I know that many of you who check this blog are probably also on my newsletter mailing list so you probably already received my emailing regarding my brand-new seminar: “Auditing for Investment Fraud”. I truly believe that this is the most exciting and important seminar that I have designed in many years, and anyone who has any control responsibility for the investment department should definitely attend. If you didn’t get my email I have pasted it below. But after it, let me explain how it ties perfectly to the relaxation of “mark-to-market” under FAS 157 and how we are slipping into another opaque, phony period in U.S. financial markets and reporting.
The reason for my email is to introduce to you a brand-new seminar I have just designed. This seminar is unlike anything we’ve ever offered before. With the turmoil and scandals that have rocked the global economy during the past 18 months this new session perfectly addresses the needs of every institution. AFS Seminars LLC is the only organization offering training which addresses these critical issues. I will even be discussing the recent relaxation of the “mark to market” accounting rules under FAS 157.
I recently completed a six-week consulting engagement as part of an internal audit investigation team and it was one of the most eye opening experiences in my professional lifetime. It was that engagement that was the catalyst for me to immediately begin designing this new program to offer to clients.
The financial world has been brought to its knees with a variety of scandals, dangerous securities, lack of controls and inadequate or inappropriate pricing and accounting of securities portfolios. I have been around the markets for 29 years and I can assure you of many things:
–I would have never invested dime one with Bernie Madoff
–The Barings/Nick Leeson and SocGen scandals would never have occurred had I been in the chain of command over those traders
–Orange County California would have never ended up bankrupt had I had any control over their treasurer Bob Citron
–No organization that I was making management decisions for would have invested in the CDO’s that are now stuck in the windpipe of the world’s financial system
And I could go on and on and on with these examples, but I will spare you that. The simple truth is that after all of these scandals broke, it was painfully obvious that someone should have caught these risks before they caused such devastation. But in order to catch the problems early it requires someone who knows what they are looking for.
That’s what this new seminar is designed to do; Boil down a lifetime of experience in the financial markets and relate it to my audience in a matter of two days. This is an extremely intensive program and although the title includes the word “auditing”, this program is not for auditors only. It is for any member of your organization who needs to understand any of the following:
– Appropriate internal controls for an institutional investment department and the infrastructure of the investment markets.
–Complex security types and structures and the risks associated with them.
–Appropriate accounting and pricing of portfolios including the most recent changes to mark-to-market accounting under FAS 157.
–What caused all the major scandals of the past 20 years and what went wrong in each case including the most recent like Madoff and Stanford Financial.
I am making this seminar available immediately to be held in-house at your location with as few as 10 people attending. I am also willing to work with the leadership of associations and organizations to arrange the session for your members. We have been the most cost efficient provider to the financial community for 20 years now and that has never been more important that right now. This course is priced at $500 per person plus travel expenses and there are discounts available for larger groups. The session also qualifies for 15 hours of CPE credit.
My recommendation is that the following staff should attend this program:
–Internal and External Auditors
–Investment Operations Staff
–Investment Systems & IT Professionals
The session is also available in condensed format for presentation to boards of directors.
If you would like a complete course description with daily schedule, or to inquire about available dates, please drop me an email at firstname.lastname@example.org or contact my offices at (860)347-6568.
Please contact me directly if there are any questions I can answer for you. I look forward to seeing you in one of my programs soon.
We are entering another extremely scary moment in the history of financial fraud at this very moment and what makes it so scary is that it is government sponsored. It is quite a change of events from less than 10 years ago, when the dirty accounting of Enron, WorldCom and others lead to losses of billions of dollars for investors and the knee-jerk passage of Sarbanes-Oxley by the U.S. Congress. SOX was perhaps the worst legislation since Smoot-Hawley in 1930. It causes undue hardship to public U.S. companies and has caused the U.S. to be a less likely destination for any multi-national company seeking a home.
I thought one of the unexpected positives of Enron and WorldCom is that my auditor friends were now longer willing to get pushed around by their client companies. Unlike Arthur Anderson who would seemingly sign any financial statement if you were paying them enough, auditors began to boldly tell clients no. No, we won’t sign those so fire us at your peril. My experience and observation was that it made the financial system more honest. SOX didn’t make it better, it simply made it more burdensome. But now the government is the one leaning on my accountant friends to turn a blind eye to the completely fictional nature of these asset values. Just when the auditors had some leverage with clients to try and keep them honest, the government turns into Tony Soprano and leans on them to look away. This will come back to haunt us much sooner than you may expect.
But where are we now? Now we are living in a world were first the politicians were bullying the ratings agencies to NOT downgrade the bond insurers last year from AAA/Aaa even though EVERYONE knew the companies deserved nowhere near that sort of rating. Nor were any bonds insured by the companies trading at prices that were commensurate with a AAA/Aaa rating.
And now we have the government leaning on (forcing actually) FASB and my accountant friends to turn a blind eye to the actual value of assets held by companies. These earnings being announced by these banks are being artificially inflated by the sudden increase of the “value” of the crappy assets they hold. That and the fact the banks can now borrow from the Federal Reserve at 0% interest and lend it out at rates above zero. Pretty nice business if you can get it. No wonder the U.S. government announced over the weekend they don’t want their TARP money back and would rather exercise the convertible feature of their preferred share and become the owners of the banks. Who wouldn’t want to be in that business.
Everything occurring right now is phony. The assets held by these institutions didn’t suddenly become more valuable. They are still crap. No amount of accounting changes or lipstick will change these pigs.
And don’t believe all the nonsense about how the markets for these “toxic” (God, I hate that freaking term) has been “frozen” and no one is willing to trade them. This is complete and utter bullshit. There have been plenty of bids out there from extremely smart people with very healthy balances in their checking accounts. The problem is that none of the investors holding the crap are willing to sell at prices that investors are willing to pay. Those investors also faced the problem that if they WERE to sell at the legitimate price, then they would have to mark the rest of the crap to that fair market price. The problem with that scenario is that all these banks would be bankrupt on that morning.
The United States government is the Enron of today. They are actively promoting fraud in financial reporting and are experts in this arena having done it themselves for many, many years. After all, why would Federal law require pensions in the private sector to fund their pension plans when the government would grant themselves an exemption from this requirement? How could financing the Iraq War be an “off balance sheet” item that isn’t part of their budget. Any corporation who tried that would likely be prosecuted under Sarbanes-Oxley.
This is all nonsense. So I’ll give you the same advice my manager gave me on my first morning at work after joining the Wall Street community, which seemed amazingly jaded and cynical to me at the time SO many years ago:
“Mike; this is Wall Street. Don’t believe anything you hear and only half of what you see since almost nothing here is true.”
Sober advice, but good advice nonetheless. Take the advice for this precise moment of financial history.