Prosecutors in England failed in their efforts to convict six brokers of fixing Libor rates.
1/27 – Wall Street Journal – Six Ex-Brokers Acquitted of LIBOR Rigging in London – One key person was convicted at trial a while back and is now in prison. The six brokers just acquitted are the people he was supposedly conspiring with. Only the 6 weren’t conspiring with anyone about anything, according to the jury.
Working on overhead. Photo courtesy of DollarPhotoClub.com. Yeah, I know that is a poor joke.
A running debate in the donor and nonprofit community is whether the ‘overhead ratio’ is a good tool to measure the effectiveness of a charity. There seems to be more discussion of the issue lately. Wounded Warrior Project is the focal point for recent discussion. A few articles of interest along with some background:
(Cross-posted from my other blog, Nonprofit Update, because this issue is likely of interest to many readers of this blog.)
1/27 – New York Times – Wounded Warrior Project Spends Lavishly on Itself, Insiders Say – Tell me your thoughts on the ongoing conversations in the nonprofit community about overhead ratios and I will tell you whether you will think this article is a balanced critique or a hit piece.
Is this bookkeeping or preparation of financial statements? Image courtesy of DollarPhotoClub.com
SSARS #21 explicitly defines bookkeeping as being outside the scope of the SSARS literature. The question becomes what is bookkeeping and what is a preparation engagement.
Article suggests three ways to look at a service to help a CPA figure out whether Section 70 of SSARS #21 applies. If you are wondering, please check out the full article.
FBI surveillance photo of Mr. Shaw passing $5,000 to Mr. London. Photo is included in the criminal complaint available in PACER system and thus is a public document.
Previously discussed the SEC enforcement action against now-felon, formerly-living-on-top-of-the-world KPMG regional audit partner Scott London for his insider trading activities.
After reading the criminal complaint along wot the SEC’s action, I now think the actual number of incidents of insider trading is two or three times more than even the SEC claims.
The enforcement action listed 18 specific incidences of insider-trading. This is larger than any number I’ve seen previously, which drew my interest. My recollection is there had been around a dozen or so incidents. Decided to compare three documents to see what they show about the extent of insider-trading. I looked at:
Plea agreement for defendant Scott London dated May 25, 2013
Criminal complaint against Scott London dated April 11, 2013
If you want to read the plea agreement and criminal complaint, I provided links here.
The plea agreement states there were at least 14 incidents. The criminal complaint cites a slightly small number but that is a soft estimate by Mr. London. What caught my attention is the SEC enforcement action lists 18 incidents.
Long term federal housing earned for insider trading. If my opinion matters to you, I heartily recommend you avoid this housing. To do so, avoid insider trading. Might be good to avoid a lot of other things the FBI is not amused with. Image courtesy of DollarPhotoClub.com
Because the materials available from the federal PACER system are public documents, I am allowed (along with anyone else who signs up for the service) to publish them.
Thus, for your reading pleasure and future research, here is the criminal complaint against Scott London, dated April 11, 2013: …
Just realized last week I had not actually read the enforcement action. So I went back and took a look at it. You can find it here.
One thing that jumped out at me was the SEC asserted there were 18 specific incidences of passing inside information. That prompted me to dig a little deeper and write this and the next post.
Why going to this detail? Seems to me there is some ongoing interest in Scott London’s case. I am not aware of anyone who has chronicled the story in the depth that I’ve gone into. Perhaps that’s because there’s relatively limited interest in an old case. Perhaps nobody else is interest in such trivial details as the exact number of insider-trading incidents. I’ll dive into the details anyway. Perhaps I’m just weird, but I’m interested.
Here goes…
Context of timing
The SEC Accounting and Auditing Enforcement is dated September 27, 2013.
On December 23, Planet Money aired an interview with Scott London: Episode 671: An Insider Trader Tells All. He is the now-felon, formerly KPMG regional audit partner who earned 14 months in federal housing for insider trading.
There are a couple of new pieces of information in the interview. More on that in a moment.
Rumbi Bwerinofa discusses the interview at Figuring Financial Forensics: On The Record.
She was amused at the description of Mr. London’s shock at finding out the amount of the gains realized by his buddy, Bryan Shaw. In the interview Mr. London says he was in a car with his attorney driving him somewhere as Mr. London read in the newspaper the amount of the gains being in the range of over a million dollars. He asked his attorney to pull the car over because he thought he was going to be physically ill.
Ms. Bwerinofa points out fraud usually develops this way. Schemes start small and then grow to something huge. Having been given only $70,000, Mr. London thought this was still in the range of small potatoes.
She ponders whether Mr. London had previously pondered the idea that there is no honor among thieves. He apparently did not consider that his cheating friend could be cheating him.
Mr. London pointed out in the interview, and earlier comments, that the proceeds were going to be split three ways. That would imply that the total illicit gains would have been in the range of $200,000 or so. Not well over $1,000,000, perhaps as much is $1.6M.
That may be how the vast majority of CPAs perform all the time, but some CPAs miss the target completely. Image courtesy of DollarPhotoClub.com
Previously mentioned that I looked disciplinary actions reported in the last four newsletters from the California Board of Accountancy (CBA). Want to better understand what happened with firms that got in trouble for audit quality or for not getting a peer review when one was required.
Will continue that discussion by looking at sanctions imposed on smaller firms and then self-imposed trouble generated by some larger firms.
That may be how the vast majority of CPAs perform every day, but some CPAs miss the target completely. Image courtesy of DollarPhotoClub.com
Three times a year the California Board of Accountancy issues a newsletter. It contains a variety of information useful for CPAs. If you are a CPA, you really ought to be reading the newsletter.
That newsletter is also where the board publicizes disciplinary actions against CPAs.
In the last few newsletters I’ve noticed a number of cases where firms are sanctioned for substandard audits. Have also noticed a number of firms sanctioned for not getting a peer review when it was required or fibbing to the board whether they had complied with the peer review standards.
I wanted to understand better what I’ve noticed in passing so decided to dive into the disciplinary reports to get a better picture of the extent of sanctions for audit quality and peer review issues. I looked at the Fall 2014, Winter 2015, Summer 2015, and Fall 2015 newsletters.
That covers 16 months of reporting for disciplinary actions by CBA.
I focused on sanctions for audit issues excluding anything that was a follow-up to PCOAB or SEC sanctions. That rules out quite a few cases.
Also ignored a long list of social misbehavior such as DUIs (several incidents), fabricating Form E (once – fabricating the experience report? – really??), embezzlements, disbarment (once), and other such human foibles. Also excluded a variety of contingency fee violations, breaches of client trust, and sundry tax fiascos.
For context, the Fall 2015 newsletter had 28 disciplinary actions of which 5 were of interest for this little bitty research project. Of those 5 cases, the public notices refer to 2 firms which had substandard audits, 1 had a substandard compilation, and 4 included failures to get a peer review when required of which 2 fibbed to CBA about compliance with the peer review requirement.
