TIME TO CLEAN UP PWC By CHRISTOPHER BYRON
August 18, 2003 -- PRICEWATERHOUSE COOPERS has got to come clean. That's the message that needs to get pounded through to Sam DiPiazza Jr., the big cheese at America's largest accounting firm.
PWC is up to its nostrils in the Lancer hedge-fund bog, and the stonewalling had better end before the damage to his firm escalates into something worse than it already is.
In the Lancer affair, more than $500 million of investor money has been hijacked in what is easily the most outrageous penny-stock swindle in Wall Street history, and it was audits from PWC that made the heist possible.
To keep Lancer afloat, PWC's Curacao office put its stamp on the worst, most indefensible audits the firm has produced since it gave a thumbs-up more than a decade ago to the crime-drenched Bank for Credit and Commerce International.
Now PWC is trying to figure out how to justify the unjustifiable, even as the firm's flacks vamp for time by pretending that the PWC operation in Curacao is on another planet, and that whatever went on down there certainly has nothing to do with the choirboys in Midtown.
Well, I'm sorry, Sam, but that dog don't hunt. You can call PWC's Curacao office a pepperoni pizza if you want to - but it's still a PricewaterhouseCoopers operation, and it says so on the checks that the office's 170 employees receive every payday.
SIMPLY put, the Lancer audits are indefensible, and the folks that did them know it full well.
In fact, The Post has learned that the two Pricewaterhouse audit partners in charge of the Lancer account were worried enough about the firm's exposure in the matter that they flew from Curacao to New York last February as lawsuits from irate investors began to multiply.
Yet documents seized from Lancer's offices and made public by the Securities and Exchange Commission last month show that by the time the meeting took place, the exercise was academic anyway - because the entire Lancer operation had, functionally speaking, already collapsed.
Many legitimate funds hold stocks in speculative companies. But the Lancer operation was different; the stocks in the Lancer portfolios consisted almost 100 percent of worthless penny stock trash - much of it controlled by white-collar criminals and other penny stock riffraff.
Lancer chief Michael Lauer had marked up the value of the trash until companies that lacked financial statements, employees, business products or even addresses were being carried on Lancer's books at tens and even hundreds of millions of dollars each.
These markups enabled Lauer to raise yet more millions of dollars, from yet more trusting investors, as he boasted of Lancer's eye-popping performance - certified, it seemed, by nothing less than the audits of PricewaterhouseCoopers.
But by the summer of 2002, a few timid investors, suspicious that Lauer would not tell them specifically which companies he held in the portfolios, began asking for their money back, and the jig was up. Reason: There was almost nothing in the portfolios that Lauer could liquidate to raise cash in order to pay the investors back.
THE PWC officials knew all this was coming. Not only had they reviewed - and accepted - the year-end valuations submitted by Lauer for the two previous years (2000 and 2001), but knowing that by 2001 the fantasy valuations were being applied to every stock in the portfolio, they stuck a risk-averting clause in the audit saying that the valuations had been provided by Lauer himself.
Nor will PWC be able to escape culpability by miraculously discovering that its files contain copies of the "independent appraisal" reports that Lauer says he relied on in preparing his own valuations for the auditors.
The Lancer documents that the SEC has now made public contain copies of five such appraisals prepared for Lauer this last spring to justify the year-end 2002 valuations shown on Lancer's portfolios - valuations that would have been the basis for the 2002 audit, had PWC actually done one.
One of the "appraisals" was done by a man named Milton Barbarosh, who is listed in the appraisal as president of a Boca Raton, Fla., penny-stock deal shop called Stenton Leigh, which has done business of one sort or another for at least six other junk stocks in the Lancer Offshore portfolio.
One of the worthless shells Barbarosh didn't appraise - Biometrics Security Technology Inc. - has its headquarters right in Barbarosh's office and actually lists his phone number as its own. Another of the portfolio's wonder stocks - Method Products Corp. - boasted Barbarosh as its chief financial officer.
A source in the Lancer office says Lauer told him this spring that Lancer has used these appraisal shops for "quite some time" and that he believes it likely they were used on the 2001 audit as well as the aborted 2002 effort.
But whether they were or not is really of no account, since all the "appraisals" on Earth cannot justify even a small fraction of the $841 million showing on the portfolio of Lancer Offshore Fund alone at year-end 2001 - the year of PWC's final audit - to say nothing of the millions more in the other Lancer funds.
Anyone having even a passing familiarity with Wall Street and investing would have needed to take but a glance at these portfolios - brimming as they were with millions in private loans carried at full face value to collapsing Bulletin Board and pink-sheets companies - to realize that the entire Lancer thing was absurd. The stock purchase warrants for Barbarosh's Method Products Corp. alone were shown on the portfolio at more than the entire market value of Method Products itself.
WHY Sam DiPiazza is allowing his firm to go on defending this sort of thing beats me. The PWC Web site overflows with fine sentiments about "corporate citizenship" and "creative leadership" and the firm's "vision of integrity." But when it comes to putting the words into practice in the real world, those fine sentiments seem to be viewed as nothing more than twaddle.
Maybe PricewaterhouseCoopers thinks that because Arthur Andersen has been taken out and shot, and the Big Eight accounting firms are now down to the Big Four, the government is not going to do anything to imperil the future for the survivors.
If so, they'd better think again. Last week the SEC issued an administrative ruling in which PWC's audit partner in charge of the Tyco International account was banned for life from auditing any public company ever again. Reason: his see-no-evil reviews of Tyco's fraud soaked financial accounts.
In an expression of just how out of touch with reality PWC may in fact be, it took no time at all for one of the firm's p.r. eunuchs to announce that PricewaterhouseCoopers was standing behind its disgraced partner anyway, on the theory that what he did was "in accordance with professional standards in place at the time."
When a company can permit one of its spokesmen to make a bird-brained and counter-productive statement like that in the wake of Enron, WorldCom, Qwest, Global Crossing, HealthSouth, Xerox, Salomon Bros., Adelphia and all the rest of them, well, maybe there really isn't much more one can say - except perhaps to borrow a line from Bogey as we reach closing time: "Go ahead, Sam; dig that hole a little deeper."
* Please send e-mail to: cbyron@nypost.com. |
