Showing posts with label 2010 news. Show all posts
Showing posts with label 2010 news. Show all posts

Sunday, 24 April 2011

Lehman Examiner Finds Fraud, Probably

07:24 Jas

Should accounting tricks be added to the long list of things that caused the financial crisis? I'm not sure. Turns out Lehman was even more leveraged than we thought. A report out on Thursday by a court appointed examiner into what went wrong at Lehman Brothers finds that the firm towards the end of its existence regularly employed accounting tricks to gussy up its financial statements at quarter end. The report is 2,200 pages and you can find a good portion of it here. The firm hid as much as $50 billion in loans a quarter in order to look like it was less leveraged than it was.  The transactions were called "Repo 105" by the bank, and were used to move loans off its balance sheet for a few days at time. Conveniently, the days the loans went missing happened to always be the days that the firm had to report its books to the public.
This seems like fraud to me. The examiner calls it "actionable" and he says the moves open Lehman and its executives up to suits from shareholders who could claim, it appears rightly so, that they were mislead. Still I am not convinced accounting played as big a role in this crisis as past ones. Here's why:
Yes, Lehman does seem to have hid some of its loans. And that means other banks were probably using this trick as well. But how much did the trick distort Lehman's books. Not much. In fact, even if Lehman had made all of its loans available for everyone to see it's not clear that any investors would have cared, or the NY Fed would have spent one more minute thinking about the firm's solvency.
That's because the vast majority of its loans and illiquid investments were out there for all to see. In fact, if you add back in the $50 billion the firm was hiding the firm's net leverage ratio moves from 12.1 to a whopping 13.8. Merrill Lynch had a leverage ration of more than three times that.
What the moves did do was to shield the firm from criticism from the likes of short-sellers like David Einhorn who claimed the situation at Lehman was getting worse, but couldn't prove it. On the margin, Lehman's accounting trick made it look like its leverage ratio was either stable or improving. Nonetheless, people like Einhorn didn't need another reason to short Lehman Brothers. They already knew something smelled at Lehman. They just didn't know what they were smelling was slightly worse than they thought.
Perhaps the biggest takeaway from this is that Sarbanes-Oxley has again proven useless in preventing corporate fraud. Accounting fraud is exactly the type of thing Sarbox was supposed to stop by beefing up corporate boards and imposing new accounting oversight all the way up to the board level. But the Lehman examiner's report says the investment bank's executives were able to keep its board in the dark. The examiner says board members appear to have had no knowledge of the "Repo 105" accounting trick. Just another sign that the true failing that caused the financial crisis was at its heart a regulatory one.


Read more: http://curiouscapitalist.blogs.time.com/2010/03/12/lehman-examiner-finds-fraud-possibly/#ixzz1KRzdPZZ9

Diebold To Pay $25 Million Civil Penalty Over Accounting Fraud

06:01 Jas


Diebold To Pay $25 Million Civil Penalty Over Accounting Fraud

Wednesday, June 02, 2010

SEC CHARGES DIEBOLD AND FORMER FINANCIAL EXECUTIVES WITH ACCOUNTING FRAUD.
Former Diebold CEO To Reimburse Cash Bonuses, Stock and Options Pursuant to Section 304 of the Sarbanes-Oxley Act
The U.S. Securities and Exchange Commission today filed fraud and other charges against Diebold, Inc. ("Diebold"), Gregory Geswein, the company's former Chief Financial Officer, Kevin Krakora, the company's former Controller and later CFO, and Sandra Miller, the company's former Director of Corporate Accounting. Diebold is an Ohio corporation that manufactures and sells automated teller machines, bank security systems, and electronic voting machines. The company's stock is registered with the Commission and listed on the New York Stock Exchange.
The Commission alleges that Diebold, Geswein, Krakora, and Miller engaged in fraudulent accounting practices to inflate the company's earnings to meet forecasts. As alleged in the complaints, from at least 2002 through 2007, these fraudulent practices included (i) improper use of "bill-and-hold" accounting; (ii) improper recognition of revenue on a lease agreement subject to an undisclosed buy-back agreement; (iii) manipulating reserves and accruals; (iv) improperly delaying and capitalizing expenses; and (v) improperly writing up the value of used inventory.
The Commission alleges that Diebold filed at least 40 annual, quarterly, and other reports with the Commission, and issued dozens of press releases, that contained material misstatements and omissions concerning the company's financial performance. According to the complaints, Diebold's improper accounting practices misstated the company's reported pre-tax earnings by at least $127 million. As alleged in the complaints, to correct the recent misstatements, on September 30, 2008, Diebold restated its financial statements for the years 2003 through 2006, and the first quarter of 2007, in its Form 10-K for 2007.
The Commission charged Diebold with violating Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13. Without admitting or denying the Commission's charges, Diebold has agreed to consent to a final judgment ordering the company to pay a $25 million civil penalty and permanently enjoining the company from future violations.
In a contested action, the Commission charged Geswein, Krakora, and Miller with violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the of the Exchange Act, and Exchange Act Rules 10b 5 and 13b2-1, and aiding and abetting Diebold's violations of Sections 13(a), 13(b)(2)(A) and13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13. In addition, the Commission charged Geswein and Krakora with violating Exchange Act Rules 13a-14 and 13b2-2 and Section 304 of the Sarbanes-Oxley Act of 2002. The Commission seeks against these defendants permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, civil monetary penalties, and, with respect to Geswein and Krakora, officer-and-director bars and reimbursement of bonuses and other compensation.
In addition, the Commission filed an action against Walden O'Dell, the former Chief Executive Officer of Diebold, seeking reimbursement for bonuses and other incentive-based and equity-based compensation pursuant Section 304 of the Sarbanes-Oxley Act of 2002. The Commission's complaint alleges that Diebold was required to restate its annual financial statements for 2003, as well as other reporting periods, as a result of fraud and other misconduct. The complaint further alleges that O'Dell received from Diebold cash bonuses, shares of Diebold stock, and stock options during the 12-month period following the issuance of Diebold's 2003 financial statements, and that O'Dell failed to reimburse Diebold for that compensation. The complaint does not allege that O'Dell engaged in the fraud. Without admitting or denying the Commission's allegations, O'Dell has agreed to consent to a final judgment ordering him to reimburse $470,016 in cash bonuses, 30,000 shares of Diebold stock, and stock options for 85,000 shares of Diebold stock.
The Commission acknowledges the assistance of the U.S. Attorney's Office for the Northern District of Ohio and the Federal Bureau of Investigation.

http://www.thevileplutocrat.com/bile/articles/diebold_to_pay_25_million_civil_penalty_over_accounting_fraud/

SEC sues ex-Dell accountants over fraud

05:40 Jas

NEW YORK | Fri Aug 27, 2010 8:21pm EDT

(Reuters) - The U.S. Securities and Exchanges Commission on Friday sued two former top accountants of Dell Inc for manipulating financial statements to meet Wall Street earnings targets between 2001 to 2003.

The regulator said in its suit, filed at the U.S. District Court of the District of Columbia, that former Chief Accounting Officer Robert Davis, and former Assistant Controller Randall Imhoff had maintained a number of 'cookie jar' reserves -- an improper accounting method in a bid to cover shortfalls in Dell's operating results.

The SEC said the improper accounting led to Dell having to restate all its financial statements from 2003 to 2006.

Dell, the world's third largest computer maker, last month agreed to pay $100 million to settle charges by the SEC that it had used hidden payments from Intel Corp and fraudulent accounting to meet analysts' targets.

Under the settlement, Dell founder Michael Dell, along with former CEO Kevin Rollins, each agreed to pay $4 million. Former Chief Financial Officer James Schneider agreed to pay $3 million.

The cases are re: SEC v. Davis, No. 10cv1464, and SEC v. Imhoff, No. 10cv1465, U.S. District Court, District of Columbia.

(Reporting by Yinka Adegoke; Editing by Richard Chang)

Lehman Brothers' 'Repo 105' Accounting Scandal

05:23 Jas

Accounting Gimmicks or Outright Fraud?

By Adam Sharp
Monday, March 15th, 2010
Nearly 18 months after the collapse of Lehman Brothers, it looks like we might finally get some answers.
The long-awaited bankruptcy examiner's report came out Friday — and it's a whopper — clocking in at 2200 pages. The examiner looked at 10 million e-mails and 20 million documents in the case.
The financial world is still digesting the report, but the first scandal is already emerging. The biggest revelation so far is that Lehman was cooking their books since at least 2007. In the final quarter before filing bankruptcy, accounting tricks boosted their balance sheet by $50 billion.

Let's Get Some Lipstick on This Pig
Insiders called the scheme a "Repo 105." And let me tell ya, Lehman took a page straight out of Enron's playbook with this one.
Here's how it worked: Lehman entered into repurchase agreements with banks in the Cayman Islands. Under the deal, Lehman would "sell" toxic assets to the other bank — with the understanding that they would buy them back in a short time.
The trick made Lehman Brothers look much healthier — on paper, at least. These guys were desperate to fool investors and credit rating agencies. They had screwed up on a truly collosal scale, and lined their pockets all the while.
If (or when) the truth got out, executives knew their careers and reputations would be at stake. But by engaging in this kind of book-cooking to cover it up, they could end up behind bars.
Banks use similar repo agreements all the time. But they mark them on the books as loans, because that's what they are. Lehman marked them as sales. That might not sound like a huge deal, but the effect was that Lehman had $50b more in cash on its books, and $50b less in toxic mortgage assets. 
This is complicated stuff, and that's not a mistake. Scams like this are complex by design. The goal is to confuse the mark. In this case, we were all the mark.

Accounting "Gimmicks," or Just Plain Fraud?
The examiner's report tip-toes around the f-word (fraud) using very careful language. Not one mention of fraud in sight. They refer to "gross negligence," but that's not necessarily a crime. And media outlets are reporting on Lehman's accounting "gimmicks," "tricks," or — my favorite — "shenanigans."
Let me get this straight: Lehman intentionally manipulated their accounting with the goal of deceiving investors, rating agencies, and possibly their regulators, leading to the largest corporate bankruptcy in U.S. history... And that's only considered "negligence"?
Being negligent means you lack concern or aren't paying attention when you should be. It doesn't mean willfully lying on your financial statements. What Lehman did sounds a whole lot more fraudulent than negligent. And this type of blatant manipulation is being referred to as a gimmick? Ridiculous.
The Repo 105 scandal is just getting started, but already the accusations are flying. Dick Fuld, former CEO, is denying knowledge of the Repo 105 transactions. Not true, according to COO Bart Mcdade. When interviewed by the bankruptcy examiner, Mcdade said, "Fuld knew about the accounting of Repo 105."
I'll be surprised if anyone actually goes to jail, but we should get much more information in the coming months. Expect a whole lot of "I do not recall having that conversations" when these guys are hauled up on Capitol Hill this time.
One of the biggest questions is this: Were any other banks using similar tricks? And are they still cooking the books today? 
We don't know yet, but it wouldn't surprise me one bit. These investment banks were notorious for stealing each other's ideas. And the fact that it all took place under Tim Geithner's nose — when he was president of the NY Fed — is also something that needs to be explored.
A Great Call
Our own Ian Cooper alerted Wealth Daily readers about a possible Lehman bankruptcy back in June 2008, when the stock was still trading around $30. He warned, "It's only a matter of time before Lehman (LEH) joins the latest list of casualties." He recommended buying October $25 puts. It proved to be quite a profitable call, banking profits of 180% gains in just over a month. Readers who held onto the puts made significantly more.
Just recently Ian uncovered another opportunity, and this time it's in the foreclosure market. You can read all about it and his service, Options Trading Pit, here.
Stay nimble out there,

Dell fined $100m for accounting fraud that misled investors

05:06 Jas


Friday 23 July 2010 09:28
PC maker Dell and its chairman Michael Dell will pay fines of $100m (£65.2m) and $4m respectively to settle US Securities and Exchange Commission charges that it misled investors through false accounting to meet Wall Street expectations, the stock market regulator said yesterday.
The charges relate to fees paid between 2002 and 2006 by chipmaker Intel to remain the sole supplier of some microprocessors after Dell said it would buy chips from Intel's rival AMD. The payments represented up to 76% of Dell's operating profit, the SEC said.
"These payments, rather than the company's management and operations, allowed Dell to meet its earnings targets," the SEC said.
After Intel cut these payments, Dell again misled investors by not disclosing the true reason behind the company's decreased profitability, it said.
Together with Michael Dell, the SEC charged former CEO Kevin Rollins, and former CFO James Schneider for their roles in the disclosure violations.
It charged Schneider, former regional vice-president of finance Nicholas Dunning, and former assistant controller Leslie Jackson, with improper accounting.
Without the Intel payments, Dell would have missed the EPS (earnings per share) consensus in every quarter during the period, the SEC said, in a complaint filed in a Washington court.
The SEC alleged that Schneider, Dunning, and Jackson engaged in improper accounting by maintaining a series of "cookie-jar" reserves that it used to cover shortfalls in operating results between financial years 2002 and 2005.
Dell's fraudulent accounting made it appear that it was consistently meeting Wall Street earnings targets and reducing its operating expenses through the company's management and operations, the SEC said.
According to the complaint, Intel made exclusivity payments to Dell for Dell to not use CPUs made by AMD. These grew from 10% of Dell's operating income in financial year 2003 to 38% in 2006, and peaked at 76% in the first quarter of its financial year 2007.
When Intel cut its payments after Dell agreed to buy AMD chips, Dell's operating income in 2Q07 dropped 75%.
The SEC alleged that the accused failed to disclose the true reason for the drop.
"Michael Dell, Rollins, and Schneider had been warned in the past that Intel would cut its funding if Dell added AMD as a supplier," the SEC said. "Nevertheless, in Dell's second quarter FY 2007 earnings call, they told investors that the sharp drop in the company's operating results was attributable to Dell pricing too aggressively in the face of slowing demand, and to component costs declining less than expected."
The SEC's complaint also alleged that the reserve manipulations allowed Dell to miss-state materially its earnings and its operating expenses as a percentage of revenue, a key performance indicator, for more than three years.
The manipulations also let Dell miss-state materially the trend and amount of operating income of its key EMEA division between its third quarter of 2003 and its first quarter of 2005.
The fines settlement allows the accused to avoid admitting or denying the SEC's allegations, but all have signed consent orders to not violate federal laws.
Schneider was banned from practising as an accountant for five years, Dunning and Jackson were banned for three years.