Thumping on Ebbers
"Let me clear my throat"
From today's Buzz:
""(The Ebbers case) pre-Dates Sarbanes-Oxley..." Mike Huckman
This guilty verdict elicited a number of reactions. That's pretty surprising as I hadn't much previously thought I cared about the case (these charges aren't exactly "news" to anyone who has worked at or really studied a corporation). In no order:
* As a member of a few boards (one public), "Yipes". I know of no fraud, suspect accounting or anything else at any of these companies. For that matter... I don't have any reason to question the verdict on Ebbers. But, all I really heard in terms of evidence was the-rat-guy saying that Ebbers told him "we better make the (estimated eps) number".
If something very close to that thought isn't at least in the middle to front portion of the mind of any of the CEO's of those aforementioned companies I serve... well, let's just say that I'd be vocal about my wanting to have the CEO's focused on demonstrating performance by... er... meeting or exceeding estimates.
Am I even allowed to say that anymore?
* My second thought is that it's a fairly important point that, as Mr. Huckman offered, this case pre-dates Sarbanes- Oxley.
It's impossible to measure the amount of money being burned by companies trying to comply with regulations related to Sarbanes- Oxley. It's pretty freaking hard to overstate my feeling that the public is getting, at best, nothing of benefit from these efforts. I actually think the public is worse off with the regulations.
(I'm pretty sure that I'm not, in fact, "allowed" to say things like that but there it is anyway.) "
The problem with my habit/ hobby/ profession of going off half-cocked is that some of those pesky "details" get lost in the text of outbursts. I seldom feel the need or desire to suck the outbursts back into my head upon reflection but I often need to clarify.
Such was the case on the above post. I didn't mean to in any way suggest some sort of sympathy for, or identification with, Bernie Ebbers. "Hang him high, baby", it's good for the markets in a small way.
The basic points intended were: 1. Ebbers was a crook but I'm not much convinced that his practices were particularly unique. The details of the sleeze ($11Billion or more) were massive but stretching EPS numbers was more or less commonplace. (And, for that matter, still is. I also sort of meant to reiterate that I didn't much pay attention to details of the case (helpfully offered below).)
2. But accounting fraud was a crime before Sarbanes- Oxley and remains a crime without the new regulations. Executives have "signed off on the numbers" since the crash of '29 ushered in the previously observed regulations. The problem was enforcement. The problem remains enforcement.
If you think of securities laws as the weapons the Feds and AGs use to shoot at bad guys you can think of Sarbanes Oxley as a shoulder-launched rocket to the previous laws being akin to, say, M-16s. You have additional "stopping power" now but you still need someone to aim. To bludgeon the deeply-flawed and dead-horse of a point, it's generally better if some level of competence is required before you allow folks to start firing these things at companies.
Thanks to the genuinely impressive Minyanville Network, I don't have to add much more. Minyan J "Wayne" C has already done a better job than I ever could:
I just wanted to add my 2 cents on your observation that there wasn't much against Ebbers except for his "hit the numbers." I should preface my remarks by admitting that I'm a lawyer, but I have no special insight into the case, and my source of info about the trial is the NY Post online because it had the most entertaining coverage (I live in Switzerland).
I think it's safe to say that there was a lot more than "hit the numbers." According to the published reports, one big part of the prosecution's case went like this: Ebbers claimed to have only concerned himself with the financials insofar as they related to one line item concerning a particular kind of expense. However, the prosecution pointed out the billion dollar fraud was recorded in a line item that was only a few lines above Ebber's focus of attention -- all on the same page. Obviously, the jury didn't believe that Ebbers didn't notice a billion dollar discrepency just a couple lines above the item that he admitted to scrutinizing. Also, the coverage reported that the prosecution presented the testimony of someone in the finance department who stated that she delivered two sets of books to Ebber's office -- one with the real numbers and one with the cooked numbers.
These are just two of the parts of the prosecution's case that I picked up on. Bottom line, I don't think you have much to worry about when your CEO says we have to meet our numbers. Of course, this is for entertainment and educational purposes, and not advice. ; )
Wayne, I am: a. Unworthy b. Grateful c. Comforted in a non-advising way.
Thanks for setting me straight on those pesky "facts" that I was rather casual in handling!
Sadly, I remain pretty uncomfortable with the feeling that the next bear market will usher in a massive CEO witch hunt when the illusion of Sarbanes- Oxley safety goes *poof. That's not a bearish call at all. I have no idea when it will happen, I just know that when the market goes down we go hunting for people to blame it on. It's something of a tradition.
Whenever it happens again so will the witch hunts. This time the fires are replaced by those aforementioned rockets for the the witches in question.
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