, Close Ties to Auditor," The New York Times, August 29, 2005 ---

Bob Jensen's threads on auditor independence are at

Silicosis Scandal
Congratulations to House Republicans Joe Barton and Ed Whitfield, who last week opened a probe into the nation's asbestos and silicosis claims. Their decision to investigate the people responsible for recruiting and falsely diagnosing tens of thousands of plaintiffs is a major step toward exposing this fraud.
"Silicosis Scandal," The Wall Street Journal, August 12, 2005; Page A8 ---,,SB112381120616111638,00.html?mod=todays_us_opinion

Accounting manipulations at Sallie Mae
SLM Corp., the largest U.S. provider of student loans, said it fired its chief financial officer and demoted another manager in a debt-collection agency unit for inflating revenue in a bid to achieve performance goals and collect higher bonuses. The company, better known as Sallie Mae, also said the Securities and Exchange Commission had decided not to take enforcement action against it or the managers over the accounting errors, which took place in 2003. The SEC had opened an informal probe in January 2004. Sallie Mae said it took action following an internal review. Spokesman Thomas Joyce declined to identify the unit or the managers, or when the firing and demotion took place. "We're pleased to put the matter behind us," he said. SEC spokesman John Heine declined to comment. The former chief financial officer couldn't be reached. Sallie Mae said it had learned that on three occasions in 2003, senior managers in the unit intentionally recorded revenue from loan payments made or scheduled to be made in the first few days of a month in the prior month.
"Sallie Mae Dismisses Top Financial Officer In Accounting Review," The Wall Street Journal,  July 26, 2005; Page A6 ---,,SB112234608295395803,00.html?mod=todays_us_page_one

Bob Jensen's threads on revenue accounting ploys are at


New Appeal by KPMG
A California superior-court judge sanctioned KPMG LLP last week for withholding documents in an accounting-malpractice lawsuit brought by a small private computer-case maker, the third time the big accounting firm has been criticized by a judge for its legal tactics in recent months. In an order issued Wednesday, Orange County Superior Court Judge Geoffrey Glass instructed KPMG to pay $30,000 for "its abuse of the discovery process" and directed the jury to consider such behavior as it weighs the case brought by Targus Group International Inc. Judge Glass wrote that KPMG "deliberately or recklessly withheld or delayed in producing many responsive documents," adding that "the Court warned KPMG-US at least twice about gamesmanship in discovery." "We're disappointed by the Court's ruling," a KPMG spokesman said in a statement. "We fully complied with all discovery orders in the Targus case. We plan to seek appellate review of this order."
Diya Gullapalli, "Judge Fines KPMG Over Tactics In Accounting-Malpractice Suit," The Wall Street Journal, July 18, 2005; Page C4 ---,,SB112164712739487960,00.html?mod=todays_us_money_and_investing

Nine Are Charged In KPMG Case On Tax Shelters
In the first indictments in the government's investigation of KPMG LLP tax shelters, a federal grand jury charged nine people, including the firm's former No. 2 executive, with conspiring to defraud the U.S. government in connection with four types of shelters that KPMG sold to wealthy Americans. The defendants include three former chiefs of KPMG's tax practice, one of whom, Jeffrey Stein, was KPMG's deputy chairman from 2002-04. The other former heads of KPMG's tax practice who were indicted are former KPMG vice chairmen Richard Smith, who left the firm last year, and John Lanning, who left in 2000.
Jonathan Weil, "Nine Are Charged In KPMG Case On Tax Shelters," The Wall Street Journal, August 30, 2005; Page C1 ---,,SB112533172910025699,00.html?mod=todays_us_money_and_investing

U.S. Expects to Indict At Least 12 More Over KPMG Shelters
The lead prosecutor in the KPMG LLP tax-shelter investigation said the government expects to seek indictments against at least 12 more individuals in the coming weeks, on top of the nine people who were arraigned yesterday in a federal court in Manhattan. The additional defendants will be named as part of a superseding indictment and could include additional charges against the nine people whose bond requirements were set yesterday by U.S. District Judge Lewis A. Kaplan. The government's lead prosecutor, Assistant U.S. Attorney Justin Weddle, said the additional charges in the superseding indictment likely would include obstruction of justice, as well as tax evasion, in addition to the existing conspiracy count.
Jonathan Weil and Kara Scannell, "U.S. Expects to Indict At Least 12 More Over KPMG Shelters," The Wall Street Journal, September 7, 2005; Page C1 ---,,SB112603926421333075,00.html?mod=todays_us_money_and_investing

Bob Jensen's threads on KPMG's troubles are at

Even if the Feds let KPMG off, there are 50 states waiting in the wings
Mississippi probably will file criminal charges against accounting giant KPMG because it created a tax strategy that the state says illegally let WorldCom, now called MCI Inc., shield billions of dollars from taxes, sources close to the case said Friday.  Although a few other states have also weighed this strategy, Mississippi Atty. Gen. Jim Hood is the most determined, and his state would be the first to take this step, said the sources, who requested anonymity.
"Mississippi May File KPMG Charges," Los Angeles Times, August 20, 2005 ---,1,7703307.story?coll=la-headlines-business

Jensen Comment:
My guess is that KMPG will survive the criminal charges but will emerge badly crippled with the burden of over a billion in settlement payments with former clients and many of the states like Mississippi and California. The IRS alleges over $1.4 billion in damages in uncollected taxes. Add to this the damages of many of the states with income taxes and the added costs of punitive damages and serious litigation costs on the back of KPMG. Why in the world didn't KPMG stop selling these shelters when the IRS warned KPMG that it was selling illegal tax shelters?

Is paying out a $300-$500 million settlement "good news?"
KPMG has had their fair share of bad news since becoming the focus of federal prosecutors but there is unofficial word that an agreement will be announced later this week. Better yet, their Big Four competitors have each told their partners should refrain from "poaching" KPMG's clients. The settlement calls for the smallest of the Big Four accounting firms to pay a fine totaling between $300 and $500 million and accept independent oversight of its operations in order to avoid prosecution. In the deferred prosecution, there will also be a yet unstated probationary period. If the firm stays out of trouble during that set time, the charges will be dropped by the U.S. Attorney for the Southern District of New York. The firm has about 1,600 partners and currently audits the financial statements of more than 1,000 companies.
"More Good News Than Bad for KPMG," AccountingWeb, August 24, 2005 ---

The New York Times on August 27, 2005 reports the KPMG settlement at $456 million, excluding future settlements with states ---

Jensen Comment:  I guess this is good news in that KPMG is thereby allowed to stay in business and will not implode in the manner that Andersen imploded following the document shredding conviction.  but there is still the worry about individual state prosecutions.  The $456 settlement does not include legal costs and future settlements pending with states.

My threads on this saga are at
The IRS estimates that the loss to the U.S. treasury was $1.4 billion in illegal tax shelters that KPMG confessed to selling. 

 After this settlement KPMG quickly removed the front page link to an apology at

You can read KPMG’s apology at
Or go directly to

Some added bad news for KPMG
Although the U.S. Justice Department is seeking a settlement, although harsh, with KPMG, the state of Mississippi is also likely to file a criminal suit against the embattled accounting firm. KPMG devised the tax strategy for WorldCom after it reorganized as MCI. Although the state approved the tax plan and MCI has moved its corporate headquarters to Virginia, the state maintains that the tax plan sheltered billions of potential tax dollars in its treatment of royalties. It has been recommended that Mississippi join about 15 other states and the District of Columbia in prosecuting this case together but Mississippi continues on its own. In May of this year, the state became the first state to resolve back tax claims with the telcom giant in accepting MCI’s former headquarters building and $100 million in cash.
"More Good News Than Bad for KPMG," AccountingWeb, August 24, 2005 ---

One of the disappointments that I found in the KPMG 2004 Annual Report (what KPMG called its "Transparency Report") is virtually no mention of the U.S. Justice Department and IRS investigations taking place that could have jeopardized the entire future of KPMG.

So much for "transparency."  KPMG's transparency in that report only shows the good news.  The bad news seems to be opaque ---

All I could find is a vague statement on Page 27 that reads "Despite significant challenges for our Tax practices during FY04" with no mention what comprised those "challenges" or that those unspecified "challenges" threatened the entire existence of the firm and could have imploded KPMG's audit practice in much the same way as the Andersen firm's audit practice disappeared from the world.

This transparency report is for a September 2004 fiscal closing when, in fact, the financial news media commenced reporting these criminal investigations of KPMG in the spring of 2004.  Media coverage was especially heavy in June of 2004.  I would have expected mention of these well-known investigations in KPMG's subsequent "2004 Transparency Annual Report."  Ironically, mention is made of the great importance of "Social Responsibility" (Page 3) and "Helping to Restore the Public Trust in Our Profession" (Page 12) and "Raising Our Tax Risk Architecture to a Level Consistent with That of Audit (Page 12)." 

The CPA profession needs a more credible definition of "transparency."

It would seem that Art Wyatt was correct when entitled his August 2003 Plenary Speech "Accounting Professionalism --- They Still Don't Get It" ---

Bob Jensen's threads on the saga of KPMG are at

From The Wall Street Journal Accounting Weekly Review on September 2, 2005

TITLE: Nine Are Charged in KPMG Case on Tax Shelters
REPORTER: Jonathan Weil
DATE: Aug 30, 2005
TOPICS: Tax Shelters

SUMMARY: Indictments are handed down in the KPMG case on abusive tax shelters; those indicted are expected to plead not guilty. The U.S. Attorney's Office in Manhattan also announced that KPMG had settled the case against it for $456 million and had admitted criminal wrongdoing.

1.) What are the facts and circumstances surrounding this KPMG settlement and the indictments against its partners and others associated with the firm?

2.) Why did the U.S. authorities allow KPMG a "deferred prosecution agreement"? What does that phrase mean?

3.) Why are the individual partners, managers, and outside lawyers who developed the KPMG taxx shelters being treated differently than is the firm?

4.) What is the likely impact of KPMG's legal issues on their future operations? Consider the effect of the settlement and indictment on other aspects of the firms business; document all issues that you identify in the articles and that you can think of yourself.

Reviewed By: Judy Beckman, University of Rhode Island

TITLE: 3rd Update: KPMG Reaches Agreement in Tax-Shelter Probe
REPORTER: Chad Bray and Rob Wells
ISSUE: Aug 29, 2005

TITLE: KPMG's Settlement Provides for New Start
REPORTER: Jonathan Weil
ISSUE: Aug 29, 2005

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TITLE: Hong Kong Moves to Stop Leaks of Analysts' Pre-IPO Research
REPORTER: Kate Linebaugh
DATE: Aug 29, 2005
TOPICS: Accounting, Financial Analysis, Financial Statement Analysis, International Accounting, Regulation

SUMMARY: Each of the world's major markets has a different policy covering dissemination of information based on analyst research done prior to an initial public offering (IPO). Hong Kong's regulator , called the Securities and Futures Commission (SFC) is considering a policy to ban all such written research or to require steps to make it equally available to all. The U.S. bans disclosures of this type of information.

1.) Why must analysts write reports in advance of an initial public offering of stock (IPO)? How does accumulating this information help to establish the price for an offering?

2.) What is the problem if an investor relies on information in analysis prior to an IPO rather than a prospectus. In your answer, define the term "prospectus.'

3.) What services do accounting firms provide in the process of preparing a prospectus and undertaking an IPO? How might those services help to alleviate issues arise from the bias present in analysts reports that is described in the article?

4.) What regulatory factors do companies consider selecting a market for an IPO?

5.) What are the benefits of investing internationally? How might your answer to question #4 raise issues you might consider in undertaking international investments?

Reviewed By: Judy Beckman, University of Rhode Island

Fraud Beat on Insider Trading

"Oracle's Chief in Agreement to Settle Insider Trading Lawsuit," by Jonathan D. Glater,  The New York Times, September 12, 2005 ---

Lawrence J. Ellison, chief executive of Oracle, has reached a tentative agreement under which he would pay $100 million to charity to resolve a lawsuit charging that he engaged in insider trading in 2001, a lawyer involved in the case said.

The unusual settlement, which requires the approval of Oracle's board and could still break down, would be one of the largest payments made to resolve a shareholder suit of this kind, known as a derivative lawsuit. Typically in derivative lawsuits, damages are paid directly to the company. Under the terms of the settlement, Mr. Ellison would designate the charity and the payments, to be made over five years, would be paid in the name of Oracle. It is unclear whether the payments would be tax-deductible by Mr. Ellison.

The lawsuit charged that Mr. Ellison, known for his brash and combative pronouncements, sold almost $900 million of shares ahead of news that Oracle would not meet its expected earnings target. The same amount of stock, after the announcement, was worth slightly more than half as much.

According to the court docket for the case, which was filed in Superior Court in San Mateo, Calif., a hearing on the settlement - which requires court approval - is scheduled for Sept. 26. Under the terms of the agreement, the lawyers who brought the case for shareholders would receive about $22.5 million, separate from the $100 million payment.

Continued in article

Bob Jensen's fraud updates are at

Bob Jensen's threads on Rotten to the Core are at

Whistleblowers pay a heavy price
While whistleblowers are protected under the Sarbanes-Oxley Act, the financial and emotional toll remains alarmingly high. Just ask David Windhauser, the former controller for Trane, the heating and cooling company. He was the first person to receive a U.S. Department of Labor order requiring his former employer to rehire him under Sarbanes-Oxley. He complained in 2003 that managers were committing fraud by recording fake expenses on financial statements. He was fired one month later. He and his wife, Jeanne, then filed a Sarbanes-Oxley complaint.
AccountingWeb, August 3, 2005 ---

Bob Jensen's threads on whistle blowing are at

Huge Medicaid fraud in NY:  Why doesn't this come as a great surprise?
It was created 40 years ago to provide health care for the poorest New Yorkers, offering a lifeline to those who could not afford to have a baby or a heart attack. But in the decades since, New York State's Medicaid program has also become a $44.5 billion target for the unscrupulous and the opportunistic.
Clifford J. Levy and Michael Luo, "New York Medicaid Fraud May Reach Into Billions," The New York Times, July 18, 2005 ---

Enron Former Executive Pleads Guilty to Conspiracy
The guilty plea in Houston federal court yesterday by Christopher Calger, a 39-year-old former vice president in Enron's North American unit, involved a 2000 transaction known as Coyote Springs II in which the company sold some energy assets, including a turbine, to another company. In his guilty plea, Mr. Calger said that he and "others engaged in a scheme to recognize earnings prematurely and improperly" with the help of a private partnership, known as LJM2 that was run and partly owned by Enron's then-chief financial officer, Andrew Fastow. To avoid problems with Enron's outside auditors, company officials were "improperly hiding LJM2's participation in this transaction," according to Mr. Calger's plea.
John Emshjwiller, "Enron Former Executive Pleads Guilty to Conspiracy," The Wall Street Journal, July 15, 2005; Page B2 ---,,SB112139210586786521,00.html?mod=todays_us_marketplace

Bob Jensen's threads on the Enron/Andersen saga are at

Bill C-198 in Ontario and Sarbanes-Oxley in the U.S.:  Are these laws really changing the culture?
As much as senior executives hate to deal with new legislation such as Bill C-198 in Ontario and Sarbanes-Oxley in the U.S. -- or with the compliance issue as a whole -- they also really need to focus on what benefits can come from putting their business under scrutiny, says Lynn Brewer, the high-profile whistle-blower who helped expose Enron five years ago.
"Enron Whistle-blower Says Business Landscape Hasn't Improved," SmartPros, July 1, 2005 ---

Deloitte & Touche under investigation
Deloitte & Touche LLP is under investigation by the nation's accounting regulator over a 2003 audit of Navistar International Corp.'s financial statements, according to a published report. Earlier this year, Warrenville, Ill.-based Navistar restated its financial results for the fiscal years 2002 and 2003, and the first three quarters of fiscal 2004 because of an error in how it accounted for customer truck loans that were packaged into securities for sale to investors. The regulator, the Public Company Accounting Oversight Board, is looking into whether Deloitte's work at Navistar may have failed to comply with at least five auditing standards, according to Bloomberg News. Those standards cover checking for fraud, performing work in a professional manner and preparing reports on financial statements. The two-page order does not explain what Deloitte may have done wrong, Bloomberg said.
Ameet Sachdev, "Deloitte & Touche under investigation," Herald Today," July 9, 2005 ---

Bob Jensen's threads on Deloitte's troubles are at

Mayo Clinic's accounting called into question
Court documents pertaining to a suit brought against the Mayo Foundation by a former accounting employee under the False Claims Act and settled in May for $6.5 million, were released Monday to the Rochester, Minnesota, Post-Bulletin, according to the Associated Press. The documents had been under seal until the Post-Bulletin challenged the settlement order, according to the Associated Press. These documents show that federal investigators alleged that the Mayo Clinic had serious problems accounting for research grants, according to the Associated Press. “The audit team from the Department of Health and Human Services and the National Institutes of Health, whose job it is to routinely audit grants, has never seen an accounting system with such basic failures. Nor have they ever previously confronted an institution incapable of being audited in this way,” the Associated Press quotes from one document, signed by Assistant U.S. Attorney Robyn Millenacker.
"Harsh Criticism for the Mayo Foundation's Accounting Practices," AccountingWeb, July 21, 2005 ---

Creative accounting is alive and well
Unlike mercy, the quality of earnings can be strained. As they await companies' second-quarter results, investors may want to remind themselves that there is often a gulf between the profit figures that get trotted out in analysts' reports and the financial news media and the profits recorded under generally accepted accounting principles, or GAAP. During the last recession, companies took big charges for layoffs, plant closings and the like -- all of which cut into their earnings under GAAP. But many companies preferred that investors focus on what earnings might have looked like if the bad things hadn't happened, contending that these "operating" profits figures better represented their underlying business. Wall Street acquiesced. In 2001 and 2002, GAAP earnings for companies in the Standard & Poor's 500-stock index came to less than 60% of operating earnings.
Justin Lahart, "As They Like It," The Wall Street Journal, July 6, 2005; Page C1 ---,,SB112060828373077969,00.html?mod=todays_us_money_and_investing

German Labor Union Scandal
A bribery scandal at Volkswagen AG is shining a light on corporate Germany's traditional power-sharing arrangement with organized labor. Prosecutors in the German state of Lower Saxony are looking into whether Volkswagen officials paid bribes to some of the company's top labor leaders as a way of securing their cooperation during recent contract negotiations, an official with the prosecutor's office confirmed yesterday. The disclosure, coming less than a week after the unexpected resignation of a top labor leader at VW, has triggered a media storm in Germany, where Chancellor Gerhard Schröder and his ruling Social Democratic Party are in danger of being thrown from office by voters angry about the country's unemployment rate, which stood at 11.6% in May, a near-record in the post-World War II era.
Stephen Power and David Crawford, "VW's Scandal Carries Fallout:  Labor Ills Shed Light On Germany's Rigid Power-Sharing Law," The Wall Street Journal, July 6, 2005, Page A2 ---,,SB112060335081577794,00.html?mod=todays_us_page_one

Why should he be allowed to keep five percent?
Bernard J. Ebbers, the swaggering, self-made businessman who vowed to revolutionize the telephone industry, yesterday agreed to give up virtually everything he has built or bought to raise an estimated $45 million to settle the claims of investors hurt when WorldCom Inc. collapsed into bankruptcy three years ago. Ebbers, 63, will be allowed to keep enough money to cover legal fees and to support his wife in what prosecutors call a "modest" fashion. But the once-brash executive must move out of his Clinton, Miss., mansion within three months so that it can be sold. He also must forfeit interests in 300,000 acres of timberland, a marina and a golf course, and an anticipated federal tax refund of millions of dollars, lawyers said.
Carrie Johnson and Yuki Noguchi, "Ebbers Agrees to Settle Shareholder Suit Former WorldCom:  Chief Executive to Give Up About 95 Percent of Assets," The Washington Post, July 1, 2005 ---

Ebbers Found Guilty
Former WorldCom Chief Executive Bernard J. Ebbers was convicted of participating in the largest accounting fraud in U.S. history, handing the government a landmark victory in its prosecution of an unprecedented spate of corporate scandals.  After eight days of deliberation, the jury found Mr. Ebbers guilty of all nine counts against him, including conspiracy and securities fraud, related to an $11 billion accounting fraud at the onetime highflying telecommunications giant.  Mr. Ebbers, 63 years old, now faces the prospect of spending many years in jail. He is expected to appeal.
"Ebbers Is Convicted In Massive Fraud:  WorldCom Jurors Say CEO Had to Have Known; Unconvinced by Sullivan," The Wall Street Journal, March 16, 2005; Page A1 ---,,SB111090709921580016,00.html?mod=home_whats_news_us

Justice Lite:  Scott Sullivan gets five years with the possibility of earlier parole
WorldCom Inc.'s former chief financial officer, Scott Sullivan, who engineered the $11 billion fraud at the onetime telecom titan, was sentenced to five years in prison -- a reduced term that sent a signal to white-collar criminals that it can pay to cooperate with the government. Mr. Sullivan's reduced sentence came after prosecutors credited his testimony as crucial to the conviction of his former boss and mentor, Bernard J. Ebbers, who founded the company, which is now known as MCI Inc. Last month, Mr. Ebbers was sentenced to 25 years in prison.
Shawn Youg, Dionne Searcey, and Nathan Kopp, "Cooperation Pays: Sullivan Gets Five Years," The Wall Street Journal, August 12, 2005, Page C1 ---,,SB112376796515410853,00.html?mod=todays_us_money_and_investing

A WSJ video is available at

Bob Jensen's threads on the Worldcom accounting scandal are at

Justice Lite:  Rite Aid Ex-CEO's Sentence Pared
A federal judge on Thursday trimmed a year from the eight-year sentence of former Rite Aid Corp. Chief Executive Martin L. Grass for conspiring to obstruct justice and to defraud the nation's third-largest drugstore chain and its shareholders. U.S. District Judge Sylvia H. Rambo said she acted to reduce a disparity between Mr. Grass and other defendants sentenced for similar crimes. Mr. Grass, 51 years old, smiled and blew a kiss to family members as federal marshals led him from the courtroom.
"Rite Aid Ex-CEO's Sentence Pared," The Wall Street Journal, August 12, 2005; Page C3 ---,,SB112379123643311147,00.html?mod=todays_us_money_and_investing

Bob Jensen's threads on white crime collar crime leniency (and why these crimes pay) are at

The Trial Lawyers' Enron
The Justice Department is finally starting to take a hard look at some dubious legal practices, and it isn't a pretty sight. If a recent federal indictment that refers to Milberg Weiss is anything to go by, the trial bar has its Enron. That indictment, delivered up in late June, charges two California attorneys with conspiracy, fraud, money laundering and obstruction of justice -- among other felonies. Class-action lawsuit giant Milberg Weiss isn't formally charged, though the firm has admitted it is the "New York Law Firm" cited in the indictment as having made numerous illegal payments to plaintiffs. Justice has also made clear that criminal charges against Milberg Weiss partners, or even the entire firm, are possible.
"The Trial Lawyers' Enron," The Wall Street Journal, July 7, 2005; Page A12 ---,,SB112069222061878965,00.html?mod=todays_us_opinion


This is somewhat contrary to the praises being sung by CEOs of auditing firms

From Jim Mahar's Blog on August 30, 2005 ---

Sarbanes-Oxley after Three Years by Larry Ribstein

SSRN-Sarbanes-Oxley after Three Years by Larry Ribstein:

I am sure many of you have been wondering whether Sarbanes-Oxley has been successful or not. I know that I have been! Unfortunately, it is a very difficult thing to test. While the costs are relatively easy to measure, the benefits are not. Moreover, even like any regulation, the passage is anticipated and thus normal event studies get muddied.

So with that in mind (and a good dictionary in hand) I present to you Larry Ribstein's look at the Sarbanes-Oxley Act after three years.

Ribstein presents a very interesting history (why and how it came about) and summary (what it contains) of SOX. He then reviews the literature on the Act. This literature review can be summarized with the following quote:

"The finance studies on the effect of SOX have been accompanied by data on the costs of SOX that have fueled mounting doubt about the Act's cost-effectiveness." Ribstein's conclusion stems from this literature review:

"In general, the costs have been significant and the benefits elusive." Overall the paper makes several good points, and concludes with his recommendations for future legislation, however, I was left wanting more empirical evidence but I guess that will have to wait.

However, it was a good read and the history/summary section would be great for class use!

Cite: Ribstein, Larry E., "Sarbanes-Oxley after Three Years" (June 20, 2005). U Illinois Law & Economics Research Paper No. LE05-016. 

BTW Jim's am not kidding about needing a good dictionary. ;)

From: Mike Kennelley []
Sent: Tuesday, March 01, 2005 8:24 AM
Subject: Sarbanes-Oxley Blues

If you haven't heard this one, turn on those speakers and enjoy . . .

J.P. Morgan to Settle Enron 'Megaclaims' Suit
Two banks agreed on Tuesday to pay at least $420 million to settle their parts of the ''Megaclaims'' lawsuit filed by Enron against 10 banks, alleging they ''aided and abetted fraud'' and could have prevented the energy trader's collapse. JPMorgan Chase & Co. agreed to pay $350 million in cash to Enron Corp. and Toronto Dominion Bank agreed to pay $70 million. The companies also will forgo certain claims in Enron's bankruptcy proceedings while agreeing to pay more money to Enron for the ability to pursue others. Enron, which filed for bankruptcy in 2001, is currently liquidating its remaining operations and restructuring its business units for distribution to its creditors. The money from Tuesday's settlements also will go to creditors.
"J.P. Morgan to Settle Enron 'Megaclaims' Suit," The New York Times, August 16, 2005 --- 

Two More Banks Settle Enron Claims
J.P. Morgan Chase & Co. and Toronto-Dominion Bank will pay Enron a total of $480 million to settle allegations that they helped the once-mighty energy giant hide debt and inflate earnings. The settlement stems from a lawsuit filed by Enron against 10 banks. The suit contends the banks could have prevented the company's 2001 collapse if they hadn't “aided and abetted fraud,” the Houston Chronicle reported.
"Two More Banks Settle Enron Claims," AccountingWeb, August 18, 2005 ---

Recommended Book on the Enron Scandal
Conspiracy of Fools by Kurt Eichenwald

Product Details:
ISBN: 0767911784
Format: Hardcover, 768pp
Pub. Date: March 2005
Publisher: Broadway Books

 Description ---

From an award-winning New York Times reporter comes the full, mind-boggling story of the lies, crimes, and ineptitude behind the spectacular scandal that imperiled a presidency, destroyed a marketplace, and changed Washington and Wall Street forever...

It was the corporate collapse that appeared to come out of nowhere. In late 2001, the Enron Corporation—a darling of the financial world, a company whose executives were friends of presidents and the powerful—imploded virtually overnight, leaving vast wreckage in its wake and sparking a criminal investigation that would last for years. But for all that has been written about the Enron debacle, no one has yet to re-create the full drama of what has already become a near-mythic American tale.

Until now. With Conspiracy of Fools, Kurt Eichenwald transforms the unbelievable story of the Enron scandal into a rip-roaring narrative of epic proportions, one that is sure to delight readers of thrillers and business books alike, achieving for this new decade what books like Barbarians at the Gate and A Civil Action accomplished in the 1990s.

Written in the roller-coaster style of a novel, the compelling narrative takes readers behind every closed door—from the Oval Office to the executive suites, from the highest reaches of the Justice Department to the homes and bedrooms of the top officers. It is a tale of global reach—from Houston to Washington, from Bombay to London, from Munich to São Paulo—laying out the unbelievable scenes that twisted together to create this shocking true story.

Eichenwald reveals never-disclosed details of a story that features a cast including George W. Bush, Dick Cheney, Paul O’Neill, Harvey Pitt, Colin Powell, Gray Davis, Arnold Schwarzenegger, Alan Greenspan, Ken Lay, Andy Fastow, Jeff Skilling, Bill Clinton, Rupert Murdoch, and Sumner Redstone. With its you-are-there glimpse into the secretive worlds of corporate power, Conspiracy of Fools is an all-true financial and political thriller of cinematic proportions

One of the interesting outcomes is why top executives Rebecca Mark (stock sales of $8 million) and Lou Pai (stock sales of $270 million) escaped with fortunes and no legal repercussions like other top executives.  You can read about what they hauled home at

I've commented about Rebecca Mark previously at

Lou Pai seems to be the biggest winner of all the "fools" in the Conspiracy of Fools.  Why he escaped is largely a matter of what seemed like bad luck that turned into good luck.  Although married, Lou became addicted to strip tease clubs.  He ultimately became involved and impregnated one of the young entertainers.  His messy divorce settlement called for him to sell his Enron stock holdings when the stock price was very high and appeared to have a great future.  That looked like his bad luck.  However, he actually cashed in at near the high point for reasons other than clairvoyance regarding the pending collapse of share prices.  In other words he cashed in at a high.  That was his good luck, because he cashed in early for reasons other than inside information.

Lou Pai became so wealthy at Enron that he managed to purchase a Colorado ranch larger than the State of Rhode Island.  The ranch even has a mountain which he named Pai Mountain that was actually a bit higher than his pile of cash from Enron stock sales and other compensation from Enron.  To make matters worse, the operation that he actually managed while at Enron was a big money loser for the company.  Who says sin doesn't pay?

Earlier books and key references ---
Especially note

KPMG was eventually fired, due to SEC pressure, from the enormous Fannie Mae audit. 

"New Fannie Mae Violations Surface:  Accounting Flaws Include Possible Overvalued Assets, Insurance to Hide Losses," by Dawn Kopecki, The Wall Street Journal, September 29, 2005; Page A3 ---,,SB112793973737254864,00.html?mod=todays_us_page_one

Investigators combing through Fannie Mae's finances have found new accounting violations, including evidence that the company may have overvalued assets, underreported credit losses and misused tax credits, according to people close to or previously involved in the inquiries.

Some people familiar with the examination said evidence also indicates the company may have bought so-called finite insurance policies to hide losses after they were incurred. Securities regulators, including New York state Attorney General Eliot Spitzer, are cracking down on corporations that they say bolstered earnings by using abusive financial reinsurance policies that are more akin to loans, where little or no risk is transferred to the insurer.

These people didn't provide details on the new violations, and it isn't clear how much new damage -- if any -- these problems will create for the company. But the people indicated that the alleged new accounting violations were designed to embellish the company's earnings and are in addition to the violations that the company and its regulator have already disclosed.

According to the people who have been involved with or are close to the investigations, for example, there are questions about how Fannie booked certain tax credits, including those used to lower its annual tab with the Internal Revenue Service. Fannie reduced its corporate-tax rate in 2003 from a statutory minimum of 35% to an effective rate of 26% by recording tax savings of $988 million in tax credits and an additional $479 million from its tax-exempt investments, according to its year-end earnings disclosure.

Earlier this year, Fannie Mae acknowledged that it violated accounting principles in recording its derivatives and other transactions, estimating a possible cumulative after-tax loss for the restatement period from 2001 through mid-2004 of as much as $10.8 billion, based on the company's finances as of Dec. 31, 2004. The company has said that its restatement process won't be completed until the second half of 2006.

In a statement released late yesterday, Fannie Mae noted that its regulator, the Office of Federal Housing Enterprise Oversight, has found that the company was "adequately capitalized" at the end of the second quarter. The company also said it believes it is "on track" to reach an Ofheo mandate that it build up its capital to 30% above the normal requirement by the end of this month. Regarding the various investigations, the company said: "We will continue to provide updates through our regulatory filings as issues are identified and resolved."

Ofheo said Fannie's projected surplus over minimum capital requirements "is sufficient to absorb uncertainties in the estimated impact to capital of the [company's] accounting errors, based on current information."

News that investigators may have found new accounting irregularities triggered a selloff in Fannie Mae stock, which dropped 11%, the largest percentage decline since the stock-market crash of 1987. The stock was off $4.99 to $41.71 in 4 p.m. composite trading on the New York Stock Exchange. That is the lowest closing price since July 1997.

The company's board initiated its own review of Fannie's finances after Ofheo accused executives of manipulating accounting rules in a scathing report delivered to the board 12 months ago. Fannie vehemently defended its accounting until the Securities and Exchange Commission sided with Ofheo last December and directed the company to correct errors in its application of two rules under generally accepted accounting principles, or GAAP. Fannie began its multiyear earnings restatement and ousted Chief Executive Franklin Raines and Chief Financial Officer Timothy Howard shortly thereafter.

Continued in article

You can read the following at

"The Potential Crisis at Fannie Mae," Comstock Funds, August 11, 2005 ---

We have no proprietary information about Fannie Mae, but what is publicly known is scary enough. As you may recall, last December the SEC required Fannie to restate prior financial statements while the Office of Federal Oversight (OFHEO) accused the company of widespread accounting regularities that resulted in false and misleading statements. Significantly, the questionable practices included the way Fannie accounted for their huge amount of derivatives. On Tuesday, a company press release gave some alarming hints on how extensive the problem may be.


The press release stated that in order to accomplish the restatements, “we have to obtain and validate market values for a large volume of transactions including all of our derivatives, commitments and securities at multiple points in time over the restatement period. To illustrate the breadth of this undertaking, we estimate we will need to record over one million lines of journal entries, determine hundreds of thousands of commitment prices and securities values, and verify some 20,000 derivative prices…”


“…This year we expect that over 30 percent of our employees will spend over half their time on it, and many more are involved. In addition we are bringing some 1,500 consultants on board by year’s end to help with the restatement…Altogether, we project devoting six to eight million labor hours to the restatement. We are also investing over $100 million in technology projects to enhance or create new systems related to accounting and reporting…we do not believe the restatement will be completed until sometime during the second half of 2006…”

Continued in article

Bob Jensen's threads about Fannie's FAS 133 violations at Fannie Mae at

KPMG was eventually fired, due to SEC pressure, from the enormous Fannie Mae audit.  You can read more about KPMG's woes at

Department of Justice is Attempting to Keep KPMG Alive
"Cases Referred in KPMG Case," AccountingWeb, August 5, 2005 ---

The investigation and possible prosecution of KPMG has been the focus of a larger investigation by the Department of Justice (DOJ) into abusive tax shelters sold to corporate taxpayers and wealthy individuals by accounting firms, banks, and law firms. There are now signs that DOJ is working toward a decision. DOJ found that KPMG sold four types of overly aggressive tax shelters to over 350 people between 1997 and 2001 that brought in $214 million in fees according to the Senate Subcommittee on Investigations. These shelters cost the Government around $1.4 billion in unpaid taxes.

The firm has been cooperating with the government and issued a statement in June implicating their “wrongful conduct” and “full responsibility” by their former partners. They also pledged further cooperation in the case. They have initiated corporate reforms to ensure this situation will not occur again.

The Washington Post has reported that up to 20 ex-KPMG partners may be facing prosecution for their roles in selling the shelters. Other firms implicated in government documents include a law firm now called Sidley Austin Brown & Wood and Deutsche Bank according to the New York Times.

DOJ officials have authorized David Kelley, the U.S. attorney for the Southern District of New York, to negotiate a deal with KPMG that will not drive the firm out of business. The DOJ does not want to repeat the collapse of Arthur Anderson that destablized the industry in 2002. Arthur Anderson employed some 85,000 people worldwide.

If the firm were to negotiate a settlement instead of receiving an indictment to resolve the case as well as prosecution of the ex-KPMG executives, concerns over their clients abandoning the firm might be avoided. Significant legal exposure from civil suits by investors and shareholders might also be avoided.

“The Justice Department’s issue is do we really want to take this down to the Big Three or is there some way short of destroying this company that we can get some comfort that this going to be recurring in the future?” said David Gourevitch, a former prosecutor and now in private practice in New York.

The outcome of this case may come down to a large fine, changes in their corporate culture, and oversight. The firm continues to negotiate with the Government to resolve this case. If these negotiations fail, the Government may go for an corporate indictment. The prosecution of this case is still out except for the referral of potential cases against several former KPMG partners and other individuals to the DOJ. No indictments have been passed down.

Bob Jensen's threads on KPMG's troubles are at

"First WorldCom Accountants Sentenced," AccountingWeb, August 8, 2005 ---

Two of the lowest ranking officials participating in the conspiracy responsible for the $11 billion fraud that brought down WorldCom were sentenced on Friday, August 5. Three more former WorldCom executives, accounting director Buford Yates, controller David Myers and chief financial officer Scott Sullivan, will be sentenced this week. Betty Vinson, a former mid-level accounting manager at WorldCom, was sentenced to five months in prison to be followed by five months of house arrest. Vinson testified for the government in the trial of Bernard Ebbers, WorldCom’s former Chief Executive Officer (CEO).

“Had Ms. Vinson refused to do what she was asked, it’s possible this conspiracy might have been nipped in the bud,” U.S. District Judge Barbara Jones said in handing down the sentence, the Associated Press reports.

Judge Jones ordered Vinson to begin serving her sentence on November 7, according to Reuters. Although federal probation officials will make the final determination regarding where Vinson will serve her time, Reuters reports her lawyer requested she be sent to a prison near Jackson, Mississippi so she could be close to family and friends.

In a separate proceeding in Judge Jones court, Troy Normand, another former WorldCom accounting official, was sentenced to three years probation. Prosecutor David Anders asked for leniency, telling the court that Normand’s role was simply to see that WorldCom’s books had been changed and required no independent thought, according to the Associated Press. Normand also testified against Ebbers. The Associated Press reports Normand apologized to the thousands of WorldCom employees who lost jobs and investors who lost money in the collapse before he was sentenced.

From The Wall Street Journal Accounting Weekly Review on July 22, 2005

TITLE: Ebbers Is Sentenced to 25 Years for $11 Billion WorldCom Fraud
REPORTERS: Dionne Searcey, Shawn Young, and Kara Scannell
DATE: Jul 14, 2005
TOPICS: Accounting Fraud, Capital Spending, Accounting, Financial Accounting

SUMMARY: "Bernard J. Ebbers...was sentenced to 25 years in prison for orchestrating the biggest corporate accounting fraud in U.S. history."

QUESTIONS: 1.) What is the one accounting practice cited in the article as the basis for committing fraud at WorldCom? In your answer, differentiate between accounting for capital investments and operating expenditures.

2.) The article describes defense attorneys' and other lawyers' surprise at the severity of Ebbers's sentence, comparing it to the length of sentence for criminals who have taken another's life. Who was harmed by this fraud and how devastating could the harm have been to those victims?

3.) Why is a chief executive officer held responsible for financial reporting of the entity under his or her command? Why did jurors believe that Ebbers could not have unaware of the fraud at WorldCom?

Reviewed By: Judy Beckman, University of Rhode Island

Bob Jensen's threads on the Worldcom scandal are at

"SEC Settles With College Savings Plan," AccountingWeb, August 9, 2005 ---

The Securities and Exchange Commission (SEC) has settled a cease-and-desist lawsuit against the Utah Educational Savings Plan Trust (UESP). The UESP administers Utah’s educational savings plan. The settlement resolves the first ever charges against a Section 529 savings plan.

The charges stem from an investigation of the plan’s former director, Dale C. Hatch. Flaws were found in the savings plan’s operations and internal accounting controls. Investigators found that the savings plan failed to fully allocate investor gains and losses to investor accounts. In a 2004 press release, the UESP misrepresented the misappropriated funds as “administrative” and made false claims that investors had not been harmed. The savings plan also failed to provide adequate disclosure concerning its operations and flaws in accounting practice.

“The UESP discovered its system for recording and accounting for investor transactions was flawed, but failed to disclose some of those defects and the risks posed to investors,” said Kenneth D. Israel, Jr., the SEC Administrator for the Salt Lake District. “The Commission’s action ensures the return of investor funds, that UESP will fix its system, and that material fact related to investor transactions and earnings will be disclosed.”

Continued in article


Other Links
Main Document on the accounting, finance, and business scandals --- 

Bob Jensen's Enron Quiz ---

Bob Jensen's threads on professionalism and independence are at  file:///C:/Documents%20and%20Settings/dbowling/Local%20Settings/Temporary%20Internet%20Files/OLK36/FraudUpdates.htm#Professionalism 

Bob Jensen's threads on pro forma frauds are at 

Bob Jensen's threads on ethics and accounting education are at

The Saga of Auditor Professionalism and Independence ---

Incompetent and Corrupt Audits are Routine ---

Bob Jensen's threads on accounting theory are at 

Future of Auditing --- 




The Consumer Fraud Portion of this Document Was Moved to 


Bob Jensen's home page is at