Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Voltaire who wrote (53444)	7/1/2002 9:14:15 PM
From: stockman_scott	Respond to of 65232

It was once a feared watchdog. So why did the SEC fail American investors? Former SEC boss admits reforms were stymied by intense lobbying on Capitol Hill By Nigel Cope, City Editor The Independent 28 June 2002 The WorldCom scandal has thrown the spotlight on America's Securities and Exchange Commission as never before. The main US financial regulator was once seen as the most powerful and feared watchdog in the world. Now it stands accused of failing to push through regulatory changes that would have helped prevent the series of US corporate meltdowns running from Global Crossing to Enron and on to WorldCom. The SEC's current chairman, Harvey Pitt, has been accused of being too close to business to be truly independent. And as if all that were not enough the SEC has been upstaged by New York State Attorney General Eliot Spitzer who stole its thunder with his assault on stock ramping at Merrill Lynch. The former SEC chairman Arthur Levitt, who left last August, has been trenchant in his views, even admitting that regulatory bodies had been "asleep at the switch". "All of the gatekeepers, traditional guardians of the public interest have failed," he says. "Not just the accountants, that's the easy one. I am talking about the lawyers, boards of directors, the rating agencies, the standards setters, the regulators. A whole host of gatekeepers were asleep at the switch." Mr Levitt claims he tried to push through radical changes in US accounting regulation but ran into a roadblock of objections from the business lobby in Washington. Asked what sort of pressure he was subjected to, he says: "It was considerable. The amount of money the [accountancy] profession spent on Capitol Hill was enormous. We only got half a loaf. It wasn't enough but it was progress." Mr Levitt had been proposing to separate the audit and consultancy functions of the big accountancy firms so that they would have been able to undertake either audit or consultancy work for clients, but not both. He had also wanted to introduce a system whereby listed companies would be required to disclose how much they were paying in audit fees and how much for consultancy. Consultancy payments typically dwarfed audit fees by a ratio of seven to one. He was apparently contacted by dozens of members of Congress telling him to back off. He was also told in no uncertain terms that he was dealing with people who were in charge of setting the SEC budget. In other words, 'play the game or your funding will be cut.' Commenting on pressure from the business lobby, an SEC spokesman said: "Serious reform efforts were proposed by the SEC and were frustrated by those who felt they were too tough." Asked whether the SEC was still being leant upon by big business, the Commission adds: "It's a little different now. Our proposals are being trivialised to undermine them, rather than being attacked for being too tough." David Martin, a former director of corporate finance at the SEC who is now head of securities at the US law firm Covington & Burling, says the issues are so vast that even a body such as the SEC cannot stamp on all abuses. "It's not the most powerful agency in the world, like we used to think. It can only get so much done. It develops some pragmatic and fatalistic approaches to things." He adds that the business lobby in Washington became so strong because the business environment of the 1990s was so bouyant. "Now the pendulum might be swinging the other way." Belatedly the SEC has tabled a fresh set of proposals designed to tighten regulation of company auditors. On 20 June, less than a week before the WorldCom scandal broke but six months after the Enron crisis, it proposed a series of rules designed to restore the reliability and integrity of the financial reporting process. The SEC is making bold claims for the changes: "This is the most sweeping re-writing of the security laws since the creation of the SEC in 1934." The key elements of the proposals are the introduction of a Public Accountability Board which would regulate the accountancy profession but not be controlled by it. It would have a nine member panel, only three of which would be accountants who would also be barred from voting on disciplinary measures. Instead of being funded by the profession on a voluntary basis, there would be mandatory contributions from the audit firms and public companies. This would replace the existing self-regulatory system which is based on a system of "peer reviews" where firms periodically review the work of another firm. Not surprisingly these reviews have rarely found anything untowards. Next month the SEC is due to publish additional proposals on the subject of auditor independence, which appear to be considerably weaker than they might be. The strongest element is a move to bar audit partners from having any part of their pay or bonuses affected by the fees from other services such as management consultancy. However the proposals controlling accountancy firms undertaking audit and management consultancy work for the same client look fragile. Firms will be able to undertake both kinds of work for clients if approved by an audit committee not just by the chief executive. This would not address companies dominated by one senior figure such as a combined chairman and chief executive. In the UK, the Financial Services Authority is considering more stringent regulation, though it is not an accountancy or auditing watchdog. Next month it will launch a review of the listing regime in the UK. Ideas being considered by Sir Howard Davies include barring audit firms from undertaking consultancy work for the same client. However, it is seen as more likely that he will propose a disclosure of non-audit fees. Other ideas include compulsory rotation of a company's auditors every five to seven years. In the US the SEC reacts angrily to suggestions that its new chairman has a cosy relationship with business that will make him pull his punches in his regulatory duties. A former top corporate lawyer with Fried, Frank, Harris, Shriver and Jacobson, Mr Pitt is the classic poacher turned gamekeeper. The SEC says far from going soft on his former commercial colleagues his regime has launched more investigations than the SEC ever has in the past. "A lot of his former clients are very upset with their former lawyer," the SEC says gleefully. As for being upstaged by the attorney general, the SEC becomes positively apoplectic. It will not comment on the record but says it had already started on new proposals for tighter financial regulation back in October of last year and published them in February months before Mr Spitzer began his campaign. The would-be governor of New York was waging a high-profile campaign that was politically motivated, they say. Now, though, this wounded watchdog needs a high-profile campaign of its own. And a high-profile corporate scalp would not go amiss either. news.independent.co.uk BTW, V it sounds like you've done your homework on TYCO...There may be some serious UPside potential BUT don't take their accounting for granted. Some smart Value Fund Managers like Bill Miller of Legg Mason have been buying TYCO. Who knows, buying at these prices may prove to be very profitable...Good Luck...=)