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Quick Thumping Mail Bag


"It's not about keeping your books 'clean', it's about keeping them compliant"


Minyanville Mailbag!

Minyan RS"S Intrepid" Writes:

Has Sarbanes-Oxley cleaned up corporate malfeasance or just sanitized it?



I've written whole big piles of griping about the unintended effects of Sarbanes-Oxley of late, both in the Buzz and Longer Screeds.

You touch on the real core of the issue with the regulations, and why they are nothing but folly, with the term "sanitized it". There are two competing schools of thoughts with regard to securities regulation. Under one philosophy you can issue broad laws, covering generally transactions that by their very nature are unethical and prosecute zestily when violations are discovered.

Despite the problems of the 90's resulting from a lack of enforcement rather than a lack of laws, Sarbanes-Oxley sought to clean the Street employing the idea that we can stop corruption if we just create a much larger rule book.

The issue with that philosophy is that there can never be a comprehensive, specific list of laws. It's impossible... once you've completed the book of all securities violations all a thinking criminal needs to do is think of "something, anything, else". Any practice that isn't a violation of a specific set of laws not only won't then get a smart criminal in trouble it will be implicitly condoned.

Depending on the savvy of their financial controllers and legal staff, there's a whole stack of "something else's" available for clouding unhappy financial facts. From today's news, consider Circuit City's (CC) report.

Is it compliant? Sure... heck, CC delayed reporting to make sure that it was.

Is it clean?

I'll let you know if and when I ever figure out what it says.
With earnings season heating up we'll get a good feel for how clean the numbers are.

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