Gail,
Yes, when Louis asked JD what he liked now, he mentioned Core Data, Bally Total Fitness, and CD, mentioning that CD was controversial now but he expected a rebound after the formal audit was complete. I noted that Core Data and BFIT are thinly traded stocks, so I didn't pay attention to those recommendations. I don't think CD is part of his official WSW portfolio, so it won't hurt his reputation because Louis only keeps score of the official portfolios. But I bet a lot of his private clients are fuming at him now. Ten point drops do that to clients.
Re: the auditors. I find it amusing no Big Six accountant has commented on this case that I am aware. I am no accountant, but that little blurb you get with your favorite stock's annual report says the auditors are supposed to verify, 'on a test basis', what they've been told by the auditees. In my mind, that means the accountant waves his pencil over the books, drops it on a line, and says "prove to me this figure here is accurate". (My company is being ISO audited this week. It does not involve money, but an auditor could pick me out *at random* from company employees and ask me to demonstrate that my company is telling the truth about certain things, the things being selected *at random*. I figure a financial audit is pretty much the same thing). I would think the Revenue line would be an important line; maybe not explicitly audited every year but certainly audited often. For the accountant to be duped (rather than slipshod and complacent), the company would have to have engaged in massive fraud because how else to produce bogus receipts, invoices, and all that stuff to back up the revenue figure?
Ernst and Young are saying they were duped, but (speaking again as a layman) I'd have to hear another Big Six firm say: "Why Yes, that's quite Plausible, Happens to Us All the Time" before I'd believe it. But whether E&Y were duped or not, it still doesn't speak well for CUC. Time for heads to roll.
BTW I too am long SFA having bought in during the October crash. In my mind, SFA is an investment; CD is a trade.
Best of luck to all. |
