What Price Waterhouse?
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The poop on Pricewaterhouse’s Coop
Sightings from The Catbird Seat
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PricewaterhouseCoopers (or PwC) is the world's largest professional services firm. It was formed in 1998 from a merger between Price Waterhouse and Coopers & Lybrand. PwC is the largest of the Big Four auditors, whose other member firms include Deloitte Touche Tohmatsu, Ernst & Young and KPMG.
PricewaterhouseCoopers earned aggregated worldwide revenues of $20.3 billion for fiscal 2005, and employed over 130,000 people in 148 countries.
In the United States, where it is the fourth largest privately owned organization, it operates as PricewaterhouseCoopers LLP.
http://en.wikipedia.org/wiki/PricewaterhouseCoopers
May 19, 2009
AIG investors to get
$843 million: SEC
WASHINGTON (Reuters) - A federal court has approved the distribution of more than $843 million to harmed investors at insurer American International Group, the U.S. Securities and Exchange Commission said on Tuesday.
The court estimates that checks will soon be mailed to more than 257,000 AIG investors that were affected by an alleged accounting fraud at the company, the SEC said.
AIG, which has been propped up by billions of dollars in taxpayer funds, was charged with accounting fraud in 2006. The SEC alleged that the insurer falsified its financial statements from at least 2000 until 2005 and reported misleading information about its financial condition.
The company, which did not admit or deny the allegations, had repaid its ill-gotten gains, as well as penalties to the government. In 2007, a federal court authorized the SEC to establish a 'fair fund' to distribute the money to harmed AIG investors.
"The commission continues to utilize the tools that Congress provided to ensure that funds are returned to harmed investors to the greatest extent possible," said Dick D'Anna, director of the SEC's office of collections and distributions, in an agency statement.
For more, GO TO > > > AIG: The American Idol of Greed; The Buzzards In Charge of the AIG Bailout; Googling for AIG + PWC; RICO in Paradise; Googling for Fraud + PricewaterhouseCoopers; Googling for PricewaterhouseCoopers + Tyco+Fraud; Googling for PricewaterhouseCoopers+Catbird+Seat +fraud; SELLOUT!
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From...
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April 23, 2009
David Kellermann, Freddie Mac CFO, Said To Have Committed Suicide
AP | ALAN ZIBEL and MATTHEW BARAKAT
UPDATE: 11:55 PM: The Washington Post reports more new information about Kellerman's apparent suicide, including the heartbreaking detail that his wife discovered him hanging from a piece of exercise equipment in the basement.
In addition, he was not immune to some of the recent controversies at Freddie Mac:
He and a group of company attorneys tussled with its regulator in early March as the firm prepared to file its quarterly earnings report with the Securities and Exchange Commission. The group insisted that Freddie Mac inform shareholders of the cost to the company of helping carry out the Obama administration's housing recovery plan.
The regulator urged the company not to do so, according to several sources familiar with the matter. An FHFA official contested that account, saying the regulator did not oppose disclosure but how the information was portrayed in the filing.
UPDATE 11:30 PM: More details have emerged about the last few months of David Kellerman's life. According to the New York Times, he was alarmed by the public outcry over bonuses, he arranged security guards to watch his home.
Then early this month, Mr. Kellermann and other executives at Freddie Mac and Fannie Mae became the focus of intense scrutiny when lawmakers learned they would receive bonuses totaling $210 million. Mr. Kellermann was set to receive $850,000 over 16 months. Reporters and camera crews showed up at his home in Vienna, an affluent Virginia suburb of Washington. Fearing that someone might attack his house, his wife or their 5-year-old daughter, he asked the company for a security detail.
According to colleagues, the usually jovial Kellerman had appeared "stressed and overwhelmed by the job." The Wall Street Journal reports:
"He worked himself into a frazzle," a former co-worker said. Colleagues said Mr. Kellermann was involved in dealing with investigations into Freddie's accounting by the Justice Department and the Securities and Exchange Commission, but that there was no indication he was a target or that the inquiries were causing him anguish.
UPDATE 12:35: SEC, Justice Department investigating accounting practices at the agency:
The Wall Street Journal is reporting that the SEC and the Justice Department have been questioning Freddie Mac "officials" on possible accounting violations. The company made the disclosure in an SEC filing in March:
Freddie disclosed in the recent SEC filing that in September it received a federal grand jury subpoena from the U.S. Attorney's Office for the Southern District of New York seeking documents related to accounting, disclosure and corporate-governance matters. That subpoena was later withdrawn, Freddie has disclosed, and the investigation was taken over by the U.S. Attorney's Office for the Eastern District of Virginia.
"We know of no connection between this terrible personal tragedy and the ongoing regulatory inquiries discussed in our recent SEC filing," said David Palombi, Freddie's chief spokesman.
UPDATE 11:30 AM EST: Treasury Secretary Timothy Geithner issued a statement on acting Freddie Mac CFO David David Kellermann's death:
"On behalf of the Treasury we are deeply saddened by the news this morning of David Kellermann's death. Our deepest sympathies are with his family and his colleagues at Freddie Mac during this difficult time."...
Continued at...
http://www.huffingtonpost.com/2009/04/22/freddie-mac-suicide-offic_n_189911.html
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Related information:
* http://www.freddiemac.com/investors/faq.html :
11) Who is Freddie Mac's auditor?
PricewaterhouseCoopers LLP (PwC) has been our auditor since March 6, 2002.
February 6, 2009
PwC dragged into Satyam class action suits
In a new class action lawsuit over the Satyam scandal, global audit major PwC, along with its Indian and international units, has been charged with having 'recklessly disregarded' a multi-year massive fraud by the former management of Satyam, which is already facing many such cases in the US courts.
The lawsuit has been filed in the US District Court, Southern District of New York, by Pomerantz Haudek Block Grossman & Gross LLP law firm against Indian IT firm Satyam, its former chairman B Ramalinga Raju, his brother B Rama Raju and Satyam's outside auditors PricewaterhouseCoopers Pvt Ltd, Price Waterhouse and Pricewaterhouse Coopers International Ltd.
The suit was filed on behalf of purchasers of Satyam's American Depository Receipts between January 6, 2004 through January 6, 2009.
'In addition to allegations of fraud against Satyam and the officer defendants, the complaint alleges that PwC was aware of, or recklessly disregarded, a multi-year massive fraud by Satyam management to overstate the company's earnings and concocting $ 1 billion of cash that didn't exist,' the law firm said in a statement.
'The case further alleges that PwC ignored red flags that should have alerted it to the fraud, and moreover, failed to perform its audits in accordance with the requisite accounting principles,' it added.
Price Waterhouse, the Indian unit of the global audit major, has been maintaining that it followed all the standard accounting principles while auditing the books of Satyam Computers. However, it also said that its auditing on Satyam could be construed invalid if the statements made by Raju in his admission letter on January 7 about the fraud were correct.
Raju had said that the financials of the company were incorrect for past several years, thus inflating the profit and cash position and under-stating the liabilities.
Two partners of PwC have been arrested in India in connection with their audits of Satyam.
Disclosure of the stunning fraud at Satyam materially impacted the price of the company's ADRs. Trading in the company's ADRs was briefly halted after the fraud was revealed, and the ADRs are now currently trading just below two dollars, a precipitous drop from the company's 52-week high of 29.84 dollar, the law firm said.
http://www.rediff.com///money/2009/feb/06satyam-pwc-dragged-into-satyam-class-action-suits.htm
January 23, 2009
Will Satyam sink PriceWaterhouseCoopers?
by Peter Cohan
After Enron, Arthur Andersen collapsed. With a new bombshell allegation about Satyam Computer Services (NYSE: SAY), will its former auditor PriceWaterhouseCoopers (PWC) be next? To be fair, I have not seen any evidence implicating PWC in the Satyam scam. But surely PWC can't have been so incompetent that it did not know what its client was doing.
Satyam's CEO, B. Ramalinga Raju, initially claimed that there was a $1.1 billion shortfall between its reported and actual cash. Now an Indian prosecutor alleges that Raju made up 10,000 employees and then used the money those fake employees would have received (net of taxes and insurance) to buy land through almost 400 companies with fake names -- including that of his elderly mother. The prosecutor also alleges that Raju forged documents related to bank deposits.
You can't make this stuff up! And if these allegations are true, it does make me wonder what PWC was doing to earn its fee. There are some basic things that auditors are supposed to do -- like checking a company's bank deposits and comparing those to what management reports or verifying that the employees who are getting paid actually exist. If PWC couldn't pull off these basics, then it was either incredibly incompetent or in with management on the scam.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
Tags: accounting, B. Ramalinga Raju, B.RamalingaRaju, India, inthenews, pricewaterhousecoopers, satyam
http://bstocksdev.weblogsinc.com/2009/01/23/will-satyam-sink-pricewaterhousecoopers/
December 16, 2008
THE FINTAG NEWSLETTER
Madoff part 2.
Last Thursday the news broke and it hardly registered a blip on the news radar. Today we face financial meltdown of the hedge fund industry and the loss of tens of billions of dollars and the destruction of livelihoods.
Yesterday I looked critically at the investors who had not read the prospectuses or carried proper due diligence. The problem with Madman Madoff's funds is you could only touch them by investing through feeder funds. These feeder funds were promoted by interested parties who put layers of fees on top and sold them as proper fund of funds.
Take the Fairfield Sentry fund. It has a proper Auditor - PWC, an administrator and a custodian - Citco. It is a BVI fund and is managed by a well known Investment Manager. So far, so good. Ok, the custodian only looks after 5% of the assets (the other 95% are looked after by Madoff) but unless you like reading small print it looks like fine.
The biographies of the managers are respectable, including Jeffrey Tucker who used to work as a lawyer for the SEC. The fund has a board including 2 directors located in risk adverse Switzerland. One of the directors is not paid which is strange but I guess he must be paid elsewhere. Thankfully, Goldman Sachs is a sub custodian although I think Refco must have been a misprint.
The Investment objective is "The Fund seeks to obtain capital appreciation of its assets principally through the utilization of a nontraditional options trading strategy described as "split strike conversion", to which the Fund allocates the predominant portion of its assets. This strategy has defined risk and profit parameters, which may be ascertained when a particular position is established ..." and sounds quite convincing.
I am not so sure about the Investment Restrictions including "e) no more than 10 percent of the Net Asset Value of the Fund may be invested in securities of countries where immediate repatriation rights are not available;" but I like the fact US citizens are excluded - "The Fund will require as a condition to the acceptance of a subscription that the subscriber represent and warrant that he has a net worth in excess of U.S. $1,000,000 and is not a U.S. person".
The 13 year track record averages in excess of 10% a year and its volatility is very low indeed. The fund has grown and subscriptions exceed redemptions so it must be a popular.
Excellent. So where did it go wrong? Well PWC have some explaining to do. It looks like they never validated the underlying investments. Madoff obviously just gave them the NAVs and they took them as red. Citco's care of duty is to look after the assets and it has done so. Shame it only looked after 5% but that is better than nothing. The manager should perhaps have carried out some proper due diligence on the underlying but then it made so much in fees it got a bit punch drunk.
So there you go. A sound investment run by people who didn't quite do their jobs. I take back all my negative posturing and instead tell you how I see it through a slew of crap cartoons and virals....
October 6, 2008
PwC Zapped in $97.5-million Settlement
The auditor, accused by Ohio of violating securities laws in its work with AIG, will pay one of the highest amounts ever for an accounting firm in a class action.
Alan Rappeport, CFO.com
PricewaterhouseCoopers agreed to pay $97.5 million to the state of Ohio to settle a class-action lawsuit on behalf of investors in troubled insurer American International Group, which uses PwC as its independent auditor.
The "partial" settlement, on Friday, came after the Ohio Public Employees Retirement System, the State Teachers Retirement System, and the Ohio Police and Pension Fund filed a lawsuit seeking damages for investors who bought AIG securities from 1999 to 2005. In the complaint, PwC was accused of violating securities laws relating to a market division scheme allegedly involving AIG that was disclosed in 2004 and improper accounting for reinsurance and other transactions.
In May 2005, AIG's accounting problems led to a $3.9-billion restatement, and removal of former CEO Maurice Greenberg.
The settlement is among the 10 highest to be paid by an accounting firm to settle a securities fraud class action lawsuit, according to Nancy Rogers, Ohio's attorney general. The arrangement, however, still needs to be approved by the U.S. District Court for the Southern District of New York in Manhattan.
"This important settlement represents a tremendous result for investors," said Chris Geidner, principal assistant attorney general. "We are pleased with this milestone and will continue to vigorously pursue investors' claims against the remaining defendants in the case."
"We have decided to settle the case at this stage to avoid the enormous litigation costs that would be incurred if the case continued against the firm, while at the same time eliminating any potential exposure," said Steve Silber, a PwC spokesman told The Columbus Dispatch. "The settlement does not contain an admission of wrongdoing by the firm, and we continue to believe that our work was in accordance with professional standards."
AIG currently is facing another lawsuit filed in May by the Jacksonville Police and Fire Pension Fund. The Florida fund accused the insurer of manipulating the market by making false statements about its financial health before disclosing a first quarter loss of $7.8 billion. PwC is not implicated in that lawsuit and in February it gave a warning sign of AIG's problems when it found that there was a "material weakness in its internal control" relating to the accounting of its credit default swaps portfolio.
Last month the U.S. government agreed to an $85 billion bail out of AIG in exchange for warrants to purchase 80 percent of the company, which is selling off several units of its business to repay the loan.
http://www.cfo.com/article.cfm/12371528?f=alerts
See also: RICO in Paradise
June 6, 2008
Prosecutors said
seeking AIG data
Associated Press
WASHINGTON - Federal prosecutors have asked the Securities and Exchange Commission for material from its probe of whether American International Group Inc. overstated the value of mortgage-linked contracts, according to a newspaper report Friday.
The request to the SEC from prosecutors in the Justice Department and the U.S. Attorney's office in Brooklyn, N.Y., could lead to a criminal investigation of the matter, in addition to the SEC's civil inquiry into AIG. The development was reported in Friday's editions of The Wall Street Journal, which cited unnamed people familiar with the matter.
New York-based AIG, one of the world's largest insurance companies, paid a then-record $1.64 billion in February 2006 in a settlement with federal and New York state authorities over alleged deceptive accounting practices.
The current SEC investigation focuses on AIG's valuation of credit default swaps, which function as insurance policies against defaults, including those backed by subprime mortgages, The Journal reported.
The company in February told the SEC that its outside auditors had found significant weakness in how it reports the value of certain credit default swaps. AIG also said the auditors had concluded that the company "had a material weakness in its internal control over financial reporting and oversight" related to how it determines default probabilities and expected losses on the underlying securities.
Due largely to writedowns related to credit default swaps of more than $20 billion through March, the company posted the two biggest quarterly losses in its history: a $7.8 billion loss for the first quarter, following a loss of nearly $5.3 billion in the fourth quarter.
SEC spokesman John Nester in Washington and Bob Nardoza, spokesman for the U.S. Attorney's office in Brooklyn, on Friday both declined to confirm or deny investigations by the agencies.
AIG spokesman Chris Winans also would not confirm a federal probe. He said AIG has always cooperated with regulators and has "consistently and promptly" provided best estimates of its portfolio valuations and potential exposures of its financial products amid the recent uncertainty in the credit markets.
The finding of material weakness doesn't mean that the company has reported inaccurate financial results, Winans said. "We have clean audited financial statements with no qualifications from our auditors," he said.
< < < FLASHBACK < < <
October 24, 2007
Arthur Levitt and AIG -
Gone Over To The Dark Side, Artie?
I waited to post this story about AIG's reappointment of PricewaterhouseCoopers as their external auditor. I am incredulous. I was slightly apoplectic too, but then I calmed down.
After all, greater minds than mine, like the famous Arthur Levitt, have made sure that, "AIG's selection process was designed and executed with integrity, and the Audit Committee's evaluation of the proposals was both fair and impartial. AIG did an exceptional job."
It seems Levitt was hired by AIG in 2005 to spruce up their image in the wake of Elliot Spitzer's investigation of AIG. Mr. Levitt's tenure at that time was expected to be less than a year as a special consultant to the Board, but it has obviously taken longer than that to address AIG's governance problems and will continue to take longer to fix them completely, if that's possible. Mr. Spitzer was the former Attorney General for the State of New York and is now their Governor.
The audit committee of AIG's board of directors spent 12 months on the RFP process, which is part of the company's 2006 settlement with the New York Attorney General's Office, said AIG spokesman Chris Winans.
The agreement, Winans said, required AIG to take actions above and beyond the normal annual review of its relationship with the company's independent auditor. This RFP is something we did as part of the settlement agreement, he said. It requires us to do the RFP process for the 2008 fiscal year.
In 2006, AIG agreed to pay a total of $1.64 billion to settle litigation stemming from New York state and federal investigations of its accounting, financial reporting and insurance brokerage practices, and claims related to workers' compensation premium taxes.
Mr. Levitt, therefore, is not a court appointed monitor based on a settlement with the SEC, a la Mr. Breeden and KPMG, but a shill for AIG.
Interestingly enough Mr. Levitt has a long and contentious history with PwC. It all goes back to reforms he wanted to make to how the audit firms did and didn't do business and how PwC was the big stubborn holdout. This was in spite of the fact that they had been nabbed big time with serious independence violations and the SEC could have disqualified the audited financial statements of all of their clients (and caused them to have to resign from those clients) if they had not cooperated with the regulators at the time. For a history of this sword fight, go here.
So it's all the more surprising that Arthur Levitt was willing to stand by and put his imprimatur on the charade which is the reappointment of PwC at AIG. After all, AIG's shareholders are suing PwC. And PwC has been AIG's auditor for as long as they have been in trouble.
I have seen some Google searches regarding this "RFP" process wherein other firms, in particular Deloitte, are searching for more details about why they weren't chosen. Let me give them all a clue... The fix was in.
I have requested via the Freedom of Information Act provisions for the State of New York Attorney Generals office, a copy of the RFP, the responses, the evaluation process and the grading of all proposal submissions. I have heard no response from them. Given that this was a public agency mandated process, I would assume that public disclosure would be mandated. Will make for interesting reading, if so. How can anyone for the Attorney General's Office be sure that it was a fair and competitive process if they also do not see and approve the process that AIG conducted?
As for Mr. Levitt, I am disappointed. I guess everyone has to make a buck. But I had hoped he would do it by being on the side of the investor and the other stakeholders of AIG, and not on the side of perpetuating the myth of a job well done by PwC as AIG's auditor.
Update: One of my favorite writers on these subjects reminded me:
"If you really want to have some fun with this, remember also that Levitt can't let go of
his affiliations inside the Beltway -- now acting as co-chair of the so-called Paulson
committee, along with Don Nicholaisen. Looking at the list of members, it's almost
sure to be MOTS..."
DOW CORNING CORPORATION
SILICONE BREAST IMPLANT PRODUCT LIABILITY
American Institute of Certified Public Accountants
Kathryn J. Wilkiki, Assistant Professor of Accountancy
Providence College, Providence, Rhode Island
Maureen L. Craig, Corporate Area Controller
Dow Corning Corporation, Midland, Michigan
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Spencer Tillinghast hung up the phone and sighed. Christmas was only a few weeks away and the winter of 1991 had, so far, been mild. However, his employer, Dow Corning Corporation (DCC), was faced with another disappointment with respect to the silicone breast implant product. The legal department had just informed him that a judge awarded a sizable amount to another woman who had sued for leakage of silicone breast implants. This time, the award was $7.3 million!
Spencer had been a controller at Dow Corning in Midland, Michigan for the past ten years, starting at the company in 1981. As the controller, he had the responsibility to make final decisions about several financial reporting issues to prepare the annual report to the company’s bondholders. In addition, it was his responsibility to work with the external auditors at Price Waterhouse.
Since this last lawsuit had resulted in a adverse verdict against DCC, he anticipated recording a liability and writing a footnote to the financial statements to explain the outcome of the litigation. His more immediate problem was how to report other claims that were already pending, and other unasserted claims that he anticipated might materialize when news of the judgment broke. At this point, the lawyers would be involved with filing appeals. He was not sure whether they would be able to assess possible losses under future claims....
For more, GO TO > > > The Downfall of Dow-Corning
From: Trini whistleblower <whistleblowertt@gmail.com>
Date: Mar 19, 2006 8:29 PM
Subject: CLICO Fraudulent Transactions Covered up by PWC
To: tips@pcaobus.org
PriceWaterhouseCoopers are at it again. First it was with AIG and now it is with the Colonial Life Insurance Company (CLICO) in Trinidad and Tobago.
The following are the brief details :
1) There is impropriety in the accounting treatment of expenses and guarantees in the CSI CLICO mutual fund.
2) There is collusion by PwC to knowingly allow materially incorrect presentation of those transactions.
3) CLICO is transferring assets to / from the mutual fund in breach of the law.
4) The CSI Mutual fund has a $800 Million deficit
5) Funds are being withdrawn by the Chairman in breach of the law and sent to Miami.
The Central Bank is incapable of doing a proper investigation since their staff are not adequately trained or qualified to do a proper life insurance audit . The SEC in Trinidad on the other hand have no investigative ability and are a ' non entity'.
We need to protect the Policyholders!!!!!!!
Trini Whistleblower
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Date: Wed, 15 Nov 2006 16:44:53 -0400
From: " Trini whistleblower" <whistleblowertt@gmail.com>
To: "Balynsky, Paul" <BalynskyP@pcaobus.org>, ewilliams@central-bank.org.tt, info@central-bank.org.tt, keith.daniel@tt.pwc.com, letters@ttol.co.tt, "Malabanan, Gloria" <MalabananG@pcaobus.org>, guardianlife@ghl.co.tt, express@trinidadexpress.com, chiefstate@ag.gov.tt, permsec@ag.gov.tt, william.lucie-smith@tt.pwc.com, thecatbird@the-catbird-seat.net, snicholls@central-bank.org.tt
Subject: CLICO ACCOUNTING FRAUD
It is now confirmed that Clico submitted fraudulent financial statements that was audited by PriceWaterhouseCoopers. The SEC and Central bank are doing nothing because both parties have been compromised. Icatt is not investigating because some of the executives are from Pwc.
Clico has not produced any Mutual Fund Accounts to this date and has dropped the rate to 5% to close down the fund before anyone investigates. They have used the mutual fund (much like how Enron used dummy companies) to inflate earnings and hide liabilities. PWC was an accomplice to this by signing the audit reports. They are not releasing the mutual fund reports because it would reveal the accounting fraud.
This is the first of hundreds of bulletins that will be sent to people across the world.
Trini whistleblower.
March 29, 2006
PwC settles dotcom fraud case
By John Oates, The Register
PricewaterhouseCoopers (PwC) has made an out-of-court settlement with shareholders of e-district who alleged the accountancy giant had failed to discharge its legal responsibilities.
The case had been due in court in June, and all details of the settlement are remaining secret.
E-district was the last bubble on board the dotcom bandwagon. It claimed one million users and raised almost £30m selling shares to institutions before it floated on AIM. PwC was the firm's accountant.
But it all came falling down in 2001 when the CEO was suspended over gaps between real and claimed revenues, page impressions and number of users. At the end of 2000 it claimed 2.6m active users but an investigation in early 2001 found just over 50,000 registered users.
The company blamed the ex-CEO Steven Laitman. He was accused of bringing money into the company and falsely labelling it as revenue from sales agencies.
PwC was being sued by 110 shareholders because it was the company accountant and auditor.
A statement for the accountants said the firm was happy to draw a line under the matter. More from the Independent here. ®
www.theregister.co.uk/2006/03/29/pwc_settles_out_court/
April 11, 2005
Tough Questions For AIG’s Auditors
Regulators are probing if PwC let the
financial shenanigans slip through
By Joseph Weber, Mike McNamee, Marcia Vickers & Diane Brady
Business Week
Where were the auditors? Now that American International Group Inc. has admitted to a clutch of accounting improprieties and is mulling whether to restate its past results, an all-too-familiar question is emerging: Why didn’t the auditor catch what was going on?
Were misdoings hidden from AIG’s longtime auditing firm PricewaterhouseCoopers, or did the firm turn a blind eye to problems it should have seen? Indeed, some of the searing heat that has so far felled AIG Chief Executive Maurice R. “Hank” Greenberg and several other execs could soon scorch the $17.5 billion accounting giant....
Because of its role as a dominant force in auditing and accounting for insurance companies, PricewaterhouseCoopers’ outfit is bound to get an especially close going over from regulators and shareholders alike. Certainly. the outfits were close. PwC or its predecessor companies, such as Coopers & Lybrand, had done work for AIG going back more than 20 years.
How deep were the ties? Recently ousted Chief Financial Officer Howard I. Smith, whom AIG fired for refusing to cooperate with investigators in the latest probes, had worked at Coopers & Lybrand for 19 years and was the head partner in its New York insurance practice before joining AIG in 1984...
More important, PwC was AIG’s auditor through its long years of questionable dealings. AIG on Mar. 30 said that deals with a Barbados-based insurance company, for instance, may have been incorrectly accounted for over the past 14 years, because an AIG-affiliated company may have been secretly covering that insurer’s losses. If AIG has to unwind its dealings with the Barbados company, it may be forced to take a big earnings hit.
More recently, PwC appears to have dropped the ball on the now-notorious reinsurance deals between AIG and Berkshire Hathaway Inc.’s General Re Corp.
In those deals, General Re transferred $500 million in anticipated claims and premiums to AIG. At issue for PwC: Did the auditor do its job by verifying that AIG was assuming risk on claims beyond the $500 million, thus allowing AIG to account for the deal as insurance. That’s Accounting 101 in any reinsurance transaction. But the company itself now admits the business should have been accounted for as a deposit rather than as insurance.
“The auditor obviously should really stop and think about this because the transaction really doesn’t pass the smell test,” say Penn State’s [Edward] Ketz.
In its statement, AIG has admitted that some of the paperwork associated with the deals were improper – but it’s not clear whether the deals were illegal or how much PwC was told about them. ...
“These seem like things you’d expect an auditor to look at,” says New York attorney Gerald H. Silk, a plaintiff’s lawyer whose firm has brought cases against Arthur Andersen and other big auditing firms. “There are sufficient red flags.”...
How vulnerable could PwC be? Already, institutional shareholders, who sued AIG last fall when its stock began a 21% plunge amid the investigations, are considering roping the auditing firm into a class action.
“As the case develops we’ll be bringing in other responsible parties,” says Thomas A. Dubbs, a New York lawyer for three big Ohio pension funds that have lost tens of millions of dollars on their AIG holdings. Dobbs, working on behalf of the Ohio Attorney General in the class action, adds that PwC may be among the shareholder targets. And regulators say PwC could also face regulatory action.
PwC’s level of culpability could take years to sort out. ... Already, though, it is looking at a hefty blemish on its role as a leader in insurance accounting.
The growing tumult born of AIG’s questionable accounting is just beginning.
For more, GO TO > > > Claims By Harmon; More Claims: PricewaterhouseCoopers; Dirty Gold in Goldman Sachs; Dirty Money, Dirty Politics & Bishop Estate; The Un-American Insurance Group; The Great Nest Egg Robberies; The Strange Saga of BCCI
January 12, 2005
PricewaterhouseCoopers face HUGE fine,
claimed trade secrets revealed
The Cleveland Plain Dealer reports that PricewaterhouseCoopers LLP could be fined $345 Million because it stalled and mishandled the production of documents in two lawsuits.
The cases [Hayman, et al v. PricewaterhouseCoopers, Case No. 1:01-CV-1078 (N.D. Ohio)] in U.S. District Court in Cleveland stem from Pricewaterhouse’s relationship with Telxon Corp., a troubled maker of hand-held computers and bar-code scanners.
While the fine is newsworthy by itself, it looks like the court is releasing information that PWC claims to be their trade secret.
Magistrate Patricia Hemann’s recommendation isn’t new. She issued her report in July, but Pricewaterhouse persuaded the court to keep it under seal, arguing it revealed trade secrets about the firm.
Judge Kathleen O’Malley, who will make the final ruling in the cases, disagreed with Pricewaterhouse and put Hemann’s report back on the public docket on Tuesday. O’Malley can adopt the recommendations in whole or in part or can come to her own conclusions.
At one point, Pricewaterhouse said it had produced more than 55,000 documents, along with indexes, to comply with Telxon’s requests. The firm initially balked at handing over its electronic databases because it said they contained trade secrets.
You would think that PWC’s competitors are scurrying over to Pacer to download the report. It’s document No. 204 from the docket sheet.
May 11, 2004
Warnaco Settles Fraud Case With SEC
PricewaterhouseCoopers, former auditor for
apparel maker, to pay $2.4 million to settle charges.
NEW YORK - Warnaco Group Inc., its former auditor PricewaterhouseCoopers LLP, ex-CEO Linda Wachner and others have agreed to pay $4 million to settle charges related to the company’s financial disclosures, federal regulators said Tuesday.
Under the terms of the agreement, PwC will pay a $2.4 million penalty, the Securities and Exchange Commission said. Wachner will give back $1.33 million, the amount of her 1998 bonus plus prejudgment interest.
Former general counsel Stanley Silverstein will return $165,772, reflecting the value of his 1998 bonus plus interest.
Former chief financial officer William Finkelstein agreed both to pay a $75,000 civil penalty and to disgorge his 1998 bonus. His total fine comes to $264,464.
In addition, the commission said Finkelstein consented to an order prohibiting him from acting as an officer or director of a public company for four years.
The SEC said Warnaco – whose brands include Calvin Klein Jeans, Chaps Ralph Lauren sportswear and Warner’s intimate apparel – was charged with securities fraud for issuing a false and misleading press release about its financial results for the 1998 fiscal year.
On March 2, 1999, according to the SEC, Warnaco issued a press release touting “record” results for 1998. What the press release didn’t say was that Waranco had already discovered a $145 million inventory overstatement that would require the company to restate and significantly lower its financial results for the prior three years.
A month later, the company filed its 1998 annual report. That filing, according to the SEC, correctly accounted for the $145 million overstatement but misled investors by characterizing it as a write-off of “startup-related costs.”
In reality, according to the SEC, the overstatement resulted from poor inventory accounting and internal controls. The commission faulted Wachner, Finkelstein, and Silverstein for the misstatements, both in the initial press release and the 1998 yearly report.
The SEC responded by accusing Warnaco of committing securities fraud when it issued the press release. Regulators also charged PwC, Warnaco’s auditor at the time, with aiding and abetting reporting violations in the annual report. Finkelstein was charged separately with aiding and abetting the company’s fraud, the SEC said....
The defendants agreed to settlements without admitting or denying the allegations in the complaints, the SEC said.
January 28, 2004
Auditor Concern Arises
at Tyco Trial
Lawyers for the former chief executive of Tyco International, L. Dennis Kozlowski, asked a New York judge to keep prosecutors from asking the company’s former outside accountant about his lifetime ban from auditing public companies.
The former accountant, Richard P. Scalzo, was barred from auditing public companies in a settlement with the Securities and Exchange Commission. The judge, Michael Obus of State Supreme Court in Manhattan, said he was inclined to bar prosecutors from asking Mr. Scalzo about the subject at the fraud trial of Mr. Kozlowski and Tyco’s former chief financial officer, Mark H. Swartz.
The S.E.C. accused Mr. Scalzo of “recklessly” issuing fraudulent audits after ignoring evidence that executives were looting Tyco. Mr. Kozlowski and Mr. Swartz have been on trial since September, charged with stealing $170 million by hiding bonuses and secretly arranging for the forgiveness of company loans.
Mr. Scalzo’s role as the partner at PricewaterhouseCoopers overseeing Tyco’s audits has been a crucial issue. Defense lawyers said that bonuses the two men were accused of stealing from Tyco were disclosed to Mr. Scalzo.
A lawyer for Mr. Kozlowski told jurors at the start of the trial that Pricewaterhouse gave the “Good Housekeeping Seal of Approval” to the payments....
For more, GO TO > > > Tracking the Tyco Flock
January 7, 2004
BERKSHIRE HATHAWAY UNIT
ACCUSED OF FRAUD
By Bernard Condon, Forbes
One of Warren Buffett’s companies is fighting charges it helped a customer cook its books.
For insurance gumshoes, it’s an improbable a scenario as finding a man with a smoking gun standing over a corpse. The scam is for a company to lend money to another but call it “insurance” instead so the borrower doesn’t have to put debt on its balance sheet. The problem is, the perpetrators are usually smart enough not to put any incriminating stuff in writing.
That is, unless they work for Warren Buffet.
In a case filed in November in U.S. District Court in Richmond, Va. that state’s insurance commissioner accuses General Reinsurance, a subsidiary of Buffett’s Berkshire Hathaway, of helping a now-defunct medical and legal malpractice insurer dress up the books with just such a disguised loan, among other “secret” deals.
And he says he had e-mails from Gen Re to prove it.
Gen Re, based in Stamford, Conn., says it has e-mails of its own exonerating it and that it was only named as a defendant because it has lots of money. Hanging in the balance are 18,000 doctors and lawyers with $200 million in unreimbursed claims who were forced to scramble for replacement insurers.
It’s a complicated suit and it’s not clear where bad – but legal – industry practices end and fraud, if there’s any, begins. But the case follows the collapse of four American, Australian and British firms caught in allegedly similar schemes and an SEC settlement in September to keep American International Group from hawking such bogus insurance (FORBES, Oct 6, 2003).
Seeds of trouble
The seeds of today’s troubles were planted in 1989 when the privately held malpractice insurer Reciprocal of America asked Gen Re for help moving money offshore to cut its tax bill. Gen Re agreed to pay future claims under some ROA policies in exchange for customers’ premiums – that is, it reinsured ROA. But then it passed much of this claims risk to another reinsurer, a Bermuda outfit called First Virginia that was run by ROA management and paid little in U.S. taxes.
At first, providing this not-uncommon middleman service was no problem for Gen Re. But insurance claims started flowing in, and money flowed out of First Virginia.
In 1998 Gen Re helped bolster First Virginia’s finances by taking some risk back from the Bermuda company – in effect reinsuring its reinsurer. But this was “sham reinsurance,” according to the complaint. Gen Re allegedly worked out a secret deal obligating ROA to “make [Gen Re] whole” if it go stuck with big claims, according to a letter written by a Gen Re executive that is cited in the suit.
In effect, ROA would be paying back Gen Re for providing First Virginia with a “booking benefit” or “loan,” to quote the Gen Re executive in two subsequent e-mails.
How to get this money back to Gen Re without anyone’s noticing? ROA, the Gen Re letter instructed, would simply “renew at higher attachments.” Translation: ROA would pay inflated fees for Gen Re services in future years.
Gen Re says there was no “deal,” and indeed it lost $15 million or so despite this “noncontractual understanding.”
As malpractice claims climbed, Gen Re struck a few other reinsurance deals shifting risk back to ROA and allegedly helped to keep them secret. Gen Re says it disclosed the deals in a March 2001 letter to ROA auditor PricewaterhouseCoopers, which is also charged in the suit.
PricewaterhouseCoopers won’t comment on specific allegations but calls the Virginia regulator’s charges “baseless” and notes that even the suit states ROA had misled it.
When ROA was seized in January 2003, financial filings showed $47 million in net worth. The suit says the real figure is $4 million.
The complaint is seeking triple damages under federal racketeering statutes. Gen Re say it will ask the court to dismiss it as a defendant.
Those e-mails, though, could get in the way.
May 25, 2003
Critics Decry SEC's Corporate Settlements
by Marilyn Geewax, Atlanta Journal-Constitution
WASHINGTON -- This past week, the Securities and Exchange Commission reached settlements with both WorldCom Inc. and PricewaterhouseCoopers LLP, forcing the companies to pay penalties for wrongdoing.
But some victims of corporate misdeeds ask: Why isn't the SEC hauling the scofflaws into court to let jurors decide the punishments?
"The SEC should be enforcing the law to its fullest extent," not negotiating compromises, said Mitch Marcus, a former WorldCom manager who founded BoycottMCI.com to lobby for stiff punishment. Compared with the suffering of investors, WorldCom ended up with "a very, very insignificant fine."
But the SEC says a settlement offers several advantages. By negotiating an agreement, the government can impose swift punishment that forces changes in corporate behavior to prevent future crimes, said Thomas Newkirk, associate director of the SEC's enforcement division.
"You get things much more quickly than would otherwise be the case," Newkirk said.
"The typical litigation case probably takes between two and three years," he said. "One needs to balance the benefit of getting remedial provisions into place now, as opposed to getting them three years from now."
WorldCom agreed last week to settle fraud charges by paying $500 million, the largest penalty ever proposed for accounting fraud. In New York, U.S. District Court Judge Jed Rakoff is expected to decide in June whether to approve it.
Also last week, the SEC announced that PricewaterhouseCoopers LLP agreed to pay $1 million to settle allegations of improper conduct related to its audits of SmarTalk TeleServices, a now-bankrupt provider of prepaid telephone cards and wireless services.
With the lure of a settlement, the SEC can force almost immediate changes to protect shareholders and others from further victimization, Newkirk said.
For example, after the WorldCom accounting fraud was revealed last June, "we got a monitor put into place to make sure we didn't have another Enron-type situation where the managers were giving themselves big bonuses on the way out of the door," Newkirk said. "We also got controls put into place to fix what was wrong with their record keeping and the accounting."
In the PricewaterhouseCoopers case, the firm agreed to establish new document-retention policies.
J. Boyd Page, a securities attorney in Atlanta, agreed that settlements typically offer more benefits than long court battles.
"Settlements can make sense because white-collar crime is ofttimes very, very complicated," Page said. "It can take weeks on end simply to present a case" to the jury after years of investigative work.
As the case drags on, costs mount, he said. "There is a huge cost of going to trial, just in terms of absolute dollars, to retain lawyers, pay experts and pay employees to sit in a courtroom instead of doing their own jobs," he said. "Furthermore, trials, whether you win or lose, can be quite devastating simply because of adverse publicity."
But Page said the reluctance to go to trial can harm shareholders who want to sue.
"From a plaintiff's perspective, I prefer to go to trial because during the course of that, there is a lot of testimony developed, a lot of documentary evidence made public," he said. "That type of evidence often bolsters the claims of individual investors who have lost their life savings."
The settlements also fail to help victims of corporate wrongdoing by allowing the perpetrators to avoid admissions of guilt. The WorldCom settlement allowed the company to declare that it does not admit guilt.
Page said companies insist on that provision because typically, "they remain subject to a number of class-action civil lawsuits. An admission of guilt would pretty much stop them from fighting those lawsuits."
May 22, 2003
Pricewaterhouse Fined $1 Million
SEC: Firm revised work papers in SmarTalk audit
By Matt Andrejczak, CBS MarketWatch
WASHINGTON - The Securities and Exchange Commission has fined PricewaterhouseCoopers $1 million for “improper professional conduct” in connection with its audit of SmarTalk Teleservices, a bankrupt provider of prepaid telephone cards and wireless services.
The SEC charged that PWC failed to comply with generally accepted accounting principles when auditing SmarTalk’s 1997 financial statements and later tried to cover it up by revising its working papers.
At issue was a $25 million restructuring reserve PWC created for the anticipated costs related to SmarTalk’s purchase of six prepaid telephone card businesses.
The reserve failed to conform to accounting standards because the costs were not proper restructuring costs, the SEC said. In addition, SmarTalk improperly understated its current operating expenses by charging them against the faulty reserve....
In the settlement, the SEC also charged former PWC auditor Philip Hirsch, who was the lead accountant on the SmarTalk audit.
PWC, the No. 1 U.S. accounting firm, and Hirsch settled the charges without admitting or denying the findings....
This is not the first time PWC has run afoul of SEC rules. In July 2002, PWC paid $5 million to settle alleged violations of auditor independence rules....
Date: 04/29/03
To: info@pcaobus.org
William J. McDonough, Chairman
Public Company Accounting Oversight Board
1666 K Street, NW
Washington, DC 20006-2803
Dear Mr. McDonough:
As a 30+ year member of the insurance and securities industry I was pleased to see your appointment as Chair of the PCAOB and applaud your willingness to accept the job of cleaning up the accounting industry. Restoring consumer confidence in our markets and the folks that regulate it are a most important factor in restarting the economy.
I would like to call your attention to a matter involving PricewaterhouseCoopers and the fraudulent financial statements of MONY Group, Inc., and ask your help in obtaining information that the SEC has refused under Freedom of Information. I am a former 19 yr employee that successfully sued MONY in the early 90s over my termination. As a result of discovery in that case I became aware of serious criminal acts by MONY’s Senior Officers and BoD members. I obtained a copy of an N.A.I.C. examination of the company that revealed over $600,000,000 in illegal transactions on their financial statements.
I later obtained a copy of an investigation by the Florida Department of Insurance that revealed a $1.3 billion discrepancy in the surplus account. I also obtained a copy of the “Secret Phantom Stock Plan” that paid 10s of millions of dollars to officers of the company as a result of the false claims on the financial statements. Those false statements were also used to illustrate dividends of the ponzi contracts that were sold to the public as “investment grade” life insurance contracts.
According to the sworn affidavit of “Bush Team” endorsed CPA, R. Larry Johnson, MONY first started cooking their books in 1982. Coopers & Lybrand / PricewaterhouseCoopers has issued unqualified opinions falsely claiming to be independent on financial statements with hundreds of millions of dollars in illegal transactions. MONY’s Chairman, Michael I. Roth, is a former Coopers & Lybrand partner. Mr. Johnson, whose affidavit is available on the www.PWCSUCKS.com site, was unaware of the Florida Department of Insurance letter to Mr. Roth at the time of his affidavit and did not know of the outside financial dealings between MONY and Coopers & Lybrand that violated the auditor independence rules.
Prior to MONY’s IPO in November of 1998 the SEC first confirmed (Joseph Dimaria) that MONY had filed fraudulent financial statements with the SEC and then denied that they ever filed any statements with the SEC (Carmen J. Lawrence). MONY has filed with the SEC since at least the early 70s!...
The SEC claimed they were investigating MONY and couldn’t talk about it. Three years later they admitted that there had never been an investigation and now refuses to answer for FOI requests.
Attached below are copies of a couple of FOI requests that the SEC has refused to answer. Can you help me obtain these documents along with a copy of an accurate financial statement that contains the opinion of an independent accountant?...
Respectfully,
R. Dale Abshire
3308 Pin Oak Ln.
Bedford, Texas 76021
December 18, 2002
HERRERA FIGHTS TO HOLD ACCOUNTING FIRMS
ACCOUNTABLE FOR ABETTING CORPORATE
FRAUD IN CALIFORNIA
Office of City attorney Dennis Herrera Press Release
SAN FRANCISCO - In a case that could determine whether independent auditors who knowingly conceal their clients’ fraud may be held accountable under California state law, San Francisco City Attorney Dennis Herrera today filed a brief appealing a lower court’s decision last year that false financial statements submitted by PricewaterhouseCoopers on behalf of Old Republic Title Company were immaterial because regulators at the State Department of Insurance may not have acted if the company’s fraud had been reported.
Herrera’s brief reasserts a mountain of evidence – virtually unchallenged in the trial court – that PricewaterhouseCoopers issued clean audit opinion letters for Old Republic for ten years, abetting Old Republic in a systematic fraud siphoned off millions in unclaimed escrow funds, overstated corporate income and cheated taxpayers of funds that should have been paid to the State of California.
The City’s brief also contends that the state Department of Insurance did have authority to act – and would have acted – if PricewaterhouseCoopers had told the truth in its audit opinions.
“Independent auditors have a unique responsibility in the business world that is vitally important to America’s economic well-being,” Herrera said.
“We have seen that responsibility corrupted in similar book-cooking antics by Enron, Arthur Anderson and others – and we’re all paying the price for it today. The lower court’s decision in this case marks a new and dangerous low point in financial integrity that, left unchallenged, would declare business auditing practices an ethics-free zone. It would turn corporate watchdogs into corporate lapdogs, undermining investor confidence in California companies.”
According to the brief filed in State Court of Appeal today, Old Republic Title ignored California’s Unclaimed Property Law, which requires abandoned escrow property to be transmitted to the state if left dormant for a certain number of years – a process known in this case as escheating unclaimed escrow funds. Instead, the company routinely swept the money into its own general fund.
According to the City and County of San Francisco’s brief, Old Republic’s debt for its ongoing violation of escheat laws, including interest, has ballooned to some $17 million as of 1998.
Herrera’s brief further notes that PricewaterhouseCoopers routinely issued “clean” audit opinion letters for Old Republic as the company’s independent outside auditor between 1989 and 1998, despite the accounting firm’s full knowledge that:
> Old Republic was acting in flagrant violation of state escheat laws
> Old Republic never disclosed its escheat debt to state regulators, and
> Old Republic’s reporting practices unlawfully inflated its corporate earning reports.
In each instance, PricewaterhouseCoopers’s failure to act ethically – and it deliberate effort to obfuscate the lawless conduct of its client – runs afoul of “Generally Accepted Auditing Standards” that serve as guiding principles for accounting professionals.
More seriously, PricewaterhouseCoopers’s conduct violates the California False Claims Act and constitutes unlawful, unfair and fraudulent business practices under the state Unfair Competition Law.
“PricewaterhouseCoopers knew Old Republic ignored state escheat laws for years, yet chose to remain silent as its client essentially stole millions of dollars that should have been turned over to the state,” said Chief Deputy City Attorney Therese Stewart.
“More seriously, PricewaterhouseCoopers issued clean, unqualified audit letters that actually aided Old Republic in hiding its wrongdoing – from masking stolen trust account funds to committing regulatory fraud. PricewaterhouseCoopers’ fraud in this case is just as wrongful as Old Republic’s, and we don’t intend to let PwC off the hook.”
Www.ci.sf.ca.us/site/cityattorney_page.asp?id=16174
October 22, 2002
PricewaterhouseCoopers
Sued for Fraud in Dallas
AFX News Limited
Three Dallas-based technology entrepreneurs have sued PricewaterhouseCoopers on claims that the firm certified false and misleading financial statements of San Jose, CA-based HPL Technologies Inc whose shares fell to pennies on the dollar within five months of a 33 mln usd stock trade.
Plaintiffs Mark Harward, Brenda Stoner and Merrill Wertheimer said PwC verified the strong financial position of HPL prior to the trio merging their successful technology company, Covalar Technologies Group Inc, and its subsidiary TestChip Technologies, with HPL in Feb 2002 in exchange for 10 million usd in cash and approximately 33 million usd in HPL stock.
According to the plaintiffs, PwC audited and approved HPL's financial statements for the three years preceding HPL's initial public offering in July 2001 even though HPL's financial results were allegedly based on non-existent revenue "fraudulently" reported by the company's chief executive David Lepejian.
These allegedly fraudulent financial statements were included in a prospectus approved of and distributed by UBS Warburg, the lead underwriter of HPL's IPO, also a named defendant in the lawsuit.
On July 19, 2002, HPL surprised the financial world when it announced that the company was investigating internal financial and accounting irregularities, and that chairman and chief executive officer David Lepejian was being removed.
HPL's stock, which closed at 14.10 usd per share a day earlier, fell to 4.00 usd per share before trading was halted.
The company's stock has now been delisted and currently sells for approximately 10 cents per share.
© Copyright 2002 AFX News Limited. All Rights Reserved.
Corporation/CEO Scandal Investigations -
Election Cycle 2002
—
Lucent Technologies/ Henry Schact
—
Adjusted 2000 revenues by $679 million, spurring SEC investigation. Also investigating whether vendor-financing played an improper role in sales.
Accountant: Pricewaterhouse Coopers LLP
Political Contributions: to Democrats: $39,550; to Republicans: $43,090
CEO Compensation: $21.56M salary, grant options
Other: stock drop since 1/14/00: -93.39%
http://www.citizenworks.org/enron/corp-scandal.php
< < < FLASHBACK < < <
Lucent Technologies Inc - DEF 14A · For 2/16/0
Filed On 12/21/99 - SEC File 1-11639 - Accession Number 912057-99-10197
—
COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal 1999, the Board of Directors had two ongoing committees: an Audit and Finance Committee and a Corporate Governance and Compensation Committee.
The Audit and Finance Committee meets with management periodically to consider the adequacy of the company's internal controls and the objectivity of its financial reporting. The committee also meets with the independent auditors and with appropriate company financial personnel and internal auditors regarding these matters.
Both the independent auditors and the internal auditors regularly meet privately with the committee and have unrestricted access to the committee. The Audit and Finance Committee recommends to the Board the appointment of the independent auditors. The Audit and Finance Committee reviews the company's financing plans and reports recommendations to the full Board for approval and to authorize action.
The committee has a written charter. The members of the committee have reviewed the charter and believe that the committee complied with the charter in fiscal 1999.
The Audit and Finance Committee met five times in fiscal 1999. The functions of the Corporate Governance and Compensation Committee include: recommending to the full Board nominees for election as Directors of the company, making recommendations to the Board from time to time as to matters of corporate governance, administering management incentive compensation plans, establishing the compensation of officers and reviewing the compensation of Directors.
The committee will consider qualified candidates for Director suggested by shareowners in written submissions to Lucent's Corporate Secretary....
COMPENSATION OF DIRECTORS
Each non-employee Director receives annually a retainer of $100,000 and an option to purchase 5,000 shares of Lucent stock. The Chairman of each committee described in the previous section receives an additional retainer of $10,000. Directors may elect to receive between 50% and 100% of their retainer in Lucent stock or an option to purchase Lucent stock or a combination of stock and an option. Any remainder will be paid in cash.
Any option elected will enable the Director to purchase a number of shares equal to three times the number of shares that could have been purchased with the portion of the retainer elected to be received as an option. The exercise price per share under the option will be the fair market value of a share on the date of grant. Options will generally become exercisable on the six-month anniversary of the date of grant and have a 10-year term.
Under the company's Deferred Compensation Plan, non-employee Directors may defer all or a portion of their cash and stock compensation to a deferred compensation account. Deferred compensation plan accounts have two components. The first is a Lucent stock portion. The second is a cash portion. Directors can defer receipt of cash retainers to either portion of their accounts. The stock portion of a retainer can be deferred only to the Lucent stock portion of an account.....
An individual who became a non-employee director before 1999 may purchase life insurance under a company program pursuant to which the company will pay a portion of the premium. The amount paid by the company is to be returned to the company no later than following the death of the individual. This benefit will continue after the non-employee Director's retirement from the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1999, all of our independent Directors served on the Corporate Governance and Compensation Committee. Franklin A. Thomas was the Chairman of the committee. The other committee members were: Paul A. Allaire, Carla A. Hills, Drew Lewis, Paul H. O'Neill, Donald S. Perkins and John A. Young. Patricia F. Russo, Executive Vice President and CEO, Service Provider Networks, is a director of Xerox Corporation, of which Mr. Allaire is currently Chairman of the Board. During fiscal 1999, Mrs. Russo was also a member of the Executive Compensation and Benefits and Nominating Committees of Xerox.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Upon recommendation of the Audit and Finance Committee, the Board has reappointed PricewaterhouseCoopers LLP as the independent public accounting firm to audit our financial statements for the fiscal year beginning October 1, 1999. Representatives of PricewaterhouseCoopers will be present at the meeting. They will be given the opportunity to make a statement if they desire to do so, and they will be available to respond to appropriate questions...
BOARD OF DIRECTORS
The Board of Directors is divided into three classes currently consisting of three Directors each, whose terms expire at successive annual meetings. This year, Messrs. Drew Lewis and Donald S. Perkins will be retiring from the Board after the annual meeting. Messrs. Lewis and Perkins have been Directors of the company since 1996 and we are grateful to them for their counsel and business advice. Following their retirement, one of the classes of Directors will consist of one Director. We have nominated Mrs. Carla A. Hills, the remaining Director in the class of Directors whose terms expire at the annual meeting, for a three-year term that will expire at our annual meeting in the year 2003. You can find the principal occupation and other information about Mrs. Hills below....
CARLA A. HILLS, Director of Lucent since 1996. Chairman and Chief Executive Officer of Hills & Company (international consultants) since 1993, United States Trade Representative (1989 -1993). Director of American International Group, Inc., Chevron Corp. and Time Warner Inc. Committees: Member of the Corporate Governance and Compensation Committee. Age: 65....
For more on Lucent Technologies’ $1.1 billion accounting fraud, see:
http://www.sec.gov/news/press/2004-67.htm
http://www.cfo.com/article.cfm/3013903?f=search
October 14, 2002
Is the Avalanche Headed for Pricewaterhouse?
Investigators are digging into the firms Tyco dealings
For Arthur Andersen, the scandal was Enron, and before that, Sunbeam and Waste Management. For KPMG, it was Xerox.
Now, PricewaterhouseCoopers has its own client implosion to worry about. Tyco International Ltd.
As a remarkable scale of misdoings at Tyco is revealed, the heat is rising for PwC, the firm that signed off on Tyco’s financial statements for the past 8 years.
If Tyco’s former chief executive, L. Dennis Kozlowski, and former chief financial officer, Mark Swartz, did loot $600 million from the company and its investors, as the Manhattan district attorney has charged, then where were the auditors?
That’s the question many investigators are now reviewing PwC’s work for Tyco are asking. Among them: the Internal Revenue Service, the Securities & Exchange Commission, plaintiffs’ lawyers across the country, and Tyco itself, which has retained a forensic accounting firm to review its books.
As the Tyco scandal unfolds, the focus is increasingly turning toward PwC. The firm maintains it is cooperating fully with investigators and says it is not aware of being the target of any investigation....
Still, critics abound. Especially outrageous to such critics as former SEC Chief Accountant Lynn E. Turner is PwC’s failure to flag nearly $100 million in forgiven executive loans that Tyco booked against the gain from the partial initial public offering of a subsidiary in 2000. “Auditors must look at these large adjustments, because that is where we find the fraud has always be committed,” says Turner.
But PwC’s relationship with Tyco went far beyond auditing the company’s books. Reducing its tax bill has long been a key Tyco strategy for boosting earnings, and PwC was deeply involved in that effort. According to its 2001 proxy statement, in addition to $13 million PwC earned in 2001 for auditing Tyco, the firm was paid even more – $18 million – for tax work.
For that hefty fee, a Tyco spokesman says, PwC helped Tyco with its “U.S. tax-planning, and the review and preparation of non-U.S. tax returns in more than 80 countries.”...
What tax work PwC was doing and how that affected its audits is of particular interest because Tyco has been based in the tax haven of Bermuda since 1997. It also has dozens of subsidiaries in other offshore tax havens. These moves saved the company hundreds of millions in U.S. taxes, providing a major competitive advantage.
Tyco says this structure saved the company $600 million in taxes in 2001 alone.
Although it is common practice among accounting firms to serve as both auditor and tax adviser, the dual role has given rise to a chorus of critics. And for PwC, wearing both hats at scandal-ridden Tyco risks at least an appearance of conflict of interests....
“You are auditing the validity of a product that you’re selling,” complains John L. Buckley, Democratic counsel to the House Ways & Means Committee. “It is a gross conflict of interest.”...
For more, GO TO > > > Tracking the Tyco Flock
October 04, 2002
SEC seen settling with PwC
Reuters
NEW YORK - The U.S. markets' top regulator is expected to close its probe of the audit of once high-flying software maker MicroStrategy Inc. (MSTRD.O) by settling with the PricewaterhouseCoopers partner who led the account, a source familiar with the situation said on Friday.
A final settlement, which has not yet been inked, would close the chapter on a prominent accounting irregularity case that has hung over the world's largest accounting firm for more than two years.
Under the terms of the deal, the Securities and Exchange Commission has decided not to bring an enforcement action against the accounting firm, the source said.
But the partner at PricewaterhouseCoopers, Warren Martin, who led the MicroStrategy account for the accounting firm, will be suspended from practicing as an auditor for two years, the source said.
McLean, Virginia-based MicroStrategy Inc. has struggled since its shares plunged 62 percent in one day from a high of $333 in March 2000 after it was forced to restate three years of profits as losses....
The technology firm, including its top executives, settled with the SEC over the issue and paid out $10 million in stock to shareholders as part of a lawsuit settlement.
PricewaterhouseCoopers has already forked out $55 million to settle a shareholder lawsuit stemming from the case but admitted no wrongdoing.
The latest news comes at a time when the accounting giant is already in the spotlight for its work for client Tyco International Ltd., where a band of investigators are poring over controversial deals that happened on the accounting firm's watch....
PricewaterhouseCoopers in July agreed to pay $5 million to settle charges brought by the SEC that its auditors approved improper accounting and that it violated independence standards for several clients in the past. It was the second-largest payment ever by an accounting firm to the market's top regulator.
PricewaterhouseCoopers in June also agreed to make a payment to settle with the Internal Revenue Service over advice on tax shelters it provided clients....
For more on Tyco International, GO TO > > > Tracking the Tyco Flock
July 28, 2002
'Global' dodge lets big firms off hook
Companies are calling themselves international but then
failing to take any responsibility for dirty deals abroad.
By Prem Sikka, The Observer
How global are the 'global' accountancy firms and who are they accountable to? Such questions are highly relevant: 'global' firms audited Enron, WorldCom, Xerox and Vivendi.
The websites of all major accountancy firms claim they are 'global' businesses offering integrated services. This has boosted their worldwide income to more than $70 billion a year. They use the same logo, headed paper and advertising campaign. They have a worldwide board of directors, a chairman and a chief executive officer, often headquartered in secretive offshore tax havens with no information-sharing treaties with other nation states or regulators.
These firms have been the driving force behind moves by the International Accounting Standards Board to take accounting rules out of the hands of governments and put them in the grip of major corporations and firms. But they are silent on their global accountability.
Arthur Andersen audited Enron, including its UK operations, and also provided worldwide consultancy. As the Securities & Exchange Commission launched criminal proceedings against the firm for shredding documents in Houston, Chicago and London, the firm claimed that it was not 'global'....
Its press statement stated: 'Arthur Andersen LLP [the US firm], an autonomous member firm of the Andersen Worldwide SC organisation, contracted with, performed the audits of, and signed the audit opinions on Enron's financial statements. Accordingly, Arthur Andersen LLP is the only proper defendant in claims relating to that audit opinion. Andersen in the UK has no obligation to satisfy the legal liabilities of other member firms.'
Price Waterhouse (now part of PricewaterhouseCoopers) became the auditor of the fraud-infested Bank of Credit and Commerce International (BCCI) by claiming it was a 'global' firm.
In 1991, after the forced closure of BCCI, a committee of the US Senate conducted an inquiry into the $11bn frauds and audit failures.
It subpoenaed Price Waterhouse to produce its files, including the papers held by its UK offices. At this point, the US office of the firm claimed: 'The British partnership of Price Waterhouse did not do business in the US and could not be reached by subpoena.' . . .
The US Senate inquiry also learned that ultimate control of Price Waterhouse rested with Price Waterhouse Worldwide, based in Bermuda, which did not co-operate with the US Justice Department. In 1996, the Justice Department pursued a fraudster operating a shell company, Merlin Overseas Limited, from Antigua.
It consisted of little more than a fax machine in a Caribbean office of Price Waterhouse.
The Manhattan district attorney prosecuted the fraudster, but could not get at Price Waterhouse. The district attorney's office asked Price Waterhouse in Manhattan for help, but was told that Price Waterhouse in Antigua is not the same legal creature as the one in New York.
On 26 February 1995, amid revelations of £827 million fraud, Barings Plc collapsed. For many years it had been audited by Coopers & Lybrand (C&L - now part of PricewaterhouseCoopers) in Singapore and also by Deloitte & Touche (D&T).
The Bank of England's inquiries were frustrated. Its 1995 report said: 'We have not been permitted access to C&L Singapore's work papers ... or had the opportunity to interview their personnel. C&L Singapore has declined our request for access, stating that its obligation to respect its client confidentiality prevents it assisting us. We have not been permitted either access to the working papers of D&T or the opportunity to interview any of their personnel who performed the audit.'
Major accountancy firms have devised careful corporate structures to avoid showing their files to regulators. The governments know that despite securing 'global' appointments and fees, these firms are avoiding their responsibilities.
They could pass laws requiring auditors to show their working papers to named regulators. They could fine and shut firms obstructing fraud inquiries. Instead of exposing audit failures and increasing protection for stakeholders, governments have done nothing to call 'global' firms to account.
– Prem Sikka is Professor of Accounting at the University of Essex
http://www.observer.co.uk/economy/story/0,1598,764254,00.html
July 17, 2002
PwC Settles SEC Charges
CNN/Money
NEW YORK - The Securities and Exchange Commission fined audit firm PricewaterhouseCoopers LLC $5 million for violating accounting standards, the agency said Wednesday.
In a letter to partners dated Wednesday, company Chairman Dennis Nally said PricewaterhouseCoopers had agreed to pay a fine to the SEC to settle the case and to improve audit procedures without admitting or denying charges.
The settlement comes at a time when everyone from Wall Street to Washington to Main Street is keeping a close eye on accounting scandals such as at Enron and WorldCom that have dampened confidence in U.S. markets in the past several months....
“As part of the settlement, we have agreed to strengthen our internal risk and quality procedures,” Nally said in the letter....
“This case demonstrates the heightened risk of an audit failure when an accounting firm assists in and approves the accounting treatment of its own consulting fees,” said Stephen Cutler, the SEC’s enforcement division director. “Faced with that situation here, PwC lacked the objectivity and impartiality required of an independent auditor.”
The SEC found that between 1996 and 2001, PwC and one of its predecessors, Coopers & Lybrand, entered improper fee arrangements with 14 public audit clients. In each case, the client hired the firms’ investment bankers and hinged the amount of their advisory fees to the success of each particular project, the SEC said.
That practice violated the rules of both the accounting profession and the SEC’s auditor independence rules, the SEC said.
Additionally, the agency ruled that in 1999 and 2000, PwC permitted the improper accounting of its own non-audit fees by clients Pennacle Holdings Corp. and Avon Products Inc, both of whom were forced to restate financial information for those periods.
As part of the settlement with the SEC, PwC has agreed to make such changes as reviewing new fee agreements for non-audit services before signing off on them and appointing an “independent reviewing partner” from the company’s Risk Management partners to ensure auditing and accounting industry rules are followed.
The company will also provide annual employee training on auditor-independence issues...
June 28, 2002
Pricewaterhouse, IRS settle case
Feds push for info on tax shelters, clients
By John D. McKinnon, The Wall Street Journal
WASHINGTON, June 28 — In the first public agreement of its kind, the Internal Revenue Service said it reached a settlement with PricewaterhouseCoopers spelling out a process for the big accounting firm to disclose information about its tax shelters and clients who have used them.
AS PART of the settlement, the IRS also said PwC agreed to pay a “substantial” amount. Tax lawyers in Washington said this week that the amount was expected to be $1 million, but neither the IRS nor the firm would discuss the amount. A PwC spokesman said in the context of the firm’s overall finances, the amount was “not significant.”
The firm didn’t admit to any wrongdoing.
The IRS and Treasury have been trying to enforce a requirement that accounting firms and other shelter promoters register their aggressive tax-savings strategies with the government, and disclose lists of their clients. Some of the requirements have been on the books for years, and others were significantly expanded through new Treasury regulations in early 2000.
For the last year or so, as pressure has grown to crack down on tax-dodging, the IRS has begun demanding client lists from promoters through informal requests and even summonses. Some firms have cooperated, but a number haven’t, citing accountant-client privilege, among other things.
Just how much the IRS gained with the PwC agreement is unclear.
The IRS said that PwC “agreed to provide certain client information pursuant to authorized legal process, such as summonses,” and “to work with the IRS to develop processes to ensure ongoing compliance” with disclosure rules. But the accounting giant said the IRS would “limit its requests for client-specific information from the firm to authorized legal processes, such as summonses.” The IRS declined to elaborate.
PwC also said the agreement “has no impact on our clients’ ability to sustain the tax benefits of the tax advice we provided.”
Further, it said it has risk-management procedures in place “to ensure that we can continue to pursue tax-minimization strategies for our clients while complying fully” with requirements.”
Copyright © 2002 Dow Jones & Company, Inc., All Rights Reserved.
March 22, 2002
PricewaterhouseCoopers stands to lose millions in H.J. Heinz business
In wake of Enron, Heinz to split accounting,
consulting business
By Tim Schooley
H.J. Heinz Co. said last week it would cease using its auditor, the local office of PricewaterhouseCoopers LLP, as a consultant.
What Heinz didn't say was that it paid PricewaterhouseCoopers about $17 million in consulting fees last year, the fattest fees by far paid to a Big Five accounting firm by a Pittsburgh public company in 2001....
According to SEC documents, Heinz paid $20 million in fees to PwC last year, including about $3 million for auditing. That is nearly double the total accounting fees paid by the public company with the next-highest fee total, Alcoa, which spent $12.5 million in auditing and consulting fees. Alcoa is another of PwC's clients.
`THE PRICIER PROJECTS'
Jack Kennedy, general manager for strategic communications at Heinz, said the company was sensitive of the current scrutiny of the accounting industry brought on by the Enron scandal and proposed regulations requiring public companies to limit the amount of consulting conducted by their audit firms....
According to SEC documents, PwC charged Heinz $7.7 million in fees for financial information systems design and implementation; PwC also charged Heinz another $9.2 million for a variety of other consulting work listed as "all other services."
Mr. Kennedy confirmed that Heinz has made the conscious decision to not use PwC for such work in the future....
PricewaterhouseCooper's local office declined to comment on its relationship with Heinz; the firm and its pre-merger predecessor, Coopers Lybrand, has audited Heinz' books since 1979.
Heinz' announcement could prove to be the first major impact the Enron scandal has had on the accounting industry here....
`LIKE AN ANNUITY'
Nationwide, many U.S. companies are cutting consulting work purchased from their auditors. Walt Disney Corp. and Lucent Technologies Inc. both have done so, said Mr. Hamilton.
Walt Disney, based in Burbank, Calif., totaled $31.9 million in consulting fees; New Jersey-based Lucent Technologies: $63.2 million.
Both are also audited by PwC....
© 2002 American City Business Journals Inc.
January 25, 2002
Kmart, SEC Investigate Letter
Raising Accounting Questions
By The Associated Press
DETROIT -- Kmart Corp., which filed for bankruptcy protection earlier this week, said Friday it has begun an investigation after receiving an anonymous letter claiming to be from employees that expressed concern about unspecified accounting matters.
The nation’s third biggest discount retailer said it had contacted the Securities and Exchange Commission about the letter and its own investigation and is cooperating with the regulatory agency.
The disclosure comes amid heightened sensitivity about accounting issues in the wake of the collapse of the energy trader Enron Corp. amid questionable accounting practices.
Kmart said the letter, which it received just over a week ago, was addressed to the SEC, Kmart’s auditors PricewaterhouseCoopers and Kmart’s board of directors.
“The letter has been referred to the audit committee of the board of directors, which promptly engaged outside counsel and accounting consultants to conduct an independent investigation,” the company said in a news release.
After receiving the letter, Kmart said it contacted the SEC and notified it about its own investigation. Kmart said the SEC has authorized a private investigation, and Kmart plans to fully cooperate with it.
An SEC spokesman said Friday that the agency had no immediate comment on the matter.
PricewaterhouseCoopers spokesman David Nestor confirmed that the company also received a copy of the letter. He said the auditor was cooperating with Kmart and its outside council in the investigation.
Analyst Jeff Stinson with Midwest Research said it makes sense that Kmart and the SEC would be attentive to the claims raised in the letter, given the current publicity surrounding Enron’s failure.
“This is something that if they go through and they don’t find anything it will really reassure people,” Stinson said. “Right now, after declaring Chapter 11 bankruptcy, it’s going to take a lot of time to rebuild confidence.”
Troy-based Kmart filed Tuesday for Chapter 11, a move that came after lower-than-expected holiday sales and fourth-quarter earnings, downgrades by credit-rating agencies and a drop in its stock price.
Last week, Kmart’s board fired the company’s president, Mark Schwartz, and hired turnaround specialist James Adamson as chairman —— replacing Chuck Conaway, who remains as chief executive.
In announcing the bankruptcy filing, Kmart said it will evaluate store performance and lease terms by the end of the first quarter of 2002, and will close unprofitable or underperforming stores.
Kmart also said it would reduce staff.
In midday trading Friday on the New York Stock Exchange, Kmart shares were down 8 cents a share at 85 cents.
Copyright © 2002, Newsday, Inc.
From Take on the Street What Wall Street and Corporate America Don’t Want You to Know, by Arthur Levitt, former Chairman of the Securities and Exchange Commission:
FROM THE INTRODUCTION:
...When I came to Washington, I had a pretty clear understanding of how the main power centers worked. Once I began pursuing my agenda, however, I saw a dynamic I hadn’t fully witnessed before: the ability of Wall Street and corporate America to combine their considerable forces to stymie reform efforts. Working with a largely sympathetic, Republican-controlled Congress, the two interest groups first sought to co-opt me. When that didn’t work, they turned their guns on me.
I first saw it happen on the issue of stock options. I spent nearly one-third of my first year at the commission meeting with business leaders who opposed a Financial Accounting Standards Board (FASB) proposal that, if adopted as a final rule, would have required companies to count their stock options as an expense on the income statement. The rule would have crimp earnings and hurt the share price of many companies, but it also would have revealed the true cost of stock options to unsuspecting investors.
Dozens of CEOs and Washington’s most skillful lobbyists came to my office to urge me not to allow this proposal to move forward. At the same time, they flooded Capitol Hill and won the support of lawmakers who didn’t take the time to understand the complexities of the issue and the proposed solution. Fearful of an overwhelming override of the proposal, I advised the FASB to back down. I regard this as my single biggest mistake during my years of service.
From there, I skirmished many times with the business community and Wall Street. During this period the stock market rose to incredible heights. Online trading became cool, luring millions of middle-class savers into believing that investing was a no-lose game. They traded impulsively, many basing their decisions on recommendations they heard on financial news shows, which were almost always “buy.”...
But what investors didn’t know was that many analysts were plugging companies that had banking relationships with the analyst’s firm. For corporate executives, managing short-term earnings to meet the market’s expectations became all-consuming, along with keeping the share price high so they could reap big rewards by cashing in their stock options....
I came to recognize certain behavioral patterns when business groups became concerned about commission actions. The first indication of trouble was often a staff discussion between one of the SEC division heads and an aide at one of our Congressional overseer’s offices. A gentle letter from the committee chairman signaled the start of a skirmish. Face-to-face visits were next followed by hearings, press releases, and ultimately a drawn-out, costly battle.
When the FASB, for example, tried to stop abusive practices in the way that many companies accounted for mergers, two of Silicon Valley’s VIPs, Cisco Systems Inc. CEO John Chambers and venture capitalist John Doerr, tried to persuade me to rein in the standard-setters.
When I refused, they threatened to get “friends” in the White House and on Capitol Hill to make me bend. When we proposed new rules to make sure that auditors were truly independent of corporate clients, some fifty members of Congress promptly wrote stinging letters in rebuke.
In the final days of negotiation with the Big Five accounting firms (PricewaterhouseCoopers, Deloitte & Touche, KPMG, Ernst & Young, and Arthur Andersen) over new independence rules, I was constantly on the phone with lawmakers who were trying to push the talks toward a certain conclusion, or threatening me if they didn’t like the outcome.
In particular, Representative Billy Tauzin, the Louisiana Republican, became a self-appointed player, negotiating on behalf of the accountants. And when we began investigating possible price-fixing by Nasdaq dealers, Representative Tom Bliley call to say I was going too far. The Virginia Republican held great sway as chairman of the House Commerce Committee, which oversees the SEC, but he backed off once I told him that the Nasdaq matter could become a criminal case....
From Chapter 5: THE NUMBERS GAME
The Anonymous Letter
In the winter of 1997, an anonymous letter arrived at the SEC’s southeast Regional Office in Miami. It would greatly improve the hand we were holding. The letter alleged that certain audit staff in the Tampa, Fla., office of Coopers & Lybrand owned stock in the companies they were auditing. If true, this was a violation of independence rules if ever there was one.
We didn’t take the letter seriously at first because the writer, we learned, had recently been fired. We had to be sure she wasn’t making wild charges to harass her former bosses and co-workers. Once we investigated, though, we found that the violations in the Tampa office were even more widespread that our whistle-blower realized.
While we were investigating, Coopers merged with Price Waterhouse to form PricewaterhouseCoopers (PwC), reducing the Big Six accounting firms to the Big Five. But the merger also exacerbated the stock ownership problem. After the merger, Coopers partners and staff dad to divest shares they owned in companies audited by Price Waterhouse, and vice versa.
Some of the required divestitures, however, never took place. At the SEC’s insistence, PWC hired a special counsel to conduct a nationwide internal investigation. The results shocked us.
PwC partners, it seemed, viewed compliance with the stock ownership rules as merely optional. The investigation uncovered an incredible 8,000 violations, involving half the firm’s partners. A random check also showed that three-fourths of PwC partners had failed to disclose violations of independence rules when they were asked to do so voluntarily.
Admittedly, some were minor infractions, such as when the shares in question were held in trust for the children of a partner. Some, however, were more serious. The heads of major PwC divisions and top managers in charge of enforcing the conflict-of-interest rules owned stock in audit clients.
Even PwC chief executive James Schiro owned forbidden stock. He and eight other partners owned shares in Emcore, a New Jersey semi-conductor manufacturer whose auditor had been Coopers & Lybrand, and then PwC after the merger. Schiro was obligated to sell his shares, but he didn’t do so until February 1999, seven months after the merger and four months after PwC had completed Emcore’s 1998 audit.
Because of the massive number of stock-ownership violations, we now had irrefutable evidence of independence violations by PwC, the largest of the Big Five. When an auditor violates independence rules, the SEC has the right to reject audit clients’ filings. Had the SEC taken that step, PwC almost certainly would have been fired by hundreds of companies. With that possibility hanging like a sword over PwC, the firm agreed to conduct an internal investigation....
From Chapter 9: HOW TO BE A PLAYER
During my seven and a half years in Washington, I was constantly amazed by what I saw. And nothing astonished me more than witnessing the powerful special interest groups in full swing when they thought a proposed rule or a piece of legislation might hurt them, giving nary a thought to how the proposal might help the investing public. With laserlike precision, groups representing Wall Street firms, mutual fund companies, accounting firms, or corporate managers would quickly set about to defeat even minor threats.
Individual investors, with no organized lobby or trade association to represent their views in Washington, never knew what hit them....
The American Institute of Certified Public Accountants is another major player on investment issues. It represents 330,000 individual CPAs but is dominated by PricewaterhouseCoopers, KPMG, Deloitte & Touche, Ernst & Young, and what’s left of Arthur Andersen.
It has a $140,000,000 budget and employs fourteen lobbyists, three of whom lobby full-time, but the real source of its clout is a widely dispersed membership.
Every Congressional district is home to hundreds of CPAs who are often prominent members of the community. They frequent the local golf course, are active in local business clubs, and contribute to local politicians.
I saw the AICPA unleash this grass-roots force when the SEC was pursuing stiffer auditor independence rules. The SEC and Congress within weeks heard from thousands of accountants. Many of their written comments were suspiciously alike; the AICPA had mass-mailed sample letters, and members dutifully copied them and sent them under their own names. The same goes for the letters the SEC received from Capitol Hill. Lawmakers put their own signatures on letters that were word-for-word the same, written by accounting lobbyists.
Corporate managers also support legions of lobbyists and public relations experts, who act as a company’s eyes and ears and alert it when any issue arises that ultimately might affect profits. Hiring the right lobbyist can help ensure that the CEO has access to powerful lawmakers when he needs it.
Campaign contributions also open doors.
Many CEOs donate their own money to elected officials, and some also form political action committees to which employees can donate funds, and which the lobbyist can then contribute, with strict limits, to helpful lawmakers.
I explain all this not to offer great new insight into how Washington operates, but to show how sophisticated the business lobby is. By contrast, individual investors lack a power base in Washington. And that’s exactly how the business community would like to keep it.
I know from my own experience that when investors do find their voice, business groups too often succeed in drowning them out. One way they do this is by assiduously courting the lawmakers who chair the panels that oversee the SEC. Increasingly when the agency makes a move they disagree with, business’s hired guns go directly to Capitol Hill, bypassing the SEC....
For more, GO TO > > > Spotting the SEC
============
For another PwC whistle-blower letter, GO TO > > > Harmon’s Letter to the SEC
July 16, 2000
Auditor row over Leeson
This Is Money
The accountancy group that acted as auditor to Barings, the bank brought to its knees by rogue trader Nick Leeson, has been found guilty of professional failings.
The firm, Pricewaterhouse-Coopers, has lodged an appeal against the finding, which was delivered last week by a disciplinary tribunal of the accountancy profession.
Meanwhile, the Joint Disciplinary Scheme, the accountancy regulator, has laid complaints against former Barings deputy chairman Andrew Tuckey, a chartered accountant, for failing to detect Leeson's activities. These complaints will go before a tribunal.
Coopers has the right to clear its name publicly by opening the appeal to Press and public, but it said on Friday that it had no plans to exercise this right.
The tribunal found charges of serious failings brought against the Coopers part of the now-merged practice to have been proved, a verdict that, if upheld, would prove damaging to Coopers in its attempts to fend off its share of a £1 billion lawsuit from fellow accountancy group Ernst & Young, liquidator of Barings.
Ernst is alleging professional negligence by Coopers in its Barings audit work, and is making similar allegations against the Singapore practice of accountancy firm Deloitte & Touche.
No date has been set for the appeal.
January 6, 2000
Independent Consultant Finds Widespread
Independence Violations at
PricewaterhouseCoopers
SEC News Release
The staff of the SEC today made public the report by independent consultant Jess Fardella, who was appointed by the Commission in March 1999 to conduct a review of possible independence rule violations by the public accounting firm PricewaterhouseCoopers arising from ownership of client-issued securities. The report finds significant violations of the firm’s, the professionals, and the SEC’s auditor independence rules. . . .
The independent consultant’s report discloses that a substantial number of PwC professionals, particularly partners, had violations of the independence rules, and that many had multiple violations. . . .
A year ago, the firm agreed in a settlement to conduct the review and create a $2.5 million education fund after the SEC alleged that some of its accountants compromised their independence by owning stock in corporations they audited. As a result of the review, five partners of the firm and a number of other employees had been dismissed.
The independent consultant’s report found that nearly half the firm’s 2,698 partners reported having committed at least one violation of the auditor independence rules, while 153 of them admitted to more than 10 each.
Of a total 8,064 violations reported by those involved, 81.3% were by partners and 17.4% by managers.
Almost half the reported violations involved direct investments by the PwC professionals in securities, mutual funds, bank accounts or insurance products related to client companies.
Office of the Chief Accountant: Regarding Auditor Independence Letter to PricewaterhouseCoopers
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON. D C. 20549
July 26, 1999
Mr. Nigel Buchanan
PricewaterhouseCoopers
Southwark Towers
32 London Bridge Street
London SEI 9SY
Dear Mr. Buchanan:
You have requested the SEC staff's concurrence with your firm's conclusion set forth in letters dated June 9, and July 9, 1999 that your firm is independent of your client Prudential Corporation plc ("Prudential").
As noted below, the staff is unable to concur with your conclusion.
Investment Management Services
You have represented to the staff in your letters and in meetings with the staff that Prudential provides investment management services to the trustees of a legacy Price Waterhouse LLP ("PW") defined benefit pension plan and that the trustees of the plan are partners in PwC.
Rule 2-01 of Regulation S-X states that, "... an accountant will be considered not independent with respect to any person or any of its parents, its subsidiaries, or other affiliates (1) in which, during the period of his professional engagement to examine the financial statements being reported on or at the date of his report, he or his firm or a member thereof had, or was committed to acquire, any direct financial interest or any material indirect financial interest..." For purposes of interpreting this section, as noted in section 602.02.b of the Codification of Financial Reporting ("the Codification"), "any financial interest in a client, owned by the accountant ... is considered to be a direct interest." And, "[a]s indicated in this section, materiality is not a consideration in the case of a direct financial interest."
Further, as noted in section 602.02.g of the Codification, "direct and material indirect business relationships, other than as a consumer in the normal course of business, with a client ... will adversely affect the accountant's independence with respect to that client. Such a mutuality or identity of interests with the client would cause the accountant to lose the appearance of objectivity and impartiality in the performance of his audit because the advancement of his interest would, to some extent, be dependent upon the client."
The SEC staff position regarding the independence of an auditor under these circumstances is accurately reflected in your correspondence dated July 9, 1999 stating that the "Investment Advisor .. cannot be an attest client of the Firm." The SEC staff believes that PwC is not independent under circumstances in which Prudential is acting as an investment adviser to the firm.
Unit Linked Insurance Policies
You have represented that Prudential offers, and members of PwC have invested in, unit-linked insurance products where the policy holder pays a premium, a portion of which is used to purchase a death benefit for the policyholder and the remainder is invested and managed by Prudential in unit linked funds. PwC has further represented that the value of the policies is linked to the underlying assets of the policy. You have stated your belief that this arrangement is analogous to the facts set forth in AICPA Ruling 41, Member as Auditor of Insurance Company.
The SEC staff believes that permitting a member to leave on deposit sums with an audit client raises the same independence issues that are raised under similar facts and circumstances where the staff has objected to the independence of the auditor.
For example:
>> As noted above, and as documented in PwC's correspondence to the staff, an auditor is not independent of an a client that acts as an investment adviser for the auditor. PwC has stated that Prudential manages the investment of the portion of premiums not used to purchase a death benefit for the policyholder. Thus, Prudential appears to be acting as an investment adviser to members that hold investments in unit-linked insurance products.
>> The SEC staff has objected to the independence of auditors that allow a broker/dealer audit client to hold the auditor's funds or securities for longer than a normal settlement period. Permitting an insurance company/investment adviser to hold the auditor's cash and securities in a unit-linked fund conflicts with previous SEC staff positions in which the auditor was found to be lacking in independence from a broker/dealer audit client.
You have represented that the unit linked funds appear on the balance sheet of Prudential as "assets held to cover linked liabilities (or the corresponding balance sheet liability associated with the unit-linked policies." As a result, the auditor appears to be placed in the position of auditing the valuation of the respective assets and liabilities that include amounts attributable to the auditor. In essence, the auditor has a direct financial interest in the audit client that creates a lack of independence due to an impermissible mutuality of interest because the advancement of the interest of members of the audit firm would, to some extent, be dependent upon the client's ability to manage and value the members assets."
As noted above, the SEC staff believes that PwC is not independent under circumstances in which Prudential is acting as an investment adviser to the firm with respect to funds that are separately managed in unit-linked investment accounts.
Bookkeeping
You have represented that Prudential sold its Canadian subsidiary and thereafter had no employees in Canada. PwC also represented that PwC Canada performed bookkeeping services for a price that was less than 1% of total audit fees for Prudential. This amount has been permitted under certain circumstances by the SEC Staff as set forth in section 602.02.c.iii of the Codification of Financial Reporting. PwC has also indicated that the service has been terminated. Based on the facts and circumstances, the aforementioned bookkeeping services would not impair the firm's independence.
Contingent Fee
You have represented that PwC received a contingent fee from an entity ("Newco") of which Prudential owns 45% and that Prudential has the right to appoint one of six board members of Newco.
Under Rule 2-01 of Regulation S-X, an auditor would lack independence where the auditor had a direct financial interest in an audit client or any affiliate of the audit client. A contingent fee is viewed by the SEC staff as a direct financial interest that creates an impermissible mutuality of interests between the audit client and the auditor. The staff believes that an auditor lacks independence even if the contingent fee arrangement was with an affiliate of the audit client. The staff does not concur with PwC that Newco is not an affiliate of Prudential.
In this case, PwC indicates that the contingent fee does not cause PwC to lack independence since the fee was immaterial to PwC, and the audit client. However, the staff does not use a materiality test in assessing whether a contingent fee arrangement causes the auditor to lack independence. Consequently, the staff believes that PwC's independence was impaired due to the contingent fee arrangement with Prudential's affiliate.
Investments by Former Partners
You have represented that ownership of investments in audit clients by former partners that continue to share in the profits of PwC is not precluded under applicable independence rules. PwC has represented that it has informed the affected former partners that US independence rules preclude those partners from holding any direct or material indirect financial interests in Prudential, and in Prudential unit trusts (which are not unit-linked insurance policies).
Based on the aforementioned discussion of unit-linked insurance policies, the staff would object to PwC's independence if former partners that continue to share in the profits of PwC hold unit-linked insurance policies in Prudential or its affiliates.
Investments in Prudential Held in Retirement Plan
You have represented that several years ago, C&L acquired Deloitte, Haskins & Sells-UK ("DH&S") and that the DH&S retirement plan was not discontinued. The plan held 292,OOO shares in Prudential and 16,226 shares in Prudential Property Managed Fund (which was not an audit client). PwC has represented that these shares "have recently been disposed of" Based on the facts and circumstances, the investments held in the DH&S retirement fund would not impair the firm's independence.
Summary
Based on the facts and circumstances that you have provided the staff in your letters dated June 9, and July 9, 1999 and in subsequent discussions, the Staff is unable to concur with your conclusion and can provide you with no comfort that you are independent of Prudential under the U.S. independence rules.
In order to comply with the US independence rules, you must undertake the following:
1. Terminate the relationship through which Prudential provides investment management services to the trustees of the legacy PW benefit pension plan.
2. Eliminate any investments by members of PwC in unit-linked insurance products offered by Prudential and any of its affiliates. Also, please provide the SEC staff with a copy of the letter(s) notifying the affected former partners and describe to the staff the procedures that PwC and Prudential will undertake to assure that no affected former partners continue as investors in Prudential.
3. Discontinue providing any services to Prudential and any of its affiliates or investees on a contingency fee basis. Also, please provide the staff with a copy of the PwC policy on contingent fees as well as a description of the quality controls in place to assure that the firm does not enter into contingent fee arrangements with other US and foreign registrants or their affiliates.
You may be aware that where an auditor has complied with home country independence requirements for all periods, the staff has permitted the inclusion of the auditor's reports in an initial registration statement if the auditor was independent under U.S. requirements for at least the most recent fiscal year covered by the reports. You have represented to the staff that PwC was in compliance with the independence requirements applicable in the home country in this instance.
This letter outlines steps that PwC must take to comply with U.S. independence rules. If PwC completes those steps before beginning its audit of Prudential's 1999 financial statements, and Prudential's registration statement includes audited financial statements for a period in 1999 of not less than nine months, the staff will not object to the inclusion of PwC's audit reports for all periods presented.
This should not be construed as a conclusion by the staff that PwC was independent for any period prior to January 1, 1999....
Sincerely,
Lynn E. Turner, Chief Accountant
~ ~ ~
For more on Prudential, GO TO > > > Prudential: A Nest on Shaky Ground
January 6, 2000
The Honorable Arthur Levitt, Jr.
Chairman
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Dear Chairman Levitt:
Thank you for transmitting a copy of the SEC news release on the independent consultant report finding numerous significant violations of the firm’s, the profession’s, and the SEC’s auditor independence rules by PricewaterhouseCoopers and its partners and other professionals.
I have raised these concerns to the SEC and held Oversight and Investigations Subcommittee hearings about accountant/auditor independence issues in the past. The General Accounting Office’s two-volume 1996 report, The Accounting Profession (GAO/AIMD-96-98), expressed GAO’s belief that "the SEC should take a leadership position in working with the accounting profession to enhance the auditor’s independence." At that time, the SEC Chief Accountant agreed with the auditor independence concerns identified in the GAO report and also agreed that they "must be resolved." (See September 5, 1996 letter from Michael H. Sutton, Chief Accountant, SEC, to Charles A. Bowsher, Comptroller General of the United States.) SEC delegated that responsibility to a newly-formed Independence Standards Board (ISB) in 1997. From what I have observed, the ISB has done little more than hold inconclusive "standard setting meetings" since that time, while the conflicts of interest have multiplied and the problem has progressively worsened.
Moreover, common sense tells us that the problems revealed in the PwC report are not confined to that firm. The accounting profession is now the management services industry: the profession and the companies that it is charged with auditing to protect investors and the integrity of our markets are quickly becoming wholly-owned subsidiaries of one another. Self-interest has replaced much of the profession’’s fidelity to the public trust.
The federal securities laws require that financial statements filed with the SEC be certified by independent public accountants. The U.S. Supreme Court has stated that "[t]he independent public accountant ... owes ultimate allegiance to the corporation’s creditors and stockholders, as well as to the investing public. The ‘‘public watchdog’’ function demands that the accountant maintain total independence from the client at all times and requires complete fidelity to the public trust...." U.S. v. Arthur Young & Co., 465 U.S. 805, 817-818 (1984).
I want to know what the Commission and the ISB, having taken little meaningful action to date, are doing to clean up this mess. I look forward to your response.
Sincerely,
JOHN D. DINGELL
RANKING MEMBER
cc: The Honorable Tom Bliley
The Honorable Michael G. Oxley
The Honorable Edolphus Towns
Prepared by the Democratic staff of the Commerce Committee
2322 Rayburn House Office Building, Washington, DC 20515
http://www.house.gov/commerce_democrats/
From the RICO lawsuit: Harmon v. Federal Insurance Company, P&C Insurance Co., Inc., Marsh & McLennan, Inc., Trustees of Kamehameha Schools/Bishop Estate, PricewaterhouseCoopers, et al:
Defendant PricewaterhouseCoopers is one of the nation’s largest accounting firms, and conducts business in Hawaii and throughout the United States.
Despite written opinions from Pricewaterhouse that P&C should operate at “arms-length” from KSBE, all or some of the Trustees of KSBE, and all or some of the directors and officers of P&C, conspired to disregard these opinions and to conceal violations of I.R.S. “interim sanctions” regulations.
Plaintiff Harmon personally reported his concerns regarding the apparent “sweetheart deals” with M&M, at the direction of Peters, Aipa and Kam, to representatives of Coopers & Lybrand in October, 1996, and followed this up in writing on November 20, 1996. At this meeting and in his letter, Plaintiff explained that he would not sign P&C’s annual financial statements due to the apparent conspiracy between certain trustees, managers, directors and officers at KSBE, P&C and M&M, to defraud KSBE, P&C, and the I.R.S.
Plaintiff also sent a copy of this letter to the Insurance Commissioner, State of Hawaii, along with all enclosures which provided documentary evidence of these wrongful activities. Neither entity responded to this report. Plaintiff later learned that Nathan Aipa had approved P&C’s annual financial statements, and that Coopers & Lybrand had not disclosed in their review the information that Marsh & McLennan was charging excessive fees, and that certain claims were intentionally inadequately reserved.
Plaintiff alleges that Pricewaterhouse had knowledge of these improper activities and financial statements, had a professional duty to report improper and illegal conduct regarding the preparation of these financial statements, and knowingly and wrongfully colluded with some or all of trustees of KSBE, with officers and directors of P&C, in a conspiracy to defraud the beneficiaries of the Estate of Bernice Pauahi Bishop and P&C; racketeering; mail fraud; wire fraud; and violations of the “interim sanctions” regulations of the I.R.S., as detailed in Plaintiff’s complaint....
- For more on PricewaterhouseCoopers’ attorney, Warren Price III, GO TO > > > The Firing of Evan Dobelle; RICO in Paradise
February 12, 2000
Dispute has cost estate millions
By Rick Daysog, Honolulu Star-Bulletin
The state probes and IRS audit pushed related bills from law and accounting firms to $5 million. . . . The three-year Kamehameha Schools controversy continues to take a heavy financial toll on the nonprofit charitable trust.
A Star-Bulletin review of the $6 billion estate’s voluminous expenditures for its 1999 fiscal year found that the trust paid about $5 million to law firms and accounting firms that were involved in defending it from the Internal Revenue Services’ massive audit and the state attorney general’s criminal and civil investigations....
The financial records, which were filed in state probate court on Dec. 30, ALSO INDICATE FORMER TRUSTEES CONTINUED TO REWARD THEIR FRIENDS WITH LUCRATIVE OUTSIDE CONTRACTS....
In many ways, the records offer a snapshot of a boardroom under siege. . .
That point is underscored by the enormous amount of legal and tax work awarded to PricewaterhouseCoopers LLP. The firm billed the Kamehameha Schools $1.2 million last year, largely for legal and tax work involving the IRS audit. The firm, recently merged with Coopers & Lybrand, which also conducts work for the trust....
Much of the Pricewaterhouse work came after January 1999, when the IRS issued its scathing preliminary findings of the estate’s operations. The IRS later threatened to revoke the trust’s tax-exempt status, setting off a chain of events that resulted in the resignation of former board members Henry Peters, Oswald Stender, Richard “Dickie” Wong, Lokelani Lindsey and Gerard Jervis....
February 5, 2000
Trustees helped by Inouye,
Akaka in fighting pay limit
By Sally Apgar, The Honolulu Advertiser
The ousted trustees of Kamehameha Schools enlisted the aid of Sens. Dan Inouye and Daniel Akaka in 1995 to influence fellow members of Congress to vote against a bill that threatened the trustees’ $1 million-a-year paychecks, according to internal trust documents obtained by The Advertiser....
Thirteen confidential memos during the fall of 1995 through April 1996 detail the trustee’s strategy against the bill, which called for intermediate sanctions that penalize high-ranking insiders of charitable organizations for taking excessive personal benefits....
The memos express the trustees’ intent to “kill the measure” and their recruitment of influential contacts, such as Inouye, Akaka and the Rev. Jesse Jackson. They also targeted others, including Senator Patrick Moynihan of New York and even White House insiders such as Leon Panetta, then President Clinton’s chief of staff, to win support....
The memos give a glimpse of the behind-the-scenes political power and influence the former trustees once wielded and describe a costly, intensive effort to protect their interests....
Mark McConaghy of PricewaterhouseCoopers, a longtime tax adviser to the trust, was charged with contacting Leslie Samuels, then assistant secretary for tax policy....
- For more, GO TO > > > Harmon’s Letter to the SEC
September 25, 2000
ACCOUNTING WARS
Powerful consultants are the targets
of Arthur Levitt’s crusade
Business Week
It’s a pitched battle the likes of which Washington and Wall Street have never seen before. Largely out of the public eye, a morality play is being acted out, and the plot involves power and greed.
On one side: Arthur Levitt, Jr., chairman of the Securities & Exchange Commission, convinced that greed and arrogance have diverted the accounting profession from its mission of providing sound financial reports for shareholders....
Levitt is determined to halt a wave of auditing failures— breakdowns that have cost investors $88 billion in the past seven years — by ending what he sees as a massive conflict of interest between accountants’ duties as auditors and the profits they earn as consultants to the same corporate clients....
THE SEC SAYS:
Audit Quality. Audit failures are soaring: 362 companies have restated annual financials since 1997. ... Cost to investors in just 9 cases: $41 billion ...
Consulting Services. Accounting firms that consult for audit clients aren’t truly independent. Firms should be banned from selling their audit clients a wide range of consulting services, including acting as an advocate for clients. SEC says its proposal mainly clarifies existing ethics rules.
Disclosure. Companies should disclose consulting fees paid to their auditing firm. Boards and audit committees must spell out steps taken to ensure the audit wasn’t compromised.
Investment Conflicts. Strict rules that now bar accountants and their families from owning stock, even indirectly through a retirement plan, in any of their firms’ audit clients should be relaxed.
New rules should apply mainly to firm members who can influence a client’s audit....
Accountants gave House, Senate, and Presidential candidates $10.4 million in campaign contributions in this election cycle, through June 30.
Of this amount, PricewaterhouseCoopers gave $1,421,489 ($400,009 to Democrats and $1,019,280 to Republicans).
DID THE AUDITORS CROSS THE LINE?
The SEC has tough questions for MicroStrategy and PWC . . .
On a recent Aug morning, Michael J. Saylor, CEO of MicroStrategy Inc., stood before an overflow crowd at a high-tech trade show. ... He spun his vision of the future, in which he personalized news and alerts are delivered through wireless devices and clip-on computers equipped with voice recognition. The crowd was riveted.
The electrifying moment allowed Saylor to look past the software maker’s calamitous earnings restatement of last spring. The company had booked $66 million more in revenue than it should have from 1997 through 1999— more than one fifth its sales total. The restatement wiped out $55.8 million in earnings, turning profits into losses for each of those years.
But as diverting as the interlude may have been, recovery will not come that easily for Saylor and MicroStrategy. As he attempts to rebuild the company ... one of his chief hurdles is a Securities & Exchange Commission investigation into the company’s accounting practices. BUSINESS WEEK has learned that the SEC is investigating whether MicroStrategy and its auditor, PricewaterhouseCoopers LLP, covered up a prohibited financial relationship by using a third party as a go-between.
The agency is also probing whether PWC sacrificed its independence by entering into deals to buy MicroStrategy products for resale to consulting clients— a financial link the SEC thinks may have made PWC unwilling to make tough audit decisions.
And the SEC is investigating whether MicroStrategy backdated documents to move revenues from one quarter to another....
The swift fall of MicroStrategy exemplifies the questions that arise when auditors do more for a client than just examine the books. Shareholders lost $10.4 billion in stock value, and 10% of the company’s employees have been laid off. The scope of investor losses, and the web of relationships between auditor and client, have persuaded the SEC to put its investigation on a fast track....
* * *
For more, GO TO > > > The Securities & Exchange Commission; The Prudential: A Nest on Shaky Ground; P-s-s-t, wanna buy a good audit?; Zeroing In On Zurich Financial Services
December, 1994
The Corporate Hall of Shame
The 10 Worst Corporations of 1994 — Who examines the examiners? . . .
Multinational Monitor
Price Waterhouse faces approximately $12.5 billion in legal claims from the Deloitte & Touche liquidators of the collapsed Bank of Credit and Commerce International over Price’s audit of the bank....
In Italy, shareholders in the agrochemical group Ferruzzi Finanziaria and its industrial subsidiary Montedison plan to sue Price Waterhouse in the wake of the administrator of Ferruzzi and Montedison’s finding of serious oversights in Price Waterhouse audits of the group’s accounts over a number of years.
He outlined a catalog of accounting malpractices, including: an irrecoverable credit of $261 million to a company in the British Virgin Islands, and recognition of revenues of $146 million on nonexistent sales and huge undocumented payments to offshore companies, supposedly for consulting work...
* * *
From opensecrets.org
1998 Profile: PricewaterhouseCoopers
Total Lobbying Expenditures: $960,000.
Total Lobbying Income: $6,500,000.
~ ~ ~
Some of PricewaterCoopers’ Lobbying Clients
Electronic Commerce Tax Study Group
Entertainment & Media Cybertax Study Group
Equitable Companies
IBM Corp
Kamehameha Schools/Bishop Estate
Morgan Stanley Dean Witter & Co
Multinational Tax Coalition
Section 41 Coalition
Securities Industry Assn
Walt Disney Co.
From The Cheating of America, by Charles Lewis and Bill Allison:
GIMME SHELTER . . .
On May 4, 1999, PricewaterhouseCoopers L.L.P. sent out a confidential letter, some 22,000 words in length, to invite corporations to take part in its Bond and Options Sales Strategy, or BOSS shelter, which, like the shelter Merrill Lynch sold, involved investment vehicles with foreign partners created solely to provide a paper tax loss....
On Dec 9, 1999, the Treasury Dept issued notice 99-59, warning companies that if they made use of BOSS, the IRS would challenge any losses they claimed.
Representative Lloyd Doggett (D) of Texas and a member of the House Ways and Means Committee ... issued a statement welcoming the notice. “While encouraged that Treasury has quickly shut down an obviously abusive tax shelter,” he said, “I am reminded that one Big Five accounting firm requires staff to cook up a new shelter every week.”
And for the IRS, discovering, unraveling, and denying them can take years....
~ ~ ~
Kenneth J. Kies, the former chief of staff of the Joint Committee on Taxation– Congress’s in-house policy think tank on tax matters– has testified several times before the Senate Finance Committee and the House Ways and Means Committee arguing that there is no corporate tax shelter problem.
Kies is now a managing partner in PricewaterhouseCoopers’ Washington office, the same firm that promoted the BOSS shelter....
CIA "Fronts"
From: Harry Sweeney <Sweenfam@teleport.com>
Newsgroups: alt.politics.org.cia
Subject: Re: Known CIA fronts (200+ listed here)
Date: 20 Sep 1996
Organization: Teleport - Portland's Public Access (503) 220-1016
The following several hundred firms and persons represent "suspected" or reported fronts as found in various published resources or based on my personal beliefs arrived at through personal experience and research.
Most of these are out of date, out of business (disbanded or evolved to some new operation), but the list serves as example of the marvelous diversity and clever (or not so clever) naming conventions applied. . . .
Keep in mind that there ARE NO FRONTS. CIA was ordered by Congress to divest, and they have. The CIA obeys Congress and the law... by "selling" the fronts to "retired" CIA.
Of course, if they should still do favors for CIA, that would be OK. If CIA gives them business, that would be OK. So it is business as usual, with LESS oversight by Congress, thanks to their “crack down” on errant CIA activities....
Here are just a few familiar names from Harry Sweeney’s list:
>> Battelle Memorial Institute and other Battelle operations (hires retired spooks in quantity): Jim Hougan, Spooks
>> Bill (Slick Willy) Clinton (President, and CIA operative): The Spotlight.
>> Bishop, Baldwin, Rewald, Dillingham and Wong: Johathan Kwitny, The Crimes Of Patriots
>> Price Waterhouse (not a true front, but certified obviously fraudulent books for CIA fronts): Johathan Kwitny, The Crimes Of Patriots
>> Quantum Corp: Jim Hougan, Spooks
>> Resorts International (Parent of Intertel): Jim Hougan, Spooks
>> Wackenhut: Jim Hougan: Jim Hougan, Spooks; Michael Riconosciuto, Wackenhut/CIA operative....
* * * * *
Disavow: A CIA Story of Betrayal
By Rodney Stich & T. Conan Russell
The Saga of
Ron Rewald and Bishop, Baldwin, Rewald & Wong
CAST OF CHARACTERS
http://www.namebase.org/sources/ZS.html
* * * * *
February 9, 2001
SEC investigating fraud at Lucent
By David Berman, Michael Schroeder and Shawn Young
The Wall Street Journal Online
The Securities and Exchange Commission's enforcement division is conducting a formal investigation into possible fraudulent accounting practices at Lucent Technologies Inc., according to people with knowledge of the investigation.
The probe focuses on whether Lucent (NYSE: LU) improperly booked $679 million in revenue during its 2000 fiscal year, which ended Sept. 30, according to people familiar with the investigation. The telecom-equipment maker, once a highflying spinoff of AT&T Corp., restated the same revenue in December after conducting its own investigation.
As part of that restatement, Lucent deducted $199 million in credits offered to customers, and $28 million for a partial shipment of equipment. Further, the company took back an additional $452 million in revenue it had sent to its distribution partners but never actually sold to end customers.
According to one person with knowledge of related SEC documents, commission staff are investigating Lucent's procedures for booking sales, in particular its use of "nonrecurring credits," or one-time discounts, given to customers, as well as Lucent's accounting treatment of software-licensing agreements.
The SEC is also looking at how Lucent recognized revenue on sales to its distributors, who may not have sold the products, a practice known as stuffing the channels. Also under examination is the company's use of revenue targets for fiscal 2000.
"We are voluntarily and completely cooperating with the SEC," said Lucent spokeswoman Kathleen Fitzgerald.
Fitzgerald said the company initiated contact with the SEC on the morning of Nov. 21, just before it first publicly revealed some of the problems. Since then, Lucent has shared all of its findings on revenue restatements with the commission, she said. In addition, Lucent shared the results of an external audit of fiscal year 2000 conducted by PricewaterhouseCoopers LLP and Lucent's outside counsel, Cravath, Swaine & Moore, late last year. The company's lawyers have also made two in-person presentations at SEC headquarters in Washington, D.C.
The SEC has also requested documents from Lucent's customers and independent auditor, PricewaterhouseCoopers, people familiar with the matter said.
"We don't comment on any investigation the SEC may have under way. However, it's always our practice to fully cooperate with SEC requests for information," said Steve Silber, a spokesman for PricewaterhouseCoopers. A n SEC spokesman declined to confirm or deny the investigation.
Lucent's December restatement reduced already-flagging investor confidence in the battered company. Since the company first hinted of financial difficulties with an earnings warning last January, Lucent's stock has lost 77% of its value. Since January 2000, Lucent's market capitalization has dropped roughly $185 billion.
CEO fired
Lucent's board fired former Chief Executive Richard McGinn in October after Lucent had missed numerous quarters of revenue and earnings targets. McGinn ended up being at the top of a long list of high-ranking Lucent executives who left or were fired last year.
In a whistleblower lawsuit filed in December, Nina Aversano, former president of sales for North America, claimed she was fired in retaliation for giving McGinn in October a detailed warning that Lucent's sales targets were unrealistic. Aversano couldn't be reached for comment.
In the suit, filed in a New Jersey Superior Court in Middlesex County, she alleged her former boss, Patricia Russo, who is now nonexecutive chairman of Avaya Inc., a Lucent spinoff, was also ousted for giving McGinn a similar warning. Russo has said she doesn't believe the elimination of her job was a punishment for anything. McGinn said Thursday he hasn't been contacted by the SEC.
Lucent also changed chief financial officers in fiscal 2000, hiring Deborah Hopkins in April, after naming former Chief Financial Officer Donald Peterson to the CEO's post at Avaya. Peterson had been Lucent's chief financial officer since its 1996 spinoff from AT&T. During Peterson's tenure, Lucent's accounting was sometimes criticized by analysts and some investors as aggressive, but legal. An Avaya spokeswoman said Peterson hasn't been subpoenaed or approached by SEC investigators.
Fiorina left before the mess
Carly Fiorina, now CEO of Hewlett-Packard Co., and formerly head of Lucent's global-services business and in charge of world-wide sales, left Lucent in July 1999, shortly before the beginning of the fiscal year that is involved in the continuing investigations.
A spokeswoman for Hewlett-Packard said the company's attorneys haven't received any SEC subpoenas and "to our knowledge," Fiorina hasn't been contacted by any SEC investigators. Fiorina was traveling and couldn't be reached directly for comment.
The SEC brings as many as 100 enforcement actions involving accounting-related fraud each year, representing about 20% to 25% of its caseload. A formal investigation must first be approved by the commission itself. Once it has that status, staffers can use legal subpoena power to compel employees, ex-employees and customers to speak.
Two years ago, the SEC made accounting-fraud cases a priority, weighing whether companies intended to deceive shareholders with aggressive financial reporting. Contributing to the rise in accounting-enforcement cases have been Wall Street pressure on financial executives to meet earnings estimates; court rulings and legislation making it harder to sue outside accountants; and greater use of stock options as executive compensation.
Restatements, resulting in earnings swings of tens of millions of dollars, have flourished amid the SEC crackdown on "earnings management" through accounting gimmicks.
For example, many SEC probes have focused on one popular form of manipulation: inflating revenues by posting them prematurely or by playing games with inventory.
-- David Hamilton in San Francisco contributed to this story.
August 3, 2001
Three Accountants Face Charges
of Securities Fraud Over Audit
The SEC alleges Coopers & Lybrand auditors masked
deteriorating finances at Allegheny Health.
CFO.com Staff
The Securities and Exchange Commission took the unusual step of charging three accountants with securities fraud in connection with their audits of Allegheny Health Education & Research Foundation, a Pennsylvania nonprofit organization that filed for bankruptcy, reports the Wall Street Journal.
William Buettner, Mark Kirstein and Amy Frazier, senior accountants at Coopers & Lybrand LLP, now PricewaterhouseCoopers LLP, "actively participated" in a fraud scheme to mask deteriorating finances at Allegheny Health, according to the SEC.
The move comes as the regulatory agency is intensifying its campaign to crack down on what officials consider an accounting-fraud epidemic, says the Journal.
"It's rare that we would sue accountants for fraud in federal court," Ronald Long, district administrator of the SEC's Philadelphia office told the Journal. In the past, the agency has sought to discipline accountants through lesser administrative proceedings.
Long added that was one of the first complaints taken against auditors in an alleged case of municipal-bond fraud.
Allegheny Health, the largest nonprofit health-care organization in Pennsylvania at its height, settled SEC fraud charges last year and agreed to a cease-and-desist order. It filed for bankruptcy in 1998.
Lawyers for the three accountants disputed the charges, telling the Journal, among other things, that they were "utterly false."
PricewaterhouseCoopers and its predecessor, Coopers & Lybrand, weren't named in the SEC's lawsuit, filed in federal court in Pennsylvania, Journal.
According to the SEC, the three accountants helped Allegheny Health transfer $99.6 million from the books of a recent acquisition to an ailing unit known as the Delaware Valley Obligated Group. . . .
The three auditors knowingly participated in "a shell game," Long told the Journal. As a result of the transfers, the SEC said Allegheny Health and the Delaware Valley group reported net income for fiscal 1997, when in reality, both were operating with a substantial net loss.
Buettner, Kirstein, and Frazier allegedly "turned a blind eye to the fraud" and sought to conceal it from other Coopers & Lybrand accountants for more than a year, according to the complaint.
Coopers & Lybrand issued clean audit opinions on Allegheny Health that were distributed to investors holding more than $900 million of bonds.
In September 1998, after filing for bankruptcy, Allegheny Health issued a news release acknowledging that the 1997 audits were inaccurate.
If the SEC wins its civil-fraud suit, the three auditors would face a court order permanently barring them from future securities-law violations and fines of as much as $110,000 for each violation, according to the Journal.
May 1, 1994
Who Watches the Watchers?
TO: The San Jose Mercury News
The federal regulatory agencies during the Savings and Loan Debacle that began in the early 1980's and continues to this day were the Federal Home Loan Bank Board (FHLBB) and its successor agencies, the Resolution Trust Corporation (RTC) and the Office of Thrift Supervision (OTS). Some of the higher ranking people in these agencies, many of them political appointees, have engaged, and may be engaging in activities that call out for investigation. Because of Whitewater, the hands of the Clinton Administration are tied. Any attempt to investigate the RTC and the OTC would be viewed as an attempt to interfere with the on-going investigation.
But who watches the watchers?
With the Clinton Administration out of action, the only institutions with the power to investigate the regulatory agencies are the Congress and the news media. The Mercury News cannot claim ignorance of highly suspicious activities in these agencies, I have documented a number of them in the letters I've sent you since the fourth of April. Let me try one more time, citing some of the same examples, and giving you a few new ones.
Silverado Banking and Savings and Loan Association.
1984 to 1988. According to Steven Wilmsen's book, Silverado, that S&L began engaging in fraud as early as 1984, but the Kansas Federal Home Loan Bank "actually approved most of Silverado's illegal and wildly imprudent transactions" from 1984 to 1988. The man responsible for "those approvals was Kermit Mowbray, president of the Topeka bank." Regulators at the bank (and not political appointees) discovered the fraud in late 1986 and tried to serve a cease and desist order on the S&L on March 10, 1987, but were overturned by Mowbray. During the 1991 OTS $200 million dollar lawsuit against Neil Bush and other Silverado directors, the defense asked for the release of documents pertaining to the bank's oversight of Silverado on the basis that the bank had approved the transactions. The OTC refused, claiming confidentiality, and stating they would rather receive a contempt citation rather than release the documents. Is this why the OTS finally settled for $49 million dollars, one-fifth of the amount they originally sued for?
1988. In October 1988, Mowbray stopped the closure of Silverado until after the presidential election and after he received a mysterious phone call from Washington. The final bailout costs of Silverado are in excess of $1 billion dollars. The increase in the Silverado bailout costs, based upon the S&L regulator's own estimates of what it would have cost to close the S&L in October 1988 rather than December 1988, ranges from $400 million to $600 million dollars.
1988 - The Accounting Firm of Cooper and Lybrand. In the summer of 1988, the regulators were closing in on Silverado and its accounting firm, Cooper and Lybrand. Cooper and Lybrand had affirmed Silverado was in excellent financial health; had affirmed Silverado made a profit of $15 million in 1986 and had let the top four S&L executives take $3.2 million dollars bonuses. In truth, the S&L was near insolvency, had lost $15 million in 1986, and the bonuses were based upon phantom earnings.. For this and other accounting "mistakes," the OTS in December 1990 slapped Cooper and Lybrand with a cease and desist order for its "abusive and self-serving actions."
Less than a week later, the RTC awarded Cooper and Lybrand a "lucrative contract" to manage $278 million dollars in loans and real estate from failed savings and loans.
Broward Savings and Loan
In an earlier letter, I mentioned to you that in exchange for $505,000 dollars from Jed Bush and his real estate partner in 1990, the RTC forgave a defaulted loan of $4.5 million dollars. The two men had borrowed the money in 1985 to purchase an office building.
On the surface, this appears to be a "sweetheart" of a deal for the President's son; he retains a major equity holding for a payment of one-ninth the original amount of the loan. Who takes the loss? The American people....
What was the basis of this settlement? Did the fact that the government negotiators were sitting across a table from the son of the President of the United States have any bearing on the case? Or were they government negotiators? Was the final settlement negotiated by government lawyers or by a legal firm hired by the RTC?
But we should thankful that Jed Bush was involved, otherwise we would not have known that the RTC was forgiving loans on such advantageous terms to the borrowers. Or where they? We don't know because the matter has not been looked into by the Congress or the national media. Again, what was the basis of the Bush settlement? Did political connections have something to do with the settlement of this (and possibly other) loans or was the RTC in a Santa Claus mode for all the borrowers of money from failings savings and loans?...
Franklin R. Mancuso
# # #
CAN YOUR STOMACH TAKE SOME MORE?
Then climb into the Catbird Seat and take a look at some of the gigantic nests that PricewaterhouseCoopers has helped construct!
\/
Apollo Advisers - Financial investment managers. 13th largest campaign contributor to Senator Joseph Lieberman (D-CT), Al Gore’s vice presidential running mate (, and a client of lobbying firm Akin, Gump, Strauss, Hauer & Feld.
One of Akin, Gump’s clients is Miller & Chavalier, a Washington, D.C.-based law firm which, together with PricewaterhouseCoopers, drafted the multi-million dollar IRS settlement agreement for Hawaii’s Kamehameha Schools.
Apollo Advisers has another connection with Kamehameha Schools: Along with National Housing Corp (which was involved in an alleged kick-back scheme with ousted Bishop Estate trustees Henry Peters and Richard Wong), Apollo has financial interests in several estate owned properties involving two alleged Yakuza-connected companies: Azabu Building Company and Mitsui Trust.
For more, GO TO > > > Apollo Advisors
Bank Bali - From ON WISCONSIN : JS ONLINE , 10/19/99, (AP) :
Indonesia Court Rules on Bank Case
JAKARTA, Indonesia - The Supreme Court ruled today that an independent report about the Bank Bali corruption scandal must be given to Parliament, a move that could persuade international donors to lift their suspension of billions of dollars in loans to Indonesia.
The decision ends weeks of controversy over whether the entire audit report can legally be made available for public viewing.
The International Monetary Fund, the World Bank, the Asian Development Bank and the Japanese government have stressed that any resumption of their $4.7 billion in loans to Indonesia hinged on the publication of the Bank Bali report by the PricewaterhouseCoopers auditing firm.
“This is very good news,” said Anoop Singh, the IMF's deputy Asia-Pacific director. He said the fund's management will soon consider lifting the suspension of its loans to Indonesia.
In Singapore, World Bank official Paula Donovan welcomed the court decision, saying it could eventually lead the bank to resume its loans. But she also said Indonesia must prosecute those involved in the scandal.
There was no immediate reaction from the Asian Development Bank or Japan.
Bank Bali was one of several troubled financial institutions that was closed down and broken up by the government in recent times as part of an economic reform program.
About $80 million was allegedly transferred this year from Bank Bali to a private company controlled by a senior official in President B.J. Habibie's ruling Golkar Party, allegedly for Habibie's campaign leading up to Wednesday's presidential election.
The scandal led to sharp criticism of Habibie and his government, which had vowed to reduce widespread corruption in Indonesia after taking over from President Suharto, who was driven from power in 1998 by a violent, pro-democracy movement....
So far, the government has only published a synopsis of the report, which does not name any of those responsible for the scandal. The full report is believed to contain names of senior government officials and politicians that helped orchestrate the transfer.
For more, GO TO > > > The Indonesian Connection
Bank of Credit and Commerce International (BCCI) - From The Laundrymen: Banco Ambrosiano was the greatest banking collapse in Europe since the end of World War II. It was shortly to be followed by the greatest banking collapse in the history of banking....
In 1988, the Justice Department launched Operation C-Chase, the letter C standing for currency. Posing as drug dealers, undercover agents put out the bait that they had loads of currency to launder. And BCCI fell for it....
A costly and complicated five-year operation— involving agents from Customs, the IRS, the DEA, and the FBI— C-Chase produced more than twelve hundred conversations and nearly four hundred hours of clandestinely recorded videotape. By assisting drug dealers to wash $34 million, the Justice Department was able to indict, and in 1990 to convict, several BCCI bankers and dozens of other individuals. In one blow, the Americans had unknowingly pulled the bottom out from under a gargantuan house of cards....
* * *
Multinational Monitor, 12/94: The Corporate Hall of Shame . . . The 10 Worst Corporations of 1994 — Who examines the examiners? . . . PRICE WATERHOUSE faces approximately $12.5 billion in legal claims from the Deloitte & Touche liquidators of the collapsed Bank of Credit and Commerce International over Price’s audit of the bank....
For more, GO TO: The Strange Saga of BCCI
Bishop, Baldwin, Rewald, Dillingham and Wong - CIA-connected investment company based in Hawaii.
Excerpted from Disavow: A CIA Saga of Betrayal, by Rodney Stich and T. Conan Russell:
The main character in the book is Ronald Rewald. The main CIA proprietary was the Honolulu-based Bishop, Baldwin, Rewald, Dillingham and Wong corporation (BBRD&W). This secret CIA operation had offices in 17 countries, and was staffed by many deep-cover CIA personnel.
Rewald grew up in the Midwest and was recruited by the CIA while in college. The CIA made him the head of this corporation, and as its chief officer he had many successful covert operations. He lived the life that CIA spies only dream about. But when the CIA cover was blown, the Agency made him the scapegoat, denying any relationship with him or its secret operation.
The CIA funded the corporation and its subsidiaries, and Rewald’s compensation, through various CIA fronts and proprietaries, including law and public relations firms. The company engaged in various forms of intelligence activities, some of which could have embroiled the United States in serious military and political crises.
The Rewald story was front-page news for three years in Hawaii during the mid-1980s. It was considered by some to be the biggest media event in Hawaii’s history, second only to the Japanese bombing of Pearl Harbor....
CHILEAN JUNTA
The (Chilean) General (Manterola) then got down to business, explaining that ten years ago, when they had taken power, the junta had expropriated over five hundred businesses at the time, and had over the years returned most, or sold them off. They had, however, retained some, and knowing of the reputation of Bishop Baldwin Rewald Dillingham & Wong, thought something might be worked out that would be to the benefit of all.
He further explained that the government of the United States had shunned any significant relations with Chile under its present leadership and that Commander Pinochet desired that relations between the two governments be improved, so that American corporations would once again do more business and prosper together with Chile as economic partners....
General Manterola went on to explain that they still held one of Santiago’s largest banks in their control and would be willing to give it to Bishop Baldwin for a token price, “Say one million dollars, U.S.” It had, he said, assets netting over sixteen million, which they could have their auditors verify to their satisfaction first. They really wanted it owned by a new American interest in the hope it would be the start to stimulate other U.S. companies to do business there.
Ron said he would certainly take it back to his board of directors and check their interests. What he really meant is he would report it to Jack Kindshci, Charles Richardson, CIA F.R. (Foreign Resources), Chief of Base and Jack Rardin, CIA Chief of Station, and let them give the information to the home office at Langley. For, in reality, Bishop Baldwin was their baby, a CIA owned and operated proprietary company, and any such decision would in fact be theirs. But then they might see some intelligence value in this, and they were always seeking new banking capabilities.
The General then sweetened the deal by adding that if Ron would put this deal together they would throw in for Bishop Baldwin, or its chairman (Ron) 2,800 acres of prime agricultural land in southern Chile, with timber forests and excellent farm land, included free for making the deal. All in all it was a hard offer to turn down....
Ron discussed with (Ronald) Wolfson the meeting they had been to with General Manterola earlier in the day, and explained the offer. Wolfson was impressed and somewhat in awe of the special treatment these newcomers to Chile had received. If they, Daily and Wolfson, were to set up BBRD&W offices in Santiago, how long would it take and how much would it cost, Ron inquired? They estimated sixty to ninety days, and upwards of forty thousand dollars, was the consensus.
What about auditing the bank offered by Manterola? It would not be feasible to have Bishop Baldwin do the audit. It would take a local accounting firm. Wolfson suggested Price Waterhouse, for they had an office in Santiago and were familiar with the Chilean economy. Ron agreed they would be best, indicating they currently used them in Taiwan, Indonesia, and London.
After considerable discussion, Ron said at the next board meeting he would propose the setting up of offices in Santiago, with a retainer agreement satisfactory to Wolfson for the present....
All parted on good terms and agreed that Wolfson would be brought to Hawaii later in the year for discussions about his future....
For more, GO TO > > > Flying High In Hawaii; The Secret Nests
Bishop Estate - Many of the key players in this conspiracy are still in place. . . . including PricewaterhouseCoopers!
~ ~ ~
For more, GO TO > > > Dirty Money, Dirty Politics and Bishop Estate
Consignia - Britain’s new name for The Post Office.
November 24, 2001
Post union warns 'enough is enough'
Geoff Gibbs, The Guardian
A row over job security and "backdoor privatisation" could lead to the first nationwide postal strike in Britain for more than 13 years, union leaders warned yesterday.
Branch representatives of the Communication Workers' Union from across the country will meet in London next week to consider balloting for industrial action after it emerged that Consignia, formerly the Post Office, is considering recommendations that could lead to the closure of its loss-making Parcelforce operation.
The row comes ahead of the announcement of first-half figures from the state-owned organisation. Further losses are likely to have been run up this year because of a slowing in the growth of mail volumes.
Consignia, looking to cut its costs by £1.2bn, says the company can no longer sustain the losses that have been run up by the packages and express business over the past 10 years. It wants to reduce the parcel company's fixed costs by persuading an increasing number of Parcelforce staff to become owner drivers.
The move, the latest in a series of outsourcing proposals from Consignia, has incensed the CWU....
The union said it learned of the new proposals, drawn up by consultants PricewaterhouseCoopers, only this week after being called to a meeting with Consignia directors.
Under the PwC plan "the vast majority" of the company's work would be franchised to contractors. The alternative put forward in the PwC report involves closure of the business in its entirety.
Claiming that the Consignia board is pursuing a long-term strategy of backdoor privatisation, the union has decided to make a stand. It is demanding that Consignia honour the recent owner-driver agreement in full and has called for an urgent meeting with the trade and industry secretary, Patricia Hewitt, to discuss developments within the organisation.
"We have said to them enough is enough," John Keggie, CWU deputy general secretary, said yesterday.
"The union's membership are fed up with being held responsible for the inability of Post Office management to run the business effectively."...
© Guardian Newspapers Limited 2001
For more, GO TO > > > Going ‘Postal’ at Consignia
Cisco Systems - From Parish & Company, 9/22/00:
CISCO SYSTEMS WATERED STOCK SCHEME
Microsoft erected a financial pyramid scheme, using employee stock options, designed to leverage growth in its stock price. Cisco Systems competitive response ... involved using a merger scheme designed to leverage growth in its own share price. What neither company anticipated was the impact of Citigroup, quietly using a merger scheme similar to Cisco’s, in addition to a variety of predatory practices designed to generate merger fees through its Salomon Smith Barney subsidiary.
While all eyes are on technology, Citigroup has effectively unplugged the new economy due to excessive mergers and their various peripheral implications, in addition to becoming a watered stock itself. This may represent the biggest untold story in the financial media and also the greatest overall risk to the stock market and economy.
No one doubts the remarkable transformation brought about by the Internet. It has ignited a whole new era of economic prosperity. With an 85% market share in routers Cisco has certainly seized this opportunity and seen its stock market value soar to half a trillion dollars....
Meanwhile, Cisco Systems’ remarkable market capitalization is supported by only $20 billion in total revenue and represents a mere $2.35 in sales per share. The current share price is $67 and there are 8.5 billion shares of stock outstanding, including options. It’s the 8.5 billion shares outstanding that deserves more attention along with the illusion that Cisco is rewarding employees with stock options when in reality employees are prepaying their own wages while management pilfers the retirement system in a desperate attempt to sustain their financial scheme. A scheme largely based upon Microsoft like anti-competitive business practices still unknown to the general public.
Cisco claims that “everyone is doing it” yet this report will confirm that this is simply not true. One notable exemption, however, is Citigroup, which now has 4.5 billion shares outstanding and is the largest bank in the country with a market value of $230 billion. Citigroup is using a similar merger scheme and the equivalent of a “fee mill” to sustain its stock price.
This includes aggressively selling high priced annuity contracts into pension plans and various other practices, the exact opposite one would expect in a period of increased automation and efficiency....
For the new economy to regain its footing, industry dominating predators like Cisco Systems and Citigroup must first be exposed for what they are doing.
This will allow consumers to instead focus on the many excellent alternatives available, both as consumers of financial services and as investors....
The Big Players and a Historical Perspective
Cisco Systems is using techniques no different than those used by Charles Keating. Many forget that Keating was a hero in his day ... with even Alan Greenspan referring to his bank as “an outstanding success.” Sadly, Keating was the catalyst in destroying a great industry that allowed many consumers to purchase their first home....
You might ask, how does a company become worth half a trillion dollars with gross revenues of only $20 billion? And why do leading pension funds including Fidelity, Janus, AXA and Vanguard, which alone own more than $50 billion worth of Cisco shares, invest in the company? If $300 billion worth of Cisco shares are in equity mutual funds and other managed investment accounts, it is likely that more than $4.5 billion in management and brokerage fees, 1.5 percent, are being siphoned from its equity base each year....
Cisco is a giant company that has placed its employees, shareholders and customers in a mathematical vice resulting from a collapse of ethics and integrity by management. While they will note that “everyone is doing it,” we will see what is simply false....
Key Factors Leading To “Watered Stock” At Cisco Systems
1) Excessive use of the pooling method to account for acquisitions, thereby hiding the true cost of acquisition activity....
2) Paying employee wages mostly in non-qualified stock options. This removes the cost of labor from the financial statements and overstates earnings because these wages for options exercised, unlike cash wages, are not included as a charge to earnings.
3) Sales adjustments now represent a large component of gross revenues and investors should begin to ask questions. The first question should be, are gross revenues being manipulated by management? . . .
4) Cisco’s auditors, PricewaterhouseCoopers, are not independent and are helping disguise the scheme. This firm also audits Fidelity, Janus, AXA and Vanguard in addition to co-marketing Cisco’s products through its consulting division....
- For more, GO TO > > > Tracking the Pregrines at Cisco Systems
Enron - You may have heard of them, and their accountant Arthur Andersen. But, have you heard diddly-poop about the role of PricewaterhouseCoopers?...
November 29, 2001
PRICEWATERHOUSECOOPERS APPOINTED
ADMINISTRATOR TO ENRON
PWC News Release
Tony Lomas, Steven Pearson, Dipankar Ghosh and Neville Kahn of PricewaterhouseCoopers, were appointed joint administrators on 29 November 2001 to the European holding company of the Enron group and a number of its operating companies. Their appointment follows the credit-downgrading of Enron yesterday and the impact that has had on its ability to continue to trade. Inevitably, job losses are expected....
Tony Lomas commented:
“There is already very serious interest in Enron’s metal business and negotiations are expected to lead to a successful deal in the near term. The Enron group built an extraordinarily complex network of integrated businesses and this will take some time for the administrators to work through. Our primary focus will be on the large physical assets and trading position of the group.”
* * *
December 4, 2001
Companies circle to pick off Enron assets
By Mark Tran
Electricité de France today expressed an interest in buying Enron Direct, the European retail arm of Enron, the failed US energy giant.
"We are talking with PricewaterhouseCoopers to buy Enron Direct," Gérard Wolf, an EdF director said.
Enron Direct sells gas and electricity to small and medium-sized businesses mainly in Britain, where it has 150,000 customers....
With Enron filing for bankruptcy protection, companies are circling to pick off the company's best assets.
In the Philippines, the state-owned generator National Power Company, is looking at buying Enron's two power plant contracts in the country.
As for Enron Direct, apart from EdF, other companies said to be interested in include Britain's Centrica and Innogy groups and US-owned TXU Europe and Germany's RWE.
Unlike Enron's trading activities in the US, Enron Direct is not legally under administration but PricewaterhouseCoopers is supervising the sale of the retail business as part of its efforts to wind up Enron Europe.
Enron Europe went into administration on November 29, three days before its US parent filed for Chapter 11 bankruptcy protection in the biggest corporate failure in American history.
Enron, once America's seventh largest company, yesterday gained some breathing space when it secured an $1.5bn emergency round of financing.
Arranged by Citigroup and JP Morgan Chase, the money will be syndicated and is secured by substantially all of the company's assets.
Enron needs money to ensure delivery of commodities it had already paid for and to avoid eviction from its new 200,000 sq ft Houston trading floor.
* * *
For more, GO TO > > > The Story of Enron
Hanford's Creations, Inc. - A company that makes Christmas decorations. Owned by Elizabeth Hanford Dole, a friend of Mark McConaghy of PricewaterhouseCoopers, before she sold it to a group headed by Bishop Estate.
The estate promptly lost money on the deal.
See also: Mark McConaghy
Henry Peters - Ex-trustee of Kamehameha Schools/Bishop Estate.
From the RICO lawsuit : Civil No. CV 99 00304-DAE - Harmon v. Federal Insurance Co., P&C Insurance Co. Inc.; Marsh & McLennan, Inc., PricewaterhouseCoopers, et al:
Defendant Trustee Henry H. Peters, was appointed in 1984 by the Justices of the Supreme Court of the State of Hawaii, acting as individuals, and was entrusted with the fiduciary duty to administer the Estate of Bernice Pauahi Bishop for the education of the children of Hawaii....
Defendant Peters is also Chairman of the Board of Directors of P&C. Peters has also served on the Board of Directors of Mid-Ocean Reinsurance Co. (a Bermuda company); Underwriters Capital (Merritt) Insurance Co. (a Bermuda company); SoCal Holdings, Inc.; and numerous other companies owned by, or related to, KSBE....
Beginning around March 1996, Harmon began questioning what appeared to be excessive premium charges being made by Marsh & McLennan ... and for fees M&M was billing to P&C.
For the next several months, Plaintiff was subjected to threats, intimidation and various abuses from Aipa and Kam for questioning the excessive fees of M&M. Harmon asked Aipa about the status of his transfer (to P&C).
Aipa's response was that it wasn't going to happen because "arms-length was no longer an issue," (referring to previous legal opinions from Price Waterhouse that the IRS might revoke the Trust's tax-exempt status if it did not maintain arms-length from its taxable subsidiaries)....
* * *
From Equity No. 2048, Petition of the Attorney General on Behalf of the Trust Beneficiaries to Remove and Surcharge Trustees:
"The Trustees have been unfaithful to the Will and the purpose of the Trust. They have failed to comply with clear directives of the Will. They have subordinated the sole purpose of the Trust to their personal gain. They have squandered Trust assets intended for education by their excessive compensation, and by imprudent and improper Trust management and investments.
They have violated Hawaii statutes and court orders. They have engendered hostility between themselves and the Beneficiaries whose interests the Trustees were appointed to serve....
Peters became lead trustee for asset management in 1993 and assumed responsibility for Trust investments and for due diligence on prospective investments....
Peters as lead trustee purposely withheld information on existing and potential investments from his co-Trustees, dismantled the Trust's internal audit function, instructed staff employees to withhold information from the co-Trustees, and used his position to approve Trust payment of improper non-Trust expenditures....
As to Peters, the effect of these violations has been that Trust assets have been mismanaged and misspent to the detriment of the Trust purpose....
Trustees Peters, Wong, and Lindsey have violated their duty of loyalty to the Beneficiaries by using their positions as Trustees and by using Trust assets and opportunities to benefit themselves and their relatives and friends....
In 1992, the Trust invested approximately $31 million in Mid Ocean, Ltd. (Mid Ocean), a Bermuda-based insurance company, and acquired 310,000 Mid Ocean Class A shares.... In 1993, when Matsuo Takabuki retired as a Trustee of the Trust, Peters succeeded to Takabuki's seat as a director of Mid Ocean....
Peters served as a Mid Ocean director until early 1998. ... Peters' service as a Mid Ocean director fell within his duties as Trustee and was a Trust opportunity. . . . While a director of Mid Ocean, Peters received substantial director's fees and received options to acquire 6,000 shares of Mid Ocean stock. ... The Mid Ocean fees and stock options are assets that belong to the Trust and not to Peters individually. ... Peters has enriched himself at the expense of the Beneficiaries by retaining the fees and stock options for his personal benefit.
(Note: Marsh & McLennan, and its subsidiary, Guy Carpenter, were major players in the creation and management of Mid-Ocean.)* * *
Honolulu Star-Bulletin, 4/14/99, by Rick Daysog:
EMBATTLED EMPIRE . . . Larry Landry, former chief financial officer for the $4 billion John D. and Catherine T. MacArthur Foundation, which is a co-investor with the estate in a Boston-based investment fund and a Florida apartment complex, describes Peters as a savvy and thorough investment manager....
Deal promoters often approach large foundations and charitable trusts thinking they have deep pockets. But Peters brings a healthy skepticism to anyone who brings an investment to the estate, according to Landry....
"Henry is extremely bright and has the right kind of conservative (investment) philosophy," said Landry, who now serves as CEO of Florida-based Westport Realty Advisers....
In his review of the estate's 1994-1996 accounts, court-appointed master Colbert Matsumoto and the accounting firm of Arthur Andersen said the estate -- during Peters' tenure as acting asset manager -- generated an embarrassing return on investment of minus 1%.
During that period, the trust set aside more than $240 million in reserve for future losses....
That woeful performance came as Wall Street was in the midst of a record bull run in which investors could have made double-digit returns just by putting their money in an index fund....
Peters, charges stand out in lengthy Bishop Estate investigation. The state's exhaustive investigation into the Bishop Estate appears to focus on trustee Henry Peters as a central figure in the two-year controversy that's rocked the multibillion-dollar charitable trust....
In a September Probate Court petition to permanently remove several trustees, Attorney General Margery Bronster alleged that Peters took part in repeated acts of self-dealing and mismanagement.
The state's charges include: ... Between 1993 and 1998, Peters received options to acquire 6,000 shares of stock as well as substantial director's fees from a Bermuda-based insurance company, Mid Ocean Ltd.
The estate was a big investor in Mid Ocean. Peters has since declined to exercise the stock options, which would have been worth more that $400,000 under Mid Oceans's 1993 merger with competitor Exel Ltd. [another Marsh & McLennan financial venture]....
Peters directed trust managers and the estate's former Royal Hawaiian Shopping Center subsidiary to hire his friends and relatives for unbudgeted positions and outside consulting work, according to the state. The employees included former state Rep. Terrance Tom, local attorney Albert Jeremiah and Office of Hawaiian Affairs trustee and former state Sen. Clayton Hee....
Starting in 1995, a company headed by Peters' nephew received more than $1.3 million in nonbid and subcontracting work from the estate....
The company, Rhino Roofing, conducted renovation work on Peters' Maili home....
Since 1995, Peters' former employer, Dura Constructors Inc., received more than $2.7 million in nonbid work from the estate....
In one case, Dura billed the estate $465,000 to build an athletic locker room at Kamehameha Schools that was later deemed unsafe for student use. The trust would up correcting the building deficiencies itself and did not pursue Dura for the faulty work. Dura also conducted work on Peters' Maili home....
Along with his fellow trustees, Peters received compensation well above that of comparable organizations. In 1997, each trustee earned about $840,000 in commissions.
Peters and fellow trustees also spent more than $900,000 of trust money to lobby Congress against the passage of federal legislation limiting salaries for board members of charitable trusts....
* * *
Reporter Sally Apgar, in the 02/18/00 edition of The Honolulu Advertiser, revealed that the ousted Bishop Estate trustees used the trust money to "enlist" the aid of U. S. Sens. Dan Inouye and Daniel Akaka in 1995 to influence fellow members of Congress to vote against "interim sanctions" regulations that threatened the trustee's $1 million-a-year paychecks.
According to Apgar:
Thirteen confidential memos during the fall of 1995 through April 1996 detail the trustees' strategy against the bill....
The memos express the trustees' intent "to kill the measure" and their recruitment of influential contacts such as Inouye, Akaka and the Rev. Jesse Jackson. They also targeted others, including Sen. Daniel Patrick Moynahan of New York and even White House insiders such as Leon Panetta, then President Clinton's chief of staff, to win support....
The memos give a glimpse of the behind-the-scenes political power and influence the former trustees once wielded and describe a costly, intensive effort to protect their interests.
As previously reported, the ousted trustees hired former Gov. John Waihee and his Washington, D.C.-based law firm Verner Liipfert Bernhard McPhearson Hand to lobby against the federal legislation... Other Verner firm members enlisted in the effort included former Treasury Secretary Lloyd Bentsen of Texas, former Senate Majority Leader George Mitchell of Maine and former Texas Gov. Ann Richards....
The state Attorney General's Office has said previously that the trust paid the firm more than $900,000 for its lobbying efforts on intermediate sanctions legislation between 1995 and 1998.
Waihee alone was in charge of swaying Erskine Bowles, then assistant to the president and deputy chief of staff, and Doug Sosnick, then assistant to the president and director of political affairs....
Mark McConaghy of PriceWaterhouseCoopers LLP, a longtime tax adviser to the trust, was charged with contacting Leslie Samuels, then assistant secretary for tax policy....
Congressman Neil Abercrombie (D-HI) is also mentioned in the memos. For example, the Oct. 12 memo said, "Congressman Abercrombie is prepared to speak to Rep. Gibbons, the ranking minority member, Charles B. Rangel (D-NY) and Andrew Jacobs, Jr. (D-Ind) as well as GOP Rep. Nancy Johnson....
* * *
Honolulu Star-Bulletin, 5/21/99, by Rick Daysog:
It is alleged that trustees Peters and Wong
helped conceal $350 million...
Two weeks after a state judge temporarily removed four of the five trustees of the Bishop Estate, the state attorney general's office today filed court papers in a separate proceeding spelling out why trustees Henry Peters and Richard "Dickie" Wong should be temporarily ousted from their $1 million-a-year jobs....
In an 89-page proposed findings of fact, Deputy Attorney General Hugh Jones argued that Peters and Wong helped conceal $350 million in trust income that should have been spent on the estate-run Kamehameha Schools, paid themselves $131,000 more than they were entitled to and failed to adopt strict conflict-of-interest policies at the trust....
The result of these actions deprived scores of native Hawaiian children of an education at the Kamehameha Schools, Jones said....
For more, GO TO > > > Dirty Money, Dirty Politics & Bishop Estate
Industrial and Commercial Bank of China - From The Straits Times-Asia, 10/31/00:
ANTI-GRAFT AUDITS
TO INCLUDE TOP LEADERS
China's chief auditor plans to take his fight against corruption to almost the top of the country's political system, according to state media.
This follows the discovery of US$11 billion in mismanaged funds at Chinese government offices and businesses.
The astounding sum, reported by Mr. Li Jinhua, Auditor-General of China's National Audit Office, is one of the strongest indications of how mismanagement is in China....
"Corruption thrives under a lack of efficient supervision," the paper said....
According to earlier official reports, the auditing led to the discovery of misuse of funds at the Industrial and Commercial Bank of China, and the Construction Bank of China, causing losses worth more than 10 billion yuan (S$2 billion)....
Mr. Li's auditors found that individual officials and managers had misappropriated 590 million yuan. But this marked only a fraction of the 96.17 billion yuan mismanaged, if not embezzled, by offices and firms, the China Daily said.
The reports did not give details of how the funds were misused . . . But in previous reports over the past 18 months, Mr. Li has criticised officials for diverting government subsidies and spending lavishly on offices. There has also been talk of speculation in stocks. . . .
* * *
November 8 2000
CHINA SENTENCES 14 TO DEATH IN SMUGGLING CASE
By Jeremy Page, Asia 2000
China sentenced 14 people to death on Wednesday, including senior police and
customs officials, in the first verdicts of a multi-billion dollar smuggling scandal,
the biggest corruption case of the Communist era.
Those sentenced to death included the former customs chief and deputy mayor of the
southern port of Xiamen, and the former deputy police chief of southern Fujian province
. . .
But state media said the mastermind of the smuggling scam, businessman Lai Changxing had fled overseas after being tipped off by police....
Lai's Yuanhua Group smuggled more that $6 billion worth of cars, luxury goods, oil and raw materials in the early 1990s, paying off city and provincial officials to facilitate and cover up duty evasion, Xinhua said.
"The group also used money and women to seduce a number of government officials for the convenience of their smuggling activities," Xinhua said.
The smuggling "caused serious damage to the normal economic order, brought huge financial losses to the state, led to rampant corruption, and impaired the social, political and economic life in China," it said....
The death sentences included Xiamen's former customs chief Yang Qianxian and former vice mayor Lan Pu, and former Fujian deputy police chief Zhuang Rushun, Xinhua said.
Ye Jichen, head of the Industrial and Commercial Bank of China in Xiamen, was also given a death sentence....
Leon Panetta - Leon Panetta served as White House Chief of Staff under President Clinton from 1994 to 1997.
PBS Online, 11/8/96: Presidential Press Conference . . . President Clinton held a news conference, the first since his re-election victory Tuesday. The major announcement was that of Erskine Bowles to replace Leon Panetta as White House Chief of Staff . . .
PRESIDENT CLINTON: . . . I must begin by announcing that Leon Panetta, who has been my chief of staff since 1994, will be resigning....
REPORTER: The election is over ... but some questions remain. One of them is: How do you explain the obsession with fund-raising, especially from dubious Asian sources, and how do you overcome the image created by your opponent that you are a President who cannot be trusted?
PRESIDENT CLINTON: Let me answer the second question first. I think the American people, since they’ve been hearing this for five years, took a long, hard look at it, and they measured that against what they saw in terms of the work of this administration, in terms of the people who were laboring hard to make their lives better, and in terms of the President. And I think they made their judgment that I have worked hard for them, I will keep working hard for them ... and I think that they gave me their trust, and I’m going to do my best to be worthy of it.
Now, with regard to the contribution issue, the Democratic Party and the Republican Party raised a lot of money under the rules which now exist. The Democratic Party received over a million different contributions in two years. They determined two things: One is that a relatively small number of them – I think – I don’t know exactly what the number is but quite a small number out of a million, they should not have taken, and they have returned them.. They also– the Democratic Party said that they should have a tighter screen on contributions when they come in, and they’ve implemented an improvement so that they won’t receive contributions they shouldn’t give they can determine it at all. (Huh?) I think that’s a good thing. ... Terry.
REPORTER: Mr. President. Attorney General Reno is considering whether to appoint an independent counsel to investigate these allegations of improper fund-raising by your campaign. She says that she’s got–
PRESIDENT CLINTON: Wait, wait, wait. There have been no allegations about improper–
REPORTER: Well, by–
PRESIDENT CLINTON: That’s correct– by the Democratic Party– let’s–
REPORTER: She says that she’s–
PRESIDENT CLINTON: That was the other campaign that had problems with that– not mine.
REPORTER: General Reno says she’s caught between a rock and a hard place and that she’ll be criticized no matter what she does. I know that it’s her decision, but what do you think? Do you think that these– these allegations should be investigated by an independent counsel, and secondly, do you think that General– would you like to see General Reno stay on for a second term?
PRESIDENT CLINTON: I think on the first question I should have no comment on that. On the second question, I should have no comment on any personnel decision until I have had a chance to meet with the cabinet members....
* * *
From