SEC Opens Door to Accounting Fraud – Again


We all know about movement conservatives’ mania for “personal responsibility” – if somebody of limited means overextends their credit and gets hit with massive hidden charges or makes their payments late and gets hit with outlandish late fees, why, that’s their “responsibility” and they should have known better. Now they have to pay the price of their ignorance.

We also know that the concept of “responsibility” does not extend to corporations as far as they’re concerned. If corporations duck taxes or make their profits look bigger than they are through unethical accounting tricks a la Enron, WorldCom, Tyco, et al, why, that’s not something they need to take “responsibility” for and regulators need to get off their backs. In fact, armies of lobbyists will descend on legislators to argue that the poor corporations are victims of governmental abuse and in need of relief.

The Republican-dominated SEC (Securities and Exchange Commission) which is supposed to regulate corporate financial accounting to make them “responsible” and keep them from stealing from their investors, the Treasury, and us, apparently agrees. Led by Bush appointee Christopher Cox, it just disemboweled the Sarbanes-Oxley law passed a few years ago to prevent more Enrons and Arthur Andersons.

Securities regulators yesterday voted to overhaul a corporate rule covering financial risks, reacting to intense pressure from Congress and years of criticism from industry groups who claim the directive proved too expensive and burdensome.

In a 5 to 0 vote, the Securities and Exchange Commission urged public companies to review only their most critical financial policies for possible fraud and abuse. The agency also cut the amount of work that outside auditors need to perform on clients’ financial controls, blamed for rising audit fees over the past three years.

The adjustment to a rule known as Section 404 after its location in the Sarbanes-Oxley corporate accountability law is a substantial victory for business.

(emphasis added)

You can say that twice.

The heart of Sarbanes-Oxley was its insistence on financial reviews and controls implemented by the corporations but strictly supervised by the accounting firms who kept the books – precisely what Anderson didn’t do and why Enron was able to hide its illegal manipulations and offshore, off-the-books holding companies. The SEC’s tiny change – only a few words – effectively excuses accounting firms from responsibility for the very oversight S-O required.

Using the oldest corporate argument in the book, for years teams of lobbyists have been button-holing SEC members and whining at them that the new rules of accounting oversight were just too much – too expensive, too intrusive, too time-comsuming, too labor-intensive, too too too. Basically, “Waaa-aa-aah!”

And the SEC caved, as most of us expected it to given its new leadership.

Christopher Cox is a Republican political hack and a stone movement conservative whose motto is, “Business can do no wrong.” His bio on the SEC website has him taking credit for the “vigorous enforcement of the securities laws” *choke* and for “bringing ground breaking cases against a variety of market abuses including hedge fund insider trading, stock options backdating, fraud aimed at senior citizens, municipal securities fraud, and securities scams on the Internet.” *gag*

Um, anybody remember reading about the SEC doing any of that lately? Of course you don’t, and the reason is simple.

For 10 of his 17 years in Congress, Chairman Cox served in the Majority Leadership of the U.S. House of Representatives. He was Chairman of the House Policy Committee; Chairman of the Committee on Homeland Security; Chairman of the Select Committee on U.S. National Security; Chairman of the Select Committee on Homeland Security (the predecessor to the permanent House Committee); Chairman of the Task Force on Capital Markets; and Chairman of the Task Force on Budget Process Reform.

In addition, he served in a leadership capacity as a senior Member of every committee with jurisdiction over investor protection and U.S. capital markets, including the House Energy and Commerce Committee (as Vice Chairman of the Oversight and Investigations Subcommittee); the Financial Services Committee; the Government Reform Committee (as Vice Chairman of the full Committee); the Joint Economic Committee; and the Budget Committee.

This clown was a key player in the total lack of oversight in the Republican Congress that ensured Enron would be allowed to happen. He did the exact opposite of everything he takes credit for doing in his bio – a classic example of standard Bush Admin black-is-white-day-is-nightism. He actually prevented everything he says he enforced from being enforced.

What the “adjustment” he’s just written effectively does is take responsibility for evaluating corporate accounting procedures away from the accounting firms that have to sign off on it, and gives it back to the companies themselves.

SEC officials said as part of the overhaul that accounting firms would be directed to evaluate only the strengths or weaknesses of clients’ financial controls, not the process by which companies developed or reviewed their controls.

I’m sorry, but would somebody please explain to me how they can “evaluate” those strengths and weaknesses without looking at the way they were developed and used?

This is the old Bush-approved “voluntary compliance” theory of corporate accounting supervision in a different suit – a theory which has proven over and over again to be an utter failure. The companies get to decide what needs to be reviewed and accounting firms get to keep their mouths shut and ask no questions.

Kenny-Boy may be dead but his spirit lives on.

In the SEC.

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