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Non-Tech : The Enron Scandal - Unmoderated -- Ignore unavailable to you. Want to Upgrade?

To: Glenn Petersen who wrote (2885)	12/25/2003 2:15:24 AM
From: The Duke of URL©	Read Replies (1) \| Respond to of 3602

It ain't that difficult to understand. The bank says we will lend you money. Don't tell your shareholders. We will sell some new debt securities and stock for you, too. You secure our loan with assets that have priority over the bonds we sell, and stock that we can dump if anybody gets wise. We will tell the world that you have 6 Billion on deposit with us. What we wont tell them is that we own the money. Oh, and don't tell our depositors who we sell the stock to, Oh and one other thing, if something goes wrong it's like the introduction to Mission Impossible: As always Mr. Phelps, you can tell anyone you got money on deposit with us, but if something goes wrong, the bank will deny any connection to you, and by the way, yes you may use our scanner. :)) And who friggin' cares if we get caught, there are no more laws which allow people to sue us anyway, ....and we OWN the SEC, right, Kenney-Boy??? ======================================================== [repetitive clap trap deleted] Parmalat Shows Bank-Created Problems Still Ticking Wed December 24, 2003 04:16 PM ET By Chris Sanders NEW YORK (Reuters) - The collapse of the Italian food giant Parmalat may show that Wall Street banks have changed their practices after the Enron scandal, but may be doing little to unwind problems of the past. A Citigroup Inc. entity incorporated in Delaware called Buconero -- "Black Hole" when translated from the Italian -- invested in a Parmalat unit which then loaned money to other parts of the Italian firm. Parmalat, which filed for bankruptcy on Wednesday amid a scandal surrounding at least $8.7 billion that went missing from the books of Italy's eighth-largest industrial concern, disclosed an investment deal between one of its units and Buconero in November. Experts said banks remain under intense pressure to create complex financial vehicles for their customers or risk losing highly profitable clients to rivals. The Enron scandal... Yet Buconero remained a Citigroup subsidiary throughout 2002, according to a Citigroup SEC filing in March 2003. A Citigroup spokesman said that at the time of the financing Parmalat had a 6 billion euro balance sheet and was "a market leading company." The 117 million euro financing was "relatively small, appropriate and approved by both Parmalat's independent and statutory auditors with respect to the transaction's accounting treatment and disclosure," he said. Yet, the spokesman also said that based on a policy adopted last year, the bank "today we would only do this type of transaction if a client agreed to provide greater disclosure." The world's largest financial services company also said it regrets the use of the name Buconero. ...Former U.S. Securities and Exchange Commission enforcement lawyer Michael Malloy ..."Why do anything that may make Parmalat look elsewhere for its business," he said. ... ...Parmalat said the deal with Buconero was listed on its group balance sheet under "financial contributions deriving from a participation agreement drawn up by a consolidated company, in partnership with a third-party financier." ...it took up to 15 years for Japanese banks to get out of complex lending arrangements that were hurting their balance sheets. ... "The presence of Sarbanes-Oxley has given a false sense of control," Malloy said in reference to the main U.S. corporate reform law brought in post-Enron. [ed. note. All sorbaines oxley does is blame everybody but the real criminals] ... After Enron -- where banks settled charges they helped the now-bankrupt energy trader manipulate its finances -- financial institutions including Citigroup set up internal committees to review each deal to ensure it will not put the firm's money or reputation at risk. [ed. note. unless of course the bank was making money and the board figured it could lie its way out] news.bbc.co.uk

To: Glenn Petersen who wrote (2885)	12/28/2003 1:47:10 AM
From: Glenn Petersen	Read Replies (2) \| Respond to of 3602

Technology to Fool Auditors: From Colored Pens to Computer Scanners nytimes.com Published: December 26, 2003 LET us pause to consider changes in the technology of fooling auditors with fraudulent documents. Back in the 1960's the fraudulent growth story destined to get the most attention was that of Equity Funding. It was a Wall Street darling with a concept that seemed ever so clever: It sold mutual fund shares to investors, and then allowed them to borrow against the value of the funds to purchase life insurance. Unfortunately, the concept did not catch on with customers to the extent desired. So the numbers were invented. When auditors asked to see the file on a phony insurance policy, the company's employees would simply fake it. With multi-colored pens and several people - it would not do to have the same handwriting on the application as well as on the medical examination - they put together files. The auditors never guessed. By the early 1980's, it was ZZZZ Best that showed how easy fraud could be. That carpet cleaning company was started by a 16-year old who wound up with stock worth more than $100 million after his company went public. To accomplish that fraud, auditors were shown bank statements that showed a lot of money coming in. In fact, recalled Brian Fox, a founder of Capital Confirmation, a company selling a service that it says will allow auditors to be sure bank confirmations are genuine, ZZZZ Best simply took real bank statements, whited out inconvenient parts and typed in different numbers and - crucially - names and addresses. Then a copier was used to produce documents good enough to fool the trusting auditors. They sent requests for confirmation to the addresses listed on the statements. Confirmations came, and the public offering proceeded. And now we have Parmalat. No longer was something as crude as Wite-Out required. Instead a scanner was used to put a real bank document in a computer, and the phony one was born. Assuming that the auditors were not complicit in the fraud - and let us hope that assumption is justified - what becomes clear is that while technology has changed, the credulity of auditors remains great. That credulity was much more understandable, however, in the Equity Funding and ZZZZ Best cases. Auditors there thought they were looking at routine files. At Equity Funding, each such file was not inherently suspicious. At ZZZZ Best, the rapid accumulation of cash might have seemed suspicious, but it was consistent with what might be expected of a very successful entrepreneur. No such understanding is possible with the most amazing part of the Parmalat fraud. There the auditors accepted at face value that Parmalat had 3.95 billion euros (then worth $4.1 billion) in a bank account in the Cayman Islands. They evidently failed to actually talk to the bank officer whose name was on the phony confirmation. Who ever heard of a bank account of that size? And why would a company with that much cash in the bank - not in some lucrative and complicated investment but just in a bank account - keep borrowing billions? The auditors do not seem to have been overly curious. To be sure, excessive credulity is not confined to auditors. Even after the phony bank account was exposed, there were buyers for Parmalat shares. In each case - Equity Funding, ZZZZ Best and now Parmalat - the technology needed to fool the auditors was available to almost everyone. Scanners may not be as cheap as the old colored pens, but they are not expensive. Is it too much to ask that the auditing firms come up with a foolproof way to assure that bank accounts are real?