September 26, 2005 message from David Albrecht [albrecht@PROFALBRECHT.COM]

The Equitable Life law suit against Ernst &Young has been dismissed. This multi-billion dollar suit originally had the potential to wipe out E&Y UK. Some columnists speculated that it ahd the potential to bring down E&Y worldwide.

"Equitable's claim against Ernst & Young was centered on the accountant's alleged failure to inform the then board about the extent of the mutual's financial problems.

However, Equitable decided to abandon the case after lawyers pointed out there was a good chance the former directors would not have acted differently had Ernst & Young given different advice."

http://business.timesonline.co.uk/article/0,,9557-1795562,00.html

Bob Jensen's threads in E&Y legal woes are at http://www.trinity.edu/rjensen/Fraud001.htm#Ernst

Another CEO looter:  Will it ever end?
Vinod Gupta, a high- living CEO pal and fundraiser to the Clintons, is being accused of looting his company's coffers and using shareholder money to fund his lavish lifestyle. Gupta, the CEO of InfoUSA, an Omaha, Neb.-based database company, is coming under fire from investors, including Cardinal Capital, the Greenwich, Conn.-based hedge fund whose last target was newspaper baron Conrad Black, for a variety of alleged offenses, including funneling InfoUSA funds through private companies he controls to pay for things such as jet travel, a fancy yacht and a...
Tim Arango, "Clinton Pal Eyballed," The New York Post, October 2, 2005 --- http://www.nypost.com/business/54506.htm 
 

Jensen Comment:  White collar criminals commit crimes because it pays even if they get caught.  See Question Number 1 at http://www.trinity.edu/rjensen/FraudEnronQuiz.htm

Update on Worldcom Fraud
Former WorldCom Investors can now claim back some of the billions of dollars they lost in a massive accounting fraud, after a federal judge approved legal settlements of "historic proportions." The deal approved Wednesday by U.S. District Judge Denise Cote, will divide payments of $6.1 billion among approximately 830,000 people and institutions that held stocks or bonds in the telecommunications company around the time of its collapse in 2002.
Larry Neumeister, "Judge OKs $6.1B in WorldCom Settlements," The Washington Post, September 22, 2005 --- http://snipurl.com/WorldcomSettlement 

Bob Jensen's threads on the Worldcom fraud are at http://www.trinity.edu/rjensen/FraudEnron.htm#WorldCom

Tyco Fraud Update

First a quote from 2004
PricewaterhouseCoopers also fell prone to faulty risk assessments. In July, the SEC forced Tyco, the industrial conglomerate, to restate its profits, which it inflated by $1.15 billion, pretax, from 1998 to 2001. The next month, the SEC barred the lead partner on the firm's Tyco audits from auditing publicly registered companies. His alleged offense: fraudulently representing to investors that his firm had conducted a proper audit. The SEC in its complaint said that the auditor, Richard Scalzo, who settled without admitting or denying the allegations, saw warning signs about top Tyco executives' integrity but never expanded his team's audit procedures.
"Behind Wave of Corporate Fraud: A Change in How Auditors Work:  'Risk Based' Model Narrowed Focus of Their Procedures, Leaving Room for Trouble,' " by Jonathan Weil, The Wall Street Journal, March 25, 2004, Page A1
You can read a longer part of the above article at http://www.trinity.edu/rjensen/Fraud001.htm#PwC

Jensen Comment:
Dennis Kozlowski is eligible for parole in eight years on a 25-year sentence.  This is far to lenient and once again shows how white collar crime is punished much to lightly --- http://www.trinity.edu/rjensen/FraudConclusion.htm#CrimePays
But at least Dennis is not going to do his 8/25 in Club Fed (of course in Club Fed he would probably not get such an early parole opportunity.

"Tyco Endgame," The Wall Street Journal, September 20, 2005; Page A16 --- http://online.wsj.com/article/0,,SB112718329059445833,00.html?mod=opinion&ojcontent=otep

There aren't any $6,000 shower curtains in New York state prisons, where Tyco felons Dennis Kozlowski and Mark Swartz will be enjoying all or part of the next 25 years. The former CEO and CFO were sentenced yesterday for their roles in looting $600 million from their company and paying off one or more directors to avert their eyes. They won't become eligible for parole until about seven years.

Thus concludes one of the sorrier chapters in U.S. business history. And while it took a while -- the first Tyco trial ended in mistrial -- the outcome strikes us as just. Not because of their greed -- there's no law against lavish living yet -- but because of their crimes. Messrs. Kozlowski and Swartz were convicted in June on 22 counts of grand larceny and conspiracy. The verdicts were a victory for Manhattan District Attorney Robert Morgenthau, who last week survived a tough primary challenge.

Of all the fin de siècle corporate scandals, the Tyco heist has always seemed the most audacious, a case of stealing money in plain sight. If you want to liven up the conversation at a business lunch, mention former Enron CEO Jeffrey Skilling and Chairman Ken Lay and whether they were complicit in the fraud for which several former executives have been convicted. There are still those who believe former WorldCom CEO Bernard Ebbers was unaware of the fraud that was taking place under his nose, despite his conviction. The Tyco scandal didn't inspire such ambiguities.

Messrs. Kozlowski and Swartz aren't headed for Club Fed by the way; under New York correctional policy, criminals with their sentences usually serve their time in maximum-security prisons. In addition, they were ordered to pay restitution and fines of $175 million. A case of justice in plain sight.

Bob Jensen's threads on Tyco can be found in various places at http://www.trinity.edu/rjensen/Fraud001.htm 

Nigerian Scams Spin Katrina --- http://www.informationweek.com/story/showArticle.jhtml?articleID=170701243
In one scheme, the writer claims to be a Mexican national working on a rescue team in New Orleans in need of money.

For U.S., a Counterfeiting Problem in China Is Old and Very Real
New problems come and go between China and the United States, but when leaders of the two countries meet in Washington shortly, protection of intellectual property will be on the agenda - as it has been for years. Joining DVD's and cheap knockoffs of brand-name clothing and computer software are new, upscale lines of counterfeit goods. Shoppers can find "Callaway Big Bertha" golf clubs, and "Ikea" furniture. Shanghai bar and nightclub operators say they are often sold fake bottles of Chivas Regal or Johnnie Walker Scotch, which are slipped in among bottles of the genuine item in the cases they buy from wholesalers. Pharmacies and drug makers say copies of Western medicines - far beyond just Viagra clones - are common. Garages say fake auto parts are widespread. There are even knockoff cars. General Motors says the Shanghai-based Chery Automobile Company's QQ model is a copy of a model it produces in South Korea. A newer Chery sport utility vehicle, the Tiggo, is a dead ringer for Toyota's RAV4.
Howard W. French, "For U.S., a Counterfeiting Problem in China Is Old and Very Real," The New York Times, September 4, 2005 --- http://www.nytimes.com/2005/09/04/international/asia/04shanghai.html

Beware of those unregulated hedge funds
The Connecticut hedge-fund firm under scrutiny in what authorities believe may have been a massive fraud emptied five Citibank accounts over the course of six days in July 2004 in withdrawals totaling $161 million, bank records show. About $100 million of that money is the subject of a court fight between Stamford-based Bayou Fund LLC and Arizona authorities who seized the funds after concluding that there was reason to believe they were being used in a fraud. The remaining $60 million -- and possibly much more -- remains unaccounted for. The Citibank accounts in New York held money for all four of Bayou's hedge funds, but the bulk of the money was in the fifth account, under the name of its money-management arm, Bayou Management LLC, the records show.
Ian McDonald, "Bayou Drained Accounts in '04 Of $161 Million," The Wall Street Journal, September 1, 2005; Page C1--- http://online.wsj.com/article/0,,SB112550792590328009,00.html?mod=todays_us_money_and_investing 

AOL keeps billing and billing and billing
America Online will pay $1.25 million in penalties and reform some of its customer service practices to settle an investigation by New York Attorney General Eliot Spitzer. Around 300 consumers had filed complaints with Spitzer's office accusing AOL, a subsidiary of Time Warner Inc., of ignoring demands to cancel service and stop billing.
"AOL Settles With Spitzer:  Internet Provider Agrees to Reform Handling of Cancellation Requests," The Wall Street Journal,  August 25, 2005; Page B5 ---
http://online.wsj.com/article/0,,SB112488909670521789,00.html?mod=todays_us_marketplace

Saks settles
Saks Inc., facing investigations by the Securities and Exchange Commission and federal prosecutors, said it will repay vendors about $48 million after an internal audit found that the luxury retailer improperly collected markdown allowances from 1996 to 2003. Saks also faced corporate litigation over these issues. Aug. 8, the company, based in Birmingham, Ala., settled a suit on improper vendor allowances filed by Onward Kashiyama USA, a unit of Japanese apparel company Onward Kashiyama Co. that held the Michael Kors license from 1999 to 2003. "We're pleased the matter has been resolved," said Christopher Owen, a lawyer for Onward Kashiyama, who declined to discuss the settlement amount, citing a confidentiality agreement.
Ellen Byron, "Saks to Pay Vendors $48 Million Over Improper Markdown Sums," The Wall Street Journal, August 25, 2005; Page B8 --- http://online.wsj.com/article/0,,SB112493269357222632,00.html?mod=todays_us_marketplace

Canadian Audits Need Improvement Says Oversight Board
The Canadian Public Accountability Board (CPAB) recently released its second public report on its examinations of public accounting firms, finding that audits by these firms needed significant improvements. Problems cited in the report included lack of effective internal control, high risk clients, auditor independence and inadequate training on current accounting and auditing rules, according to Investment Executive.
"Canadian Audits Need Improvement Says Oversight Board," AccountingWeb, August 24, 2005 --- http://www.accountingweb.com/cgi-bin/item.cgi?id=101230

Kozlowski Hall
Dennis Kozlowski’s lavish spending while he was chief executive of Tyco Inc. led to a series of criminal charges — and a conviction in a New York court this year for which he could face 30 years in prison. He also spent on colleges, which were thrilled with his attention when he was a powerful executive, but are now a little shy about the connection to a felon. Seton Hall University, Kozlowski’s alma mater, announced Thursday that it had removed his name from an academic building that houses its colleges of business and of education and human services. From now on, the building will not be Kozlowski Hall, but Jubilee Hall, to honor the university’s sesquicentennial. The Kozlowski name is also being removed from the rotunda of the university’s library.
Scott Jaschik, "Seton Hall Drops Name of Donor/Felon," Inside Higher Ed, August 19, 2005 --- http://www.insidehighered.com/news/2005/08/19/name

Talk about conflicts of interest in auditing
Investors who are worried about the fate of the money they turned over to the Bayou Group, a Connecticut firm that is under investigation by federal and state authorities, will not be happy to learn that there were close ties between the firm and the auditor of its hedge funds. Public documents show that the chief financial officer and head of compliance for the Bayou Group was also a principal in an accounting firm that audited the hedge funds' books.
Gretchen Morgensen, "At Defunct Fund, Close Ties to Auditor," The New York Times, August 29, 2005 --- http://www.nytimes.com/2005/08/29/business/29bayou.html

Bob Jensen's threads on auditor independence are at http://www.trinity.edu/rjensen/fraud001.htm#Professionalism

Silicosis Scandal
Congratulations to House Republicans Joe Barton and Ed Whitfield, who last week opened a probe into the nation's asbestos and silicosis claims. Their decision to investigate the people responsible for recruiting and falsely diagnosing tens of thousands of plaintiffs is a major step toward exposing this fraud.
"Silicosis Scandal," The Wall Street Journal, August 12, 2005; Page A8 ---
http://online.wsj.com/article/0,,SB112381120616111638,00.html?mod=todays_us_opinion

Accounting manipulations at Sallie Mae
SLM Corp., the largest U.S. provider of student loans, said it fired its chief financial officer and demoted another manager in a debt-collection agency unit for inflating revenue in a bid to achieve performance goals and collect higher bonuses. The company, better known as Sallie Mae, also said the Securities and Exchange Commission had decided not to take enforcement action against it or the managers over the accounting errors, which took place in 2003. The SEC had opened an informal probe in January 2004. Sallie Mae said it took action following an internal review. Spokesman Thomas Joyce declined to identify the unit or the managers, or when the firing and demotion took place. "We're pleased to put the matter behind us," he said. SEC spokesman John Heine declined to comment. The former chief financial officer couldn't be reached. Sallie Mae said it had learned that on three occasions in 2003, senior managers in the unit intentionally recorded revenue from loan payments made or scheduled to be made in the first few days of a month in the prior month.
"Sallie Mae Dismisses Top Financial Officer In Accounting Review," The Wall Street Journal,  July 26, 2005; Page A6 --- http://online.wsj.com/article/0,,SB112234608295395803,00.html?mod=todays_us_page_one

Bob Jensen's threads on revenue accounting ploys are at http://www.trinity.edu/rjensen/ecommerce/eitf01.htm

New Appeal by KPMG
A California superior-court judge sanctioned KPMG LLP last week for withholding documents in an accounting-malpractice lawsuit brought by a small private computer-case maker, the third time the big accounting firm has been criticized by a judge for its legal tactics in recent months. In an order issued Wednesday, Orange County Superior Court Judge Geoffrey Glass instructed KPMG to pay $30,000 for "its abuse of the discovery process" and directed the jury to consider such behavior as it weighs the case brought by Targus Group International Inc. Judge Glass wrote that KPMG "deliberately or recklessly withheld or delayed in producing many responsive documents," adding that "the Court warned KPMG-US at least twice about gamesmanship in discovery." "We're disappointed by the Court's ruling," a KPMG spokesman said in a statement. "We fully complied with all discovery orders in the Targus case. We plan to seek appellate review of this order."
Diya Gullapalli, "Judge Fines KPMG Over Tactics In Accounting-Malpractice Suit," The Wall Street Journal, July 18, 2005; Page C4 --- http://online.wsj.com/article/0,,SB112164712739487960,00.html?mod=todays_us_money_and_investing

Nine Are Charged In KPMG Case On Tax Shelters
In the first indictments in the government's investigation of KPMG LLP tax shelters, a federal grand jury charged nine people, including the firm's former No. 2 executive, with conspiring to defraud the U.S. government in connection with four types of shelters that KPMG sold to wealthy Americans. The defendants include three former chiefs of KPMG's tax practice, one of whom, Jeffrey Stein, was KPMG's deputy chairman from 2002-04. The other former heads of KPMG's tax practice who were indicted are former KPMG vice chairmen Richard Smith, who left the firm last year, and John Lanning, who left in 2000.
Jonathan Weil, "Nine Are Charged In KPMG Case On Tax Shelters," The Wall Street Journal, August 30, 2005; Page C1 --- http://online.wsj.com/article/0,,SB112533172910025699,00.html?mod=todays_us_money_and_investing

U.S. Expects to Indict At Least 12 More Over KPMG Shelters
The lead prosecutor in the KPMG LLP tax-shelter investigation said the government expects to seek indictments against at least 12 more individuals in the coming weeks, on top of the nine people who were arraigned yesterday in a federal court in Manhattan. The additional defendants will be named as part of a superseding indictment and could include additional charges against the nine people whose bond requirements were set yesterday by U.S. District Judge Lewis A. Kaplan. The government's lead prosecutor, Assistant U.S. Attorney Justin Weddle, said the additional charges in the superseding indictment likely would include obstruction of justice, as well as tax evasion, in addition to the existing conspiracy count.
Jonathan Weil and Kara Scannell, "U.S. Expects to Indict At Least 12 More Over KPMG Shelters," The Wall Street Journal, September 7, 2005; Page C1 ---
http://online.wsj.com/article/0,,SB112603926421333075,00.html?mod=todays_us_money_and_investing

Bob Jensen's threads on KPMG's troubles are at http://www.trinity.edu/rjensen/Fraud001.htm#KPMG

Even if the Feds let KPMG off, there are 50 states waiting in the wings
Mississippi probably will file criminal charges against accounting giant KPMG because it created a tax strategy that the state says illegally let WorldCom, now called MCI Inc., shield billions of dollars from taxes, sources close to the case said Friday.  Although a few other states have also weighed this strategy, Mississippi Atty. Gen. Jim Hood is the most determined, and his state would be the first to take this step, said the sources, who requested anonymity.
"Mississippi May File KPMG Charges," Los Angeles Times, August 20, 2005 --- http://www.latimes.com/business/la-fi-kpmg20aug20,1,7703307.story?coll=la-headlines-business

Jensen Comment:
My guess is that KMPG will survive the criminal charges but will emerge badly crippled with the burden of over a billion in settlement payments with former clients and many of the states like Mississippi and California. The IRS alleges over $1.4 billion in damages in uncollected taxes. Add to this the damages of many of the states with income taxes and the added costs of punitive damages and serious litigation costs on the back of KPMG. Why in the world didn't KPMG stop selling these shelters when the IRS warned KPMG that it was selling illegal tax shelters?

Is paying out a $300-$500 million settlement "good news?"
KPMG has had their fair share of bad news since becoming the focus of federal prosecutors but there is unofficial word that an agreement will be announced later this week. Better yet, their Big Four competitors have each told their partners should refrain from "poaching" KPMG's clients. The settlement calls for the smallest of the Big Four accounting firms to pay a fine totaling between $300 and $500 million and accept independent oversight of its operations in order to avoid prosecution. In the deferred prosecution, there will also be a yet unstated probationary period. If the firm stays out of trouble during that set time, the charges will be dropped by the U.S. Attorney for the Southern District of New York. The firm has about 1,600 partners and currently audits the financial statements of more than 1,000 companies.
"More Good News Than Bad for KPMG," AccountingWeb, August 24, 2005 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=101231

The New York Times on August 27, 2005 reports the KPMG settlement at $456 million, excluding future settlements with states --- http://www.nytimes.com/2005/08/27/business/27kpmg.html

Jensen Comment:  I guess this is good news in that KPMG is thereby allowed to stay in business and will not implode in the manner that Andersen imploded following the document shredding conviction.  but there is still the worry about individual state prosecutions.  The $456 settlement does not include legal costs and future settlements pending with states.

My threads on this saga are at http://www.trinity.edu/rjensen/fraud001.htm#KPMG
The IRS estimates that the loss to the U.S. treasury was $1.4 billion in illegal tax shelters that KPMG confessed to selling. 

 After this settlement KPMG quickly removed the front page link to an apology at http://www.kpmg.com/

You can read KPMG’s apology at http://www.us.kpmg.com/news/index.asp?cid=1872
Or go directly to
http://www.us.kpmg.com/RutUS_prod/Documents/8/KPMGStatement_DOJ_06_16_05.pdf

Some added bad news for KPMG
Although the U.S. Justice Department is seeking a settlement, although harsh, with KPMG, the state of Mississippi is also likely to file a criminal suit against the embattled accounting firm. KPMG devised the tax strategy for WorldCom after it reorganized as MCI. Although the state approved the tax plan and MCI has moved its corporate headquarters to Virginia, the state maintains that the tax plan sheltered billions of potential tax dollars in its treatment of royalties. It has been recommended that Mississippi join about 15 other states and the District of Columbia in prosecuting this case together but Mississippi continues on its own. In May of this year, the state became the first state to resolve back tax claims with the telcom giant in accepting MCI’s former headquarters building and $100 million in cash.
"More Good News Than Bad for KPMG," AccountingWeb, August 24, 2005 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=101231

One of the disappointments that I found in the KPMG 2004 Annual Report (what KPMG called its "Transparency Report") is virtually no mention of the U.S. Justice Department and IRS investigations taking place that could have jeopardized the entire future of KPMG.

So much for "transparency."  KPMG's transparency in that report only shows the good news.  The bad news seems to be opaque --- http://www.us.kpmg.com/microsite/attachments/IAR_04.pdf

All I could find is a vague statement on Page 27 that reads "Despite significant challenges for our Tax practices during FY04" with no mention what comprised those "challenges" or that those unspecified "challenges" threatened the entire existence of the firm and could have imploded KPMG's audit practice in much the same way as the Andersen firm's audit practice disappeared from the world.

This transparency report is for a September 2004 fiscal closing when, in fact, the financial news media commenced reporting these criminal investigations of KPMG in the spring of 2004.  Media coverage was especially heavy in June of 2004.  I would have expected mention of these well-known investigations in KPMG's subsequent "2004 Transparency Annual Report."  Ironically, mention is made of the great importance of "Social Responsibility" (Page 3) and "Helping to Restore the Public Trust in Our Profession" (Page 12) and "Raising Our Tax Risk Architecture to a Level Consistent with That of Audit (Page 12)." 

The CPA profession needs a more credible definition of "transparency."

It would seem that Art Wyatt was correct when entitled his August 2003 Plenary Speech "Accounting Professionalism --- They Still Don't Get It" --- http://aaahq.org/AM2003/WyattSpeech.pdf

Bob Jensen's threads on the saga of KPMG are at http://www.trinity.edu/rjensen/fraud001.htm#KPMG

From The Wall Street Journal Accounting Weekly Review on September 2, 2005

TITLE: Nine Are Charged in KPMG Case on Tax Shelters
REPORTER: Jonathan Weil
DATE: Aug 30, 2005
PAGE: C1
LINK: http://online.wsj.com/article/0,,SB112533172910025699,00.html 
TOPICS: Tax Shelters

SUMMARY: Indictments are handed down in the KPMG case on abusive tax shelters; those indicted are expected to plead not guilty. The U.S. Attorney's Office in Manhattan also announced that KPMG had settled the case against it for $456 million and had admitted criminal wrongdoing.

QUESTIONS:
1.) What are the facts and circumstances surrounding this KPMG settlement and the indictments against its partners and others associated with the firm?

2.) Why did the U.S. authorities allow KPMG a "deferred prosecution agreement"? What does that phrase mean?

3.) Why are the individual partners, managers, and outside lawyers who developed the KPMG taxx shelters being treated differently than is the firm?

4.) What is the likely impact of KPMG's legal issues on their future operations? Consider the effect of the settlement and indictment on other aspects of the firms business; document all issues that you identify in the articles and that you can think of yourself.

Reviewed By: Judy Beckman, University of Rhode Island

--- RELATED ARTICLES ---
TITLE: 3rd Update: KPMG Reaches Agreement in Tax-Shelter Probe
REPORTER: Chad Bray and Rob Wells
ISSUE: Aug 29, 2005
LINK: http://online.wsj.com/article/0,,BT_CO_20050829_005555,00.html 

TITLE: KPMG's Settlement Provides for New Start
REPORTER: Jonathan Weil
PAGE: C1
ISSUE: Aug 29, 2005
LINK: http://online.wsj.com/article/0,,SB112516258185924770,00.html 

~ + ~ + ~ + ~ + ~ + ~ + ~ + ~ + ~ + ~ + ~ + ~ + ~ + ~ + ~ + ~ + ~ + ~ + ~ + ~ +

TITLE: Hong Kong Moves to Stop Leaks of Analysts' Pre-IPO Research
REPORTER: Kate Linebaugh
DATE: Aug 29, 2005
PAGE: C4
LINK: http://online.wsj.com/article/0,,SB112527709636625205,00.html 
TOPICS: Accounting, Financial Analysis, Financial Statement Analysis, International Accounting, Regulation

SUMMARY: Each of the world's major markets has a different policy covering dissemination of information based on analyst research done prior to an initial public offering (IPO). Hong Kong's regulator , called the Securities and Futures Commission (SFC) is considering a policy to ban all such written research or to require steps to make it equally available to all. The U.S. bans disclosures of this type of information.

QUESTIONS:
1.) Why must analysts write reports in advance of an initial public offering of stock (IPO)? How does accumulating this information help to establish the price for an offering?

2.) What is the problem if an investor relies on information in analysis prior to an IPO rather than a prospectus. In your answer, define the term "prospectus.'

3.) What services do accounting firms provide in the process of preparing a prospectus and undertaking an IPO? How might those services help to alleviate issues arise from the bias present in analysts reports that is described in the article?

4.) What regulatory factors do companies consider selecting a market for an IPO?

5.) What are the benefits of investing internationally? How might your answer to question #4 raise issues you might consider in undertaking international investments?

Reviewed By: Judy Beckman, University of Rhode Island

Fraud Beat on Insider Trading

"Oracle's Chief in Agreement to Settle Insider Trading Lawsuit," by Jonathan D. Glater,  The New York Times, September 12, 2005 --- http://www.nytimes.com/2005/09/12/technology/12oracle.html

Lawrence J. Ellison, chief executive of Oracle, has reached a tentative agreement under which he would pay $100 million to charity to resolve a lawsuit charging that he engaged in insider trading in 2001, a lawyer involved in the case said.

The unusual settlement, which requires the approval of Oracle's board and could still break down, would be one of the largest payments made to resolve a shareholder suit of this kind, known as a derivative lawsuit. Typically in derivative lawsuits, damages are paid directly to the company. Under the terms of the settlement, Mr. Ellison would designate the charity and the payments, to be made over five years, would be paid in the name of Oracle. It is unclear whether the payments would be tax-deductible by Mr. Ellison.

The lawsuit charged that Mr. Ellison, known for his brash and combative pronouncements, sold almost $900 million of shares ahead of news that Oracle would not meet its expected earnings target. The same amount of stock, after the announcement, was worth slightly more than half as much.

According to the court docket for the case, which was filed in Superior Court in San Mateo, Calif., a hearing on the settlement - which requires court approval - is scheduled for Sept. 26. Under the terms of the agreement, the lawyers who brought the case for shareholders would receive about $22.5 million, separate from the $100 million payment.

Continued in article

Bob Jensen's fraud updates are at http://www.trinity.edu/rjensen/FraudUpdates.htm

Bob Jensen's threads on Rotten to the Core are at http://www.trinity.edu/rjensen/FraudRotten.htm

Whistleblowers pay a heavy price
While whistleblowers are protected under the Sarbanes-Oxley Act, the financial and emotional toll remains alarmingly high. Just ask David Windhauser, the former controller for Trane, the heating and cooling company. He was the first person to receive a U.S. Department of Labor order requiring his former employer to rehire him under Sarbanes-Oxley. He complained in 2003 that managers were committing fraud by recording fake expenses on financial statements. He was fired one month later. He and his wife, Jeanne, then filed a Sarbanes-Oxley complaint.
AccountingWeb, August 3, 2005 --- http://www.accountingweb.com/cgi-bin/item.cgi?id=101155

Bob Jensen's threads on whistle blowing are at http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing

Huge Medicaid fraud in NY:  Why doesn't this come as a great surprise?
It was created 40 years ago to provide health care for the poorest New Yorkers, offering a lifeline to those who could not afford to have a baby or a heart attack. But in the decades since, New York State's Medicaid program has also become a $44.5 billion target for the unscrupulous and the opportunistic.
Clifford J. Levy and Michael Luo, "New York Medicaid Fraud May Reach Into Billions," The New York Times, July 18, 2005 --- http://snipurl.com/NYTJuly18

Enron Former Executive Pleads Guilty to Conspiracy
The guilty plea in Houston federal court yesterday by Christopher Calger, a 39-year-old former vice president in Enron's North American unit, involved a 2000 transaction known as Coyote Springs II in which the company sold some energy assets, including a turbine, to another company. In his guilty plea, Mr. Calger said that he and "others engaged in a scheme to recognize earnings prematurely and improperly" with the help of a private partnership, known as LJM2 that was run and partly owned by Enron's then-chief financial officer, Andrew Fastow. To avoid problems with Enron's outside auditors, company officials were "improperly hiding LJM2's participation in this transaction," according to Mr. Calger's plea.
John Emshjwiller, "Enron Former Executive Pleads Guilty to Conspiracy," The Wall Street Journal, July 15, 2005; Page B2 --- http://online.wsj.com/article/0,,SB112139210586786521,00.html?mod=todays_us_marketplace

Bob Jensen's threads on the Enron/Andersen saga are at http://www.trinity.edu/rjensen/FraudEnron.htm

Bill C-198 in Ontario and Sarbanes-Oxley in the U.S.:  Are these laws really changing the culture?
As much as senior executives hate to deal with new legislation such as Bill C-198 in Ontario and Sarbanes-Oxley in the U.S. -- or with the compliance issue as a whole -- they also really need to focus on what benefits can come from putting their business under scrutiny, says Lynn Brewer, the high-profile whistle-blower who helped expose Enron five years ago.
"Enron Whistle-blower Says Business Landscape Hasn't Improved," SmartPros, July 1, 2005 --- http://accounting.smartpros.com/x48760.xml

Deloitte & Touche under investigation
Deloitte & Touche LLP is under investigation by the nation's accounting regulator over a 2003 audit of Navistar International Corp.'s financial statements, according to a published report. Earlier this year, Warrenville, Ill.-based Navistar restated its financial results for the fiscal years 2002 and 2003, and the first three quarters of fiscal 2004 because of an error in how it accounted for customer truck loans that were packaged into securities for sale to investors. The regulator, the Public Company Accounting Oversight Board, is looking into whether Deloitte's work at Navistar may have failed to comply with at least five auditing standards, according to Bloomberg News. Those standards cover checking for fraud, performing work in a professional manner and preparing reports on financial statements. The two-page order does not explain what Deloitte may have done wrong, Bloomberg said.
Ameet Sachdev, "Deloitte & Touche under investigation," Herald Today," July 9, 2005 --- http://www.bradenton.com/mld/bradenton/business/12092705.htm

Bob Jensen's threads on Deloitte's troubles are at http://www.trinity.edu/rjensen/Fraud001.htm#Deloitte

Mayo Clinic's accounting called into question
Court documents pertaining to a suit brought against the Mayo Foundation by a former accounting employee under the False Claims Act and settled in May for $6.5 million, were released Monday to the Rochester, Minnesota, Post-Bulletin, according to the Associated Press. The documents had been under seal until the Post-Bulletin challenged the settlement order, according to the Associated Press. These documents show that federal investigators alleged that the Mayo Clinic had serious problems accounting for research grants, according to the Associated Press. “The audit team from the Department of Health and Human Services and the National Institutes of Health, whose job it is to routinely audit grants, has never seen an accounting system with such basic failures. Nor have they ever previously confronted an institution incapable of being audited in this way,” the Associated Press quotes from one document, signed by Assistant U.S. Attorney Robyn Millenacker.
"Harsh Criticism for the Mayo Foundation's Accounting Practices," AccountingWeb, July 21, 2005 --- http://www.accountingweb.com/cgi-bin/item.cgi?id=101117

Creative accounting is alive and well
Unlike mercy, the quality of earnings can be strained. As they await companies' second-quarter results, investors may want to remind themselves that there is often a gulf between the profit figures that get trotted out in analysts' reports and the financial news media and the profits recorded under generally accepted accounting principles, or GAAP. During the last recession, companies took big charges for layoffs, plant closings and the like -- all of which cut into their earnings under GAAP. But many companies preferred that investors focus on what earnings might have looked like if the bad things hadn't happened, contending that these "operating" profits figures better represented their underlying business. Wall Street acquiesced. In 2001 and 2002, GAAP earnings for companies in the Standard & Poor's 500-stock index came to less than 60% of operating earnings.
Justin Lahart, "As They Like It," The Wall Street Journal, July 6, 2005; Page C1 --- http://online.wsj.com/article/0,,SB112060828373077969,00.html?mod=todays_us_money_and_investing

German Labor Union Scandal
A bribery scandal at Volkswagen AG is shining a light on corporate Germany's traditional power-sharing arrangement with organized labor. Prosecutors in the German state of Lower Saxony are looking into whether Volkswagen officials paid bribes to some of the company's top labor leaders as a way of securing their cooperation during recent contract negotiations, an official with the prosecutor's office confirmed yesterday. The disclosure, coming less than a week after the unexpected resignation of a top labor leader at VW, has triggered a media storm in Germany, where Chancellor Gerhard Schröder and his ruling Social Democratic Party are in danger of being thrown from office by voters angry about the country's unemployment rate, which stood at 11.6% in May, a near-record in the post-World War II era.
Stephen Power and David Crawford, "VW's Scandal Carries Fallout:  Labor Ills Shed Light On Germany's Rigid Power-Sharing Law," The Wall Street Journal, July 6, 2005, Page A2 --- http://online.wsj.com/article/0,,SB112060335081577794,00.html?mod=todays_us_page_one