Accounting Scandal Updates and Other Fraud Between October 1 and December 31, 2006
Bob Jensen at
Trinity University

Bob Jensen's Main Fraud Document --- 

Bob Jensen's Enron Quiz (and answers) ---

Bob Jensen's Enron Updates are at --- 

Other Documents

Many of the scandals are documented at 

Resources to prevent and discover fraud from the Association of Fraud Examiners --- 

Self-study training for a career in fraud examination --- 

Source for United Kingdom reporting on financial scandals and other news --- 

Updates on the leading books on the business and accounting scandals --- 

I love Infectious Greed by Frank Partnoy --- 

Bob Jensen's American History of Fraud ---

Future of Auditing --- 

"What’s Your Fraud IQ?  Think you know enough about corruption to spot it in any of its myriad forms? Then rev up your fraud detection radar and take this (deceptively) simple test." by Joseph T. Wells, Journal of Accountancy, July 2006 ---

What Accountants Need to Know ---

Bob Jensen's threads on fraud are at

Don't Believe Everything Advertised Widely on TV is a Scam! ---

This isn’t the first time, but now the State of Florida Office of the Attorney General is investigating You’ll notice I don’t link to the site. This site, run by credit reporting agency Experian is taking advantage of the ruling that anyone can receive a free annual credit report from each of the three major agencies. is not the website that offers free credit reports in conjunction with this directive. It’s misleading, and here’s the fine print on the site:

When you order your free report here, you will begin your free trial membership in Triple AdvantageSM Credit Monitoring. If you don’t cancel your membership within the 30-day trial period, you will be billed $12.95 for each month that you continue your membership. If you are not satisfied, you can cancel at any time to discontinue the membership and stop the monthly billing; however, you will not be eligible for a pro-rated refund of your current month’s paid membership fee.

Bob Jensen's threads on the dirty secrets of credit card companies and credit rating agencies are at
I also show you the legitimate place to go for a free credit report.

Richard Campbell notes a nice white collar crime blog edited by some law professors --- 

How to proceed if you're taken by a fraudulent eBay seller
While eBay officials say the vast majority of transactions take place without a hitch, company spokesmen acknowledge that the growth in online buying has been accompanied by a growth in online disputes, from simple disagreements over a sweater's color to more serious allegations. And, says eBay spokeswoman Catherine England, fraud also occurs against sellers, when buyers don't pay up as agreed. Cracking down on such problems has been a hot topic at the annual "eBay Live!" gatherings of buyers, sellers and company executives. This year's, in Las Vegas in June, was no exception: EBay president and chief executive Meg Whitman in her keynote speech ticked off a number of improvements in eBay's online dispute-resolution process.
Kathleen Day, "Self-Defense For EBay Buyers Avoiding Unpleasant Surprises On World's Biggest Auction Site," The Washington Post, July 2, 2006 --- Click Here

What can you do to prevent being taken on eBay?
(Word of Caution:  Never open an email message that pretends to be from Pay-Pal)

Two brothers have published a book of "true tales of treachery, lies and fraud" from eBay. "Dawn of the eBay Deadbeats" contains stories written by eBay buyers and sellers. From stories of disappointing purchases to out-and-out fraud, the book is a manual of what can go wrong when buying and selling on auction sites. Brothers Stephen and Edward Klink co-wrote the book, illustrated by Clay Butler. The idea for the book sprung from a website Stephen Klink had created. A New Jersey police office, he founded - a site that aims to help people avoid auction scams - after he himself was ripped off online.
Ina Steiner, "Dawn of the eBay Deadbeats: New Book Uncovers Online Auction Treachery,",  December 28, 2005 ---

Bob Jensen's threads on how to prevent eBay fraud ---

Beware of the So-Called Investor Education Programs (especially beware of infomercials)

"I don't see frankly much out there that really does the job, and that's partially because investors are their own worst enemy," says former SEC Chairman Arthur Levitt. "They refuse to invest skeptically, and are too easily seduced by all the purveyors of financial products that prey upon their worst instincts."
"Investor Education 101: How to Avoid Scams:  Outreach Programs Target Most-Vulnerable Americans, But Success Is Hard to Assess,"  By Lynn Cowan, The Wall Street Journal, May 9, 2006; Page D3 ---

An onslaught of investor education is being unleashed, thanks to an ever-growing stockpile of money set aside for this purpose by regulators.

Senior-citizen investors being preyed upon? The nonprofit Investor Protection Trust is financing a Florida state program that teaches retirees to identify and report suspected scams.

Military families feeling pressured into buying unnecessary financial products? The National Association of Securities Dealers' Investor Education Foundation has launched a specialized Web site:

Auto workers receiving lump-sum retirement buyouts in coming months? There is a new Securities and Exchange Commission publication that warns that they could be prime targets for fraud.

There seems to be no end to the list of publications, public-service announcements and seminars being funded in the wake of a landmark settlement in 2003 between regulators and Wall Street over stock analysts' conflicts of interest. The settlement provided $80 million in investor-education funds, and regulators add to that amount every year with more penalties for new securities-industry transgressions.

Unfortunately, there's also a seemingly infinite trove of outright hucksters and smooth marketing materials bombarding investors every day, say regulators and observers. And no one knows how effective investor-education programs are in combating them.

"I don't see frankly much out there that really does the job, and that's partially because investors are their own worst enemy," says former SEC Chairman Arthur Levitt. "They refuse to invest skeptically, and are too easily seduced by all the purveyors of financial products that prey upon their worst instincts."

There's also little information available about what kinds of programs really work to educate and protect investors. Regulators and investor-education specialists say they are working hard to expand their materials beyond brochures with basic information to encompass interactive games for students, television programs and in-person seminars.

But regulators add that they are also fighting against strong forces in their battle to educate and protect investors from scam artists, their own emotions and a legacy of conflicts of interest in the brokerage industry.

Scam artists are the most easily identified investor-protection issue: Often organized in pyramid, or "Ponzi," structures, the schemes promise outsized returns and can exist for years before collapsing. Investor-protection programs can easily focus on warning about this kind of threat because it has some obvious hallmarks.

Regulators' second villain is trickier: investors' own inertia and greed. Getting most people in the U.S. to learn the basics of a careful investing strategy is akin to asking them to read a legal footnote, but there is no shortage of people willing to sign up for the chance to earn 130% on ersatz securities.

Possibly the most innovative investor-education program in existence today targets investors who are drawn to these get-rich-quick scams. The SEC runs several Web sites that pose as can't-fail investment schemes. One,, outlines the business dealings of a fake construction-supply company, Growth Venture, which invites viewers to invest and receive returns of 350% a year. Anyone falling for the bait is linked to an SEC page that gently chides them and describes how to avoid scams.

But such educational tools aren't as easy to construct for one of the thorniest issues facing investor-education programs: teaching people about protecting themselves in daily interactions with the legitimate brokerage industry.

Although larger Ponzi scams, such as the Financial Advisory Consultants bust in California in 2004, are headlined for bilking investors out of as much as $300 million, industry wide brokerage scandals involving well-known firms have surpassed $1 billion apiece. From Prudential Securities' abusive sales of limited partnerships in the early 1990s to the conflicts of interest in analyst research in the late 1990s, major Wall Street firms appear to be struggling with improper systematic conduct every decade.

Yet investor educators often express concern about finding the right balance between warning investors and condemning a highly regulated industry that provides legitimate advice and services.

Continued in article

Jensen Comment
Also be careful what mutual fund or brokerage firm you deal with. My advice is to avoid high-commission brokerage firms. My advice is to also compare the mutual fund expense rates with benchmark rates of Vangaard and Fidelity.

Bob Jensen's threads on scams are at

Check the fraud rates of firms of better known firms. For example do a search on "Merrill" at

In the United States, what officers are most like the Iraqi police (working for evil people they're supposed to be protecting us from)?

Agents fighting crime on the border are dealing with increasing corruption in their ranks. Among those facing charges are immigration, customs and border patrol agents. All were caught working for smugglers in El Paso who are supposed to protect our border are increasingly taking bribes instead. They're the agents who guard our borders and decide who and what gets past nearby checkpoints leading to highways that double as lucrative smuggling routes. It was at a checkpoint in far West Texas that four agents who were supposed to protect the border switched sides. "We're disappointed when any agent violates the trust...

Angela Kocherga, "More corruption seen among border agents, San Antonio Express News, November  28, 2006 ---
Click Here

Where were (are) the lawyers in the recent corporate governance and investment scandals?

Report of the Task Force on the Lawyer's Role in Corporate Governance, New York City Bar, November 2006 ---

Bob Jensen's "Rotten to the Core" threads are at

Bob Jensen's threads on corporate governance are at

The seamy underside of asbestos litigation
In the legal trade, this is known as "double dipping"--the process by which lawyers file claims at many different bankruptcy trusts on behalf of a single plaintiff. Each trust is told a different story about how the client got sick, and the plaintiff collects from all of them. Of course, the lawyers collect too. This practice may well have remained unexposed had not Brayton Purcell decided to cash in on Kananian one more time. It sued Lorillard Tobacco, this time claiming its client had become sick from smoking Kent cigarettes, whose filters contained asbestos for several years in the 1950s. That suit has now exploded on Brayton, exposing one of the asbestos bar's more lucrative cash cows.
Kimberley A. Strassel, "Trusts Busted:  The seamy underside of asbestos litigation," The Wall Street Journal, December 5, 2006 ---

Study: Most Audit Committees Lack Accountant
Then why call them audit committees?
A new report says that in 2005 the number of accountants sitting on audit committees doubled compared to four years prior, but that six out of 10 companies still did not have at least one accountant on their committee. The research from Huron Consulting is based on a sample of more than 700 audit committee members at 178 public companies from the NASDAQ 100 and Fortune 100 listings. The report analyzed patterns of audit committee composition between 2002 and 2005 using information contained in the companies' annual proxy statements and 10-K disclosures filed with the U.S. Securities and Exchange Commission.
"Study: Most Audit Committees Lack Accountant ," SmartPros, November 30, 2006 ---

What may be the largest criminal tax fraud prosecution in U.S. history?

"Prosecutors in KPMG Tax Shelter Case Offer to Try 2 Groups of Defendants Separately," Lynnley Browning, The New York Times, October 5, 2006 --- Click Here

Last year, 16 former KPMG employees, as well as a lawyer and an outside investment adviser, were indicted by a federal grand jury in Manhattan on charges that they conspired to defraud the Internal Revenue Service by creating and selling certain questionable tax shelters.

The proposal to split the group comes after Judge Kaplan raised concerns about some prosecutorial tactics in the complex case. KPMG narrowly averted criminal indictment last year over certain questionable shelters and instead reached a $456 million deferred-prosecution agreement. Judge Kaplan has criticized prosecutors for pressuring KPMG to cut off the payment of legal fees to the defendants.

His concerns how appear to extend to the indictments of the defendants.

According to a transcript of the hearing on Tuesday, Judge Kaplan said: “The government indicted 18 people knowing that the effect of doing that would be to put economic pressure on people, along with whatever else puts pressure on people to cave and to plead, because they can’t afford to defend themselves and because perhaps there are other risks involved in a joint trial. That is the patent reality of this case.”

A representative for the United States attorney’s office in Manhattan did not have a comment on the letter yesterday.

The letter, which was not filed under seal but did not appear on the court’s docket, was confirmed by two persons close to the proceedings.

Under the proposal, the junior defendants would include Jeffrey Eischeid, the rising star who was in charge of KPMG’s personal financial planning division; John Larson, a former KPMG employee who set up an investment boutique that sold shelters; David Amir Makov, a onetime Deutsche Bank employee who later worked with Mr. Larson’s investment boutique, Presidio Advisory Services; and Gregg Ritchie, a former partner; among others.

The senior defendants would include Jeffrey Stein, a former vice chairman who was the No. 2. executive at the firm; John Lanning, a former vice chairman in charge of tax services; Richard Rosenthal, a former chief financial officer; Steven Gremminger, a former associate in-house lawyer; Robert Pfaff, a former KPMG partner who worked with Mr. Larson to set up Presidio Advisory Services; David Greenberg, a former senior tax partner; and Raymond J. Ruble, a former lawyer at Sidley Austin Brown & Wood; among others.

Lawyers for the defendants maintain that their clients did nothing illegal, while prosecutors contend that they created and sold tax shelters, some involving fake loans, that deprived the Treasury of $2.5 billion in tax revenue.

Bob Jensen's threads on this and other KPMG litigations are at

Accounting Snags Push Dresser to Restate Problems with derivative transactions, inventory controls
Dresser Inc. said it will restate its financial statements for 2001 through 2003 based on a host of accounting errors. In May, the industrial engineering company had warned that it would restate its 2004 annual filing, its 2004 and 2005 quarterly financial statements, and would be evaluating the potential need to restate prior periods. The accounting errors relate to inventory valuation and derivative transactions under the Financial Accounting Standards Board's FAS 133. Other accounting errors relate to the company's businesses which were sold in November 2005.
Stephen Taub, "Accounting Snags Push Dresser to Restate Problems with derivative transactions, inventory controls, keep IPO on hold," CFO Magazine, November 26, 2006 ---

Dresser Inc. changed its independent auditor to Pricewaterhouse Coopers (PwC) in 2002 and with plans to restate its 2001 financial statements after it changed auditors. The previous auditor was KPMG.

Bob Jensen's threads on KPMG are at ---

"PCAOB Finds Problems At PricewaterhouseCoopers (PwC)," by David Reilly, The Wall Street Journal, December 16, 2006; Page A4 ---

The Public Company Accounting Oversight Board, in an inspection report released Friday, cited PricewaterhouseCoopers LLP for deficiencies in some of its audits of public companies.

The PCAOB noted the firm had failed in some cases to catch or address errors in the way companies applied accounting rules or lacked sufficient evidence to back up some of its decisions. The PCAOB singled out for criticism nine audits done by PricewaterhouseCoopers, saying in a number of the cases the firm failed to adequately check the value of revenue, inventory and accounts receivable at companies whose books it was approving. The board's inspections entail reviews of a sampling of audits, not every audit done by a firm.

In keeping with the board's policies, the report doesn't identify the companies that had their audits cited. In addition, only a portion of the report is made public. A section that includes criticisms related to an accounting firm's quality-control systems is kept secret and never made public if a firm is able to show that it has corrected the problems cited within 12 months of the report's issuance.

In a comment letter included in the PCAOB report, PricewaterhouseCoopers said, "We have addressed each of the specific findings raised in the report and, where necessary, performed additional procedures or enhanced the related audit documentation." A spokesman for PricewaterhouseCoopers issued a statement saying that the firm believes it is "performing quality audits" and that it "will incorporate the board's findings" into the firm's practices.

The board's inspection reports are the only public assessment of audit firms' work available to investors and the corporate audit committees, which hire, fire and negotiate how much to pay the accounting firms.

The report is the second this year that the PCAOB has issued for a Big Four accounting firm covering inspections conducted last year of the firms' audits of companies' 2004 financial results. Earlier this month the agency issued its 2005 report for Deloitte & Touche LLP.

The PCAOB, which has been criticized for the length of time it is taking to issue annual reports, has yet to issue 2005 inspection reports for Ernst & Young LLP or KPMG LLP, the other two members of the Big Four. The board has until the end of the year to do so.

The PCAOB must issue an annual inspection report for any accounting firm that audits 100 or more public companies. Firms that audit fewer than 100 public companies are inspected every three years, although the PCAOB on Friday said it would look to amend this rule.

PricewaterhouseCoopers' response to its PCAOB report was in contrast to that of Deloitte, which included strong rebuttals of many of the board's findings.

Bob Jensen's threads on audit incompetence are at

Bob Jensen's threads on PwC troubles are at

Monster says it made monster accounting errors
Monster Worldwide Inc. said on Wednesday it overstated profit from 1997 to 2005 by a total of $271.9 million, a result of its investigation into historical stock option grants and accounting. In a filing with the U.S. Securities and Exchange Commission, the parent of job search Web site recorded a net charge of $9.2 million for 2005, $14.4 million for 2004, $27 million for 2003, $44.9 million for 2002, $65.6 million for 2001, and $110.8 million for the cumulative period of 1997 through 2000.
"Monster says overstated '97-'05 profit by $271.9 m," Rueters, December 13, 2006 --- Click Here

The Independent Auditor for Monster Worldwide is KPMG ---

It just gets deeper and deeper for KPMG

Fannie Mae Sues KPMG
The mortgage lending company Fannie Mae filed suit on Tuesday against its former auditor KPMG, accusing the firm of negligence and breach of contract for its part in the flawed accounting that led to a $6.3 billion restatement of earnings. Fannie Mae states in its complaint that KPMG applied more than 30 flawed principles and cost it more than $2 billion in damages. Fannie Mae fired the accounting firm in mid-December 2004, just a week after the Securities and Exchange Commission ordered the company to restate more than two years of flawed earnings. A KPMG spokesman, Tom Fitzgerald, said the company planned to “pursue our own claims against Fannie Mae.”
"Fannie Mae Sues KPMG," The New York Times, December 13, 2006 ---

KPMG fired back at former audit client Fannie Mae this week, saying it would counter the mortgage giant’s $2 billion negligence and breach of contract lawsuit. KPMG “will pursue our own claims against Fannie Mae” in the U.S. District Court in Washington, D.C., spokesman Tom Fitzgerald told reporters Tuesday. Fannie Mae filed its lawsuit Tuesday in the Superior Court of the District of Columbia. Fitzgerald said the issues raised in Fannie Mae's lawsuit “are already pending" in shareholder lawsuits before the federal district court. He did not elaborate on what claims KPMG would make against Fannie Mae, Reuters reported.
"KPMG Plans Counter Suit of Fannie Mae," AccountingWeb, February 14, 2006 --- 

Bob Jensen's threads on KPMG are at ---

Accounting Snags Push Dresser to Restate Problems with derivative transactions, inventory controls
Dresser Inc. said it will restate its financial statements for 2001 through 2003 based on a host of accounting errors. In May, the industrial engineering company had warned that it would restate its 2004 annual filing, its 2004 and 2005 quarterly financial statements, and would be evaluating the potential need to restate prior periods. The accounting errors relate to inventory valuation and derivative transactions under the Financial Accounting Standards Board's FAS 133. Other accounting errors relate to the company's businesses which were sold in November 2005.
Stephen Taub, "Accounting Snags Push Dresser to Restate Problems with derivative transactions, inventory controls, keep IPO on hold," CFO Magazine, November 26, 2006 ---

Dresser Inc. changed its independent auditor to Pricewaterhouse Coopers (PwC) in 2002 and with plans to restate its 2001 financial statements after it changed auditors. The previous auditor was KPMG.

Bob Jensen's threads on KPMG are at

Federal Regulators Fine Grant Thornton $300,000 Over Audit of Failed Bank
Federal bank regulators have fined the accounting firm Grant Thornton LLP $300,000 for what they called "reckless conduct" in its audit of First National Bank of Keystone, a West Virginia institution whose collapse in 1999 was one of the costliest U.S. bank failures in the past decade.
Marcy Gordon, "Federal Regulators Fine Grant Thornton $300,000 Over Audit of Failed Bank, SmartPros, December 11, 2006 ---

Grant Thornton LLP said it will challenge recent Treasury Department (DoT) findings and penalties stemming from the firm’s audit of a bank that collapsed in 1999. The Office of the Comptroller of the Currency, the Treasury agency that regulates nationally chartered banks, on Friday announced the telling $300,000 fine against the Chicago-based CPA firm that audited First National Bank of Keystone in 1998.
"Grant Thornton to Fight Claim of “Reckless” Audit," AccountingWeb, December 12, 2006 ---

Bob Jensen's threads on Grant Thornton (especially the Refco audit failure) are at

Where were the auditors?
Firms cook the books to set executive pay
And these same executives are protesting Sarbanes-Oxley



"Firms cook the books to set executive pay," Editorial, The New York Times, December 19, 23006 ---

Among the corporate deceits that buttress America's obscene executive pay is the one about comparability. But a new federal rule may help expose the reality of so-called "peer groups." Far too often, the list of comparable CEOs is cooked.

As the New York Times reported in its latest installment on executive pay, former New York Stock Exchange chairman Richard Grasso was a poster child for the abuse. His $140-million compensation package was rationalized, in part, by comparing his job to those at companies with median revenues 25 times the size of the exchange, assets 125 times and employee bases 30 times the size.

Grasso was hardly alone. Executives have learned that the path to personal riches is paved by "peer groups" that include big and profitable companies. Eli Lilly compared itself to eight companies that had much higher profit margins. Campbell Soup used one set of companies for executive pay and a separate one as a benchmark for stock performance. Ford Motor Co. compared itself to other industries, its proxy statement said, because "the job market for executives goes beyond the auto industry."

The "job market" argument is particularly disingenuous. As the New York Times noted, ousted Hewlett-Packard chief executive Carly Fiorina was replaced by a data processing executive who was earning less than half her pay. His company, NCR, never appeared on the Hewlett-Packard "peer group."

The growth in executive pay has been so meteoric in the past quarter-century that it is demeaning the contributions of average workers and undermining public faith in corporate America. Last year, according to the Corporate Library, the average pay for an S&P 500 chief executive was $13.5-million. The average CEO now earns 411 times the average worker, up from 42 times in 1980.

The new Securities and Exchange Commission disclosure rules went into effect on Friday, and compensation consultants are scrambling to cover their tracks. But stockholders who have been kept mostly in the dark will now at least have a chance to see the playbook. That's the first step toward ending these games of executive greed.

Bob Jensen's fraud updates are at


Bob Jensen's threads on outrageous executive compensation are at


Bob Jensen's threads on fraudulent and incompetent auditing are at

Saudi Arabia's Method for Terminating Corruption Investigations
Tony Blair, the British prime minister, has said he takes full responsibility for the decision to abandon an investigation into alleged corruption and bribery. The decision to abandon a two-year corruption inquiry into BAE Systems came after Saudi Arabia suggested it might cancel an order for 72 Eurofighter Typhoon jets from BAE Systems.
"Blair defends Saudi arms decision," Al Jazeera, December 16, 2006 ---

A New Law to Encourage Whistle Blowing

"At Hospitals, Lessons in Detection of Fraud," by Robert Pear, The New York Times, December 24, 2006 ---

Most of the nation’s hospitals and nursing homes will have to teach their employees how to ferret out fraud and report it to the government under a federal law that takes effect next month.

The law encourages people in the health care industry to blow the whistle on their employers. Many health care providers said this week that they were unaware of the requirement, and when informed of it, they described it as a burdensome, potentially costly federal mandate.

But Senator Charles E. Grassley, Republican of Iowa, who drafted the law, said it would help ensure that “taxpayer dollars are used to provide care for the most vulnerable people and not to line the pockets of those who seek to defraud the government.”

Starting Jan. 1, companies that do at least $5 million a year in Medicaid business must educate all employees and officers on how to detect fraud, waste and abuse. Moreover, health care providers must tell employees that if they report fraud, they will be protected against retaliation and may be entitled to a share of money recovered by the government.

Under the federal False Claims Act, some whistle-blowers have received millions of dollars in rewards for disclosing large-scale fraud.

Health care providers must also establish policies to make sure that their contractors investigate and report fraud. A large hospital system, whether run by a Fortune 500 company or a group of Roman Catholic nuns, typically has hundreds of contracts with doctors, billing agents and other vendors.

The new requirement will also apply to many pharmacies, health maintenance organizations, home care agencies, suppliers of medical equipment, physician groups and drug manufacturers.

Continued in article

Bob Jensen's threads on whistle blowing are at

Prison for Chip Executive
An executive with Samsung Electronics will plead guilty, serve 10 months in prison and pay a $250,000 fine for conspiring to fix prices of computer memory chips, the Justice Department said on Thursday. Young-hwan Park participated in the conspiracy while he was a vice president for sales at Samsung, which is based in South Korea and is the world’s top maker of memory chips, the department said.
"Prison for Chip Executive," The New York Times, December 22, 2006 ---

Congressman's Favors for Friend Include Help in Secret Budget
On a lavish, weeklong Caribbean cruise last year, software entrepreneur Warren Trepp wined and dined friends and business partners aboard the 560-foot Seven Seas Navigator. Among Mr. Trepp's guests on the cruise ship: Rep. Jim Gibbons of Nevada and his family. The two men have enjoyed a long friendship that has been good for both. Mr. Trepp has been a big contributor to Mr. Gibbons's campaigns, and the congressman has used his clout to intervene on behalf of Mr. Trepp's company, according to congressional records, court documents and interviews. The tiny Reno, Nev., company, eTreppid Technologies, has won millions of dollars in classified federal software contracts from the Air Force, U.S. Special Operations Command and the Central Intelligence Agency. At a time of rising concern over lawmakers who direct or "earmark" federal spending to their supporters and business partners, a growing part of the budget is shielded from scrutiny. This is the "black budget," mostly for defense and intelligence, which is disclosed only in the vaguest terms. The ties between Mr. Trepp and Mr. Gibbons raise questions about an influential politician in America's fastest-growing state, and also offer a rare glimpse of contracts in this secret budget being awarded to a politically connected businessman without competitive bidding.
John R. Wilke, "Congressman's Favors for Friend Include Help in Secret Budget With Rep. Gibbons's Backing, An Ex-Trader for Milken Wins Millions in Contracts A Lawsuit's Sensitive Subject, The Wall Street Journal, November 1, 2006; Page A1 ---

The dubious Pacific Western distance education "university" is at it again
lan Contreras, an administrator with the Oregon Office of Degree Authorization, noted that Pacific Western grants many of its degrees to people in Asia, where the distinction between the “University of California” and “California University” will be lost in translation. “It’s a perfectly rational business decision,” he said of the move by PWU to change its name. “Because people who see this are going to think it is the UC.” Contreras added that California’s Bureau for Private Postsecondary and Vocational Education will have to approve the switch in title . . . Meanwhile, newspapers in Korea report that lawmakers and police have opened an inquiry into more than 150 high-ranking national figures who have received degrees at unauthorized foreign colleges. The Korea Times reported that 34 of those individuals received doctorates from Pacific Western. Those officials currently work at the education ministry and an agency affiliated with the Ministry of Science and Technology.
Paul D. Thacker, "What’s in a Name?" Inside Higher Ed, December 15, 2006 ---

Guess who's buying fake diplomas?
Lawyers defending those accused in a federal court of running a diploma mill revealed on October 11 that 135 federal employees, including a White House official, purchased degrees from the operation, the Associated Press reported. The names of the federal officials were not revealed.
Inside Higher Ed, October 13, 2006
Jensen Comment
The largest market for fake diplomas is among K-12 teachers who benefit from automatic pay raises when receiving graduate degrees.

Bob Jensen's threads on diploma mills are at

Bob Jensen's threads on non-traditional doctoral degree programs are at

Bob Jensen's threads on legitimate distance education and training alternatives are at

"Lender Overcharged U.S. $1 Billion, Audit Finds," by Doug Lederman, Inside Higher Ed, October 2, 2006 ---

For many months, student loan watchdogs have been charging that lenders have taken advantage of a loophole in federal law to reap billions of dollars in profits to which they were not entitled. Late Friday, the U.S. Education Department’s inspector general strongly backed their view, releasing an audit that accused the National Education Loan Network (Nelnet) of having received $278 million in federal subsidy payments for which it was not eligible and of inappropriately charging the government for as much as $882 million more.

The inspector general’s office urged Education Secretary Margaret Spellings to order Nelnet to return the improper payments it has already received and to instruct the company to revise its estimates for future payments to exclude funds for the contested loans. Meanwhile, officials at Nelnet, a Nebraska-based company, disputed the audit’s findings but said they would work with the department to resolve them.

At issue in the case is Nelnet’s use of an exemption in federal law that allowed lenders that financed the student loans they issued using tax-exempt bonds issued before 1993 to earn a government subsidized interest rate of 9.5 percent. Congress engaged in several aborted attempts to fully close the loophole throughout the 1990s and the early part of this decade, but some lenders continued to find ways to take advantage of it by recycling the pre-1993 loan funds, before Congress, as part of the Higher Education Reconciliation Act, finally closed it permanently this year.

In the audit, the inspector general describes a process by which Nelnet seemed quite purposefully to try to expand its pool of loans that would qualify for the 9.5 percent “special allowance” payments from the federal government. “Through Project 950,” as the company’s effort was called, “Nelnet used a series of transactions to increase the amount of loans ostensibly funded by tax-exempt obligations from approximately $551 million” in March 2003 to $3.66 billion in June 2004, according to the audit.
The company, the inspector general found, moved loans into and then — “as little as one day later” — out of a non-taxable trust estate with the goal of making those loans qualify for the 9.5 percent rate.

The audit recounts exchanges in 2003 and 2004 in which Nelnet sought and believed it had gained Education Department approval for its practices regarding the 9.5 percent loans. But the inspector general says that Nelnet’s inquiries did “not appear to reflect a comprehensive disclosure by Nelnet of the nature or effect” of its effort to increase its volume of loans eligible for the higher rate.

A 1993 letter outlining the practice, the audit says, “did not identify the eligible source of funds that would be used to purchase and qualify loans for the 9.5 percent floor, did not state directly that the process would be repeated many times, and did not state that the process would result in a substantial increase in the amount of loans billed under the 9.5 percent floor.”

The audit incorporates a response that Nelnet officials submitted to an earlier draft of the audit this summer, which the inspector general notes “strongly disagrees with our finding and recommendations and requested that our draft report be withdrawn.”

In a prepared statement, Nelnet said company officials believe the inspector general’s report is “incorrect” because it is “inconsistent with the Higher Education Act, applicable laws, policy, department regulations, and the guidance to student loan companies previously issued by the Department.”

Nelnet will “seek a resolution of this matter with the Department and will also examine all other available remedies that prove the merits of our position,” said Mike Dunlap, the company’s chairman and co-chief executive officer.

Critics of the lenders’ continued use of the 9.5 percent loophole heralded the inspector general’s audit. “The depth and breadth of Nelnet’s failure to comply with the law is breathtaking, and the cost to taxpayers is staggering,” said Rep. George Miller (D-Calif.), the senior Democrat on the House of Representatives Committee on Education and the Workforce. “In an era of high budget deficits, we must be vigilant about ensuring that available tax dollars are used to provide affordable college loans to families, not to provide excessive subsidies to banks.”

Miller and others, including Sen. Edward M. Kennedy (D-Mass.), who pushed the Education Department to look into the Nelnet matter, and watchdog groups like the Project on Student Debt, urged Spellings to back the inspector general. “The secretary of education should make sure that Nelnet pays back every penny they’ve wrongly claimed and should use the near $1.2 billion saved to help students and families pay for college,” said Michael Dannenberg of the New America Foundation, who has aggressively criticized the 9.5 percent rate practice.

Continued in article

Pension Fund Accounting Fraud in San Diego

"San Diego Charges," by Nicole Gelinas, The Wall Street Journal, November 27, 2006; Page A12 ---

The SEC has announced that it has resolved its pension-fund fraud case against San Diego, with the city agreeing not to commit illegal shenanigans in the future and to hire an "independent monitor" to help it avoid doing so. Although the SEC went easy on the residents and taxpayers of San Diego in its settlement, it still has an opportunity to make an example of the former officials who the SEC determined committed the fraud. The feds should seize that chance to show they're serious about policing a sector of the investment world that remains vulnerable to similar fraud.

San Diego ran into legal trouble with its pension fund because elected officials wanted to keep its municipal workers happy by awarding them more generous pension and health-care benefits, but also wanted to keep taxpayers happy by sticking to a lean budget. The two goals were mathematically irreconcilable. So San Diego officials, with the cooperation of the board members of the city employees' retirement system (the majority of whom were also city officials), intentionally underfunded the pension plan for years. They used the "savings" to award workers and retirees more benefits, some retroactive. Because taxpayers couldn't see how much retirement benefits for public employees eventually would cost them, they couldn't protest against those high future costs. The fund also violated sound investment principles by using "surplus" earnings in boom years to pay extra benefits to retirees, including a "13th check" in some years. Trustees should have put such "surpluses" aside for years in which the market was down.

But the alleged escalated in 2002 and 2003, when city officials brushed aside warnings from outside groups, as well as from an analyst it had itself commissioned, about the fund's parlous financial straits. Although figures clearly showed that the pension fund would face a seven-fold increase in its deficit, to more than $2 billion, over less than a decade, San Diego didn't disclose what, according to the SEC, it "knew or was reckless in not knowing" was an inevitability, instead maintaining its charade. City officials disclosed not a word of the fund's financial troubles to potential investors or bond analysts as it raised nearly $300 million in new municipal securities during those two years.

The SEC elected to go easy on the city. The feds won't levy a fine against it, reasoning that it would end up being the taxpayers who would pay. This argument has merit, since these taxpayers are already on the hook for the $1.5 billion deficit -- roughly equal to the city's operating budget -- the pension-fund fraud had concealed. Taxpayers could face fallout if wronged investors sue the city. But while SEC won't punish taxpayers, it can't afford to go so easy on the officials it's still investigating. (The SEC doesn't name the current and former officials under its scrutiny, but former Mayor Dick Murphy, former city manager Michael Uberuaga and former auditor Ed Ryan, as well as members of the City Council, all had degrees of responsibility for and knowledge of the pension fund's operations.) The SEC must demonstrate that it considers the fraud officials committed against the city's bondholders to be just as grave as similar frauds in the private sector.

People who invest in municipal bonds do so because they feel that such investments are safer than investing in the common stocks of corporations. That's why cities and states enjoy access to capital at affordable interest rates. And, for tax reasons, municipal-bond investors often invest in the bonds of the city in which they reside, so they face double jeopardy. In the first place, if city officials are committing fraud, their bonds will turn out not to be as sound (and thus not as valuable) as they thought they were. The second risk is that they will have to pay higher taxes, or suffer lower government services, to cover pension-funding shortfalls in their city's budget if that is the case.

Continued in article

Bob Jensen's threads on pension fund and post-retirement accounting are at

Bristol-Myers Squibb illegal marketing proves costly
Bristol-Myers Squibb has reached a tentative agreement to pay $499 million to settle a federal investigation into illegal sales and marketing activities from the late 1990s through 2005, the company said yesterday. That settlement, and separate special charges the company also announced yesterday, would wipe out Bristol-Myers fourth-quarter profit. But its shares rose on the indication that the company was resolving a big legal issue and tidying up its books, making it a more viable takeover candidate. The United States attorney’s office in Boston, which first subpoenaed the records of Bristol-Myers in the matter in 2003, declined to confirm the announcement, saying it did not comment on such negotiations unless a final settlement has been signed.
Barnaby J. Feder, "Bristol Says U.S. Inquiry Is Settled," The New York Times, December 22, 2003 --- Click Here


Saddam's Kickback Enterprises


In 2,065 pages, Sir Terence Cole and his team unmask the vast corruption in AWB Ltd., Australia's former wheat board and supplier for a time of 16% of the world's wheat. That alone is a huge public service. AWB was the single largest payer of kickbacks to Saddam. From 1999 to 2003, the company paid $221.7 million to Iraq through "transportation" fees and "after-sales-service" fees designed to evade U.N. sanctions and Australian law. Given such compliant partners, it is little wonder Saddam thought the world would never act against him.
"Oil for Food Justice, The Wall Street Journal, November 30, 2006; Page A16 ---

Greater Accounting Transparency Sought by the Community College of Philadelphia
A faculty and staff union at the Community College of Philadelphia plans to pose one major question to the institution’s administration at a demonstration scheduled for today: Teachers and students open their books every day — why won’t administrators? The Faculty & Staff Federation of the Community College of Philadelphia, an affiliate of the American Federation of Teachers, plans to distribute leaflets and circulate a “mobile billboard” around the college’s main campus starting at 9 a.m. today to draw attention to their calls for greater financial transparency on the part of the institution, the latest development in ongoing contract negotiations.Classes will not be interrupted.
Elizabeth Redden, "Open the Books, Professors Plead," Inside Higher Ed, December 8. 2006 ---

Major breach of UCLA's computer files
In what appears to be one of the largest computer security breaches ever at an American university, one or more hackers have gained access to a UCLA database containing personal information on about 800,000 of the university's current and former students, faculty and staff members, among others. UCLA officials said the attack on a central campus database exposed records containing the names, Social Security numbers and birth dates — the key elements of identity theft — for at least some of those affected. The attempts to break into the database began in October 2005 and ended Nov. 21, when the suspicious activity was detected and blocked, the officials said.
Rebecca Trounson, "Major breach of UCLA's computer files: Personal information on 800,000 students, alumni and others is exposed; Attacks lasted a year, the school says," LA Times, December 12, 2006 ---,0,7111141.story?coll=la-home-headlines

Another Earnings Smoothing Fraud


The Securities and Exchange Commission on September 27, 2006 announced securities fraud charges against James N. Stanard and Martin J. Merritt, the former CEO and former controller, respectively, of RenaissanceRe Holdings Ltd. (RenRe) and also against Michael W. Cash, a former senior executive of RenRe's wholly-owned subsidiary, Renaissance Reinsurance Ltd. The complaint, filed in the federal court in Manhattan, alleges that Stanard, Merritt, and Cash structured and executed a sham transaction that had no economic substance and no purpose other than to smooth and defer over $26 million of RenRe's earnings from 2001 to 2002 and 2003. The Commission also announced a partial settlement of its charges against Merritt, who has consented to the entry of an antifraud injunction and other relief.

Mark K. Schonfeld, Director of the Commission's Northeast Regional Office, said, "This is another case arising from our ongoing investigation of the misuse of finite reinsurance to commit securities fraud. The defendants enabled RenRe to take excess revenue from one good year and, in effect, 'park' it with a counterparty so it would be available to bring back in a future year when the company's financial picture was not as bright."

Andrew M. Calamari, Associate Director of the Commission's Northeast Regional Office, said, "The investing public relies upon senior executives of public companies not to engage in transactions that are designed to misstate their companies' financial statements. Today's enforcement action underscores that the Commission will pursue culpable senior officials who are instrumental in constructing fraudulent transactions."

The Defendants
  • Stanard, age 57 and a resident of Maryland and Bermuda, was Ren Re's chairman and chief executive officer from 1993 until he resigned in November 2005.
  • Merritt, age 43 and a Bermuda resident, held various positions, including that of controller, at both the holding company and the subsidiary.
  • Cash, age 38 and a Bermuda resident, was a senior vice president of the subsidiary until he resigned in July 2005.

RenRe's Fraud

The Commission alleges that Stanard, Merritt and Cash committed fraud in connection with a sham transaction that they concocted to smooth RenRe's earnings. The complaint concerns two seemingly separate, unrelated contracts that were, in fact, intertwined. Together, the contracts created a round trip of cash. In the first contract, RenRe purported to assign at a discount $50 million of recoverables due to RenRe under certain industry loss warranty contracts to Inter-Ocean Reinsurance Company, Ltd. in exchange for $30 million in cash, for a net transfer to Inter-Ocean of $20 million. RenRe recorded income of $30 million upon executing the assignment agreement. The remaining $20 million of its $50 million assignment became part of a "bank" or "cookie jar" that RenRe used in later periods to bolster income.

The second contract was a purported reinsurance agreement with Inter-Ocean that was, in fact, a vehicle to refund to RenRe the $20 million transferred under the assignment agreement plus the purported insurance premium paid under the reinsurance agreement. This reinsurance agreement was a complete sham. Not only was RenRe certain to meet the conditions for coverage; it also would receive back all of the money paid to Inter-Ocean under the agreements plus investment income earned on the money in the interim, less transactional fees and costs.

RenRe accounted for the sham transaction as if it involved a real reinsurance contract that transferred risk from RenRe to Inter-Ocean when in fact, the complaint alleges, each of these individuals knew that this was not true. Merritt and Stanard also misrepresented or omitted certain key facts about the transaction to RenRe's auditors. As a result of RenRe's accounting treatment for this transaction, RenRe materially understated income in 2001 and materially overstated income in 2002, at which time it made a "claim" under the "reinsurance" agreement. It then received as apparent reinsurance proceeds the funds it had paid to Inter-Ocean and that Inter-Ocean held in a trust for RenRe's benefit.

On Feb. 22, 2005, RenRe issued a press release announcing that it would restate its financial statements for the years ended Dec. 31, 2001, 2002 and 2003. On March 31, 2005, RenRe filed its Form 10-K for the year ended Dec. 31, 2004, which contained restated financial statements for those years. Stanard signed and certified the 2004 Form 10-K. Both the press release and the Form 10-K attributed the restatement of the Inter-Ocean transaction to accounting "errors" due to "the timing of the recognition of Inter-Ocean reinsurance recoverables." These statements were misleading. In fact, the transaction contained no real reinsurance and the company's restated financial statements accounted for the transaction as if it had never occurred. In short, the entire transaction was a sham, and the company failed to disclose that fact and misrepresented the reasons for the restatement.

The Commission's Charges

The Commission's complaint charges Stanard, Merritt and Cash with securities fraud in violation of Section 17(a) of the Securities Act and Section 10(b) and Rule 10b-5(a), (b) and (c) of the Exchange Act; with violating the reporting, books-and-records and internal control provisions of Exchange Act Section 13(b)(5) and Rule 13b2-1; and with aiding and abetting RenRe's violations of Exchange Act Sections 10(b), 13(a) and 13(b)(2) and Exchange Act Rules 10b-5(a), (b) and (c), 12b-20, 13a-1 and 13a-13. In addition, the complaint charges Stanard and Merritt with violating Exchange Act Rule 13b2-2 for making materially false statements to RenRe's auditors and charges Stanard with violating Exchange Act Rule 13a-14 for certifying financial statements filed with the Commission that he knew contained materially false and misleading information. The complaint seeks permanent injunctive relief, disgorgement of ill-gotten gains, if any, plus prejudgment interest, civil money penalties, and orders barring each defendant from acting as an officer or director of any public company.

Partial Resolution

Merritt agreed to partially settle the Commission's claims against him. In addition to undertaking to cooperate fully with the Commission, and without admitting or denying the allegations in the complaint, Merritt consented to a partial final judgment that, upon entry by the court, will permanently enjoin him from violating or aiding or abetting future violations of the securities laws, bar him from serving as an officer or director of a public company, and defer the determination of civil penalties and disgorgement to a later date. Merritt also agreed to a Commission administrative order, based on the injunction, barring him from appearing or practicing before the Commission as an accountant, under Rule 102(e) of the Commission's Rules of Practice. Merritt was a certified public accountant licensed to practice in Massachusetts.

The independent auditor caught up in this fraud is Ernst & Young. You can read more about Ernst & Young's troubles at

A Fraudulent Paper Published in Nature, a Prestigious Science Journal
Another Case for Better Replication in Research Reporting

"'Grape harvest dates are poor indicators of summer warmth', as well as about scientific publication generally," by Douglas J. Keenan, Informath, November 3, 2006 --- 

That is, the authors had developed a method that gave a falsely-high estimate of temperature in 2003 and falsely-low estimates of temperatures in other very warm years. They then used those false estimates to proclaim that 2003 was tremendously warmer than other years.

The above is easy enough to understand. It does not even require any specialist scientific training. So how could the peer reviewers of the paper not have seen it? (Peer reviewers are the scientists who check a paper prior to its publication.) I asked Dr. Chuine what data was sent to Nature, when the paper was submitted to the journal. Dr. Chuine replied, “We never sent data to Nature”.

I have since published a short note that details the above problem (reference below). There are several other problems with the paper of Chuine et al. as well. I have written a brief survey of those (for people with an undergraduate-level background in science). As described in that survey, problems would be obvious to anyone with an appropriate scientific background, even without the data. In other words, the peer reviewers could not have had appropriate background.

What is important here is not the truth or falsity of the assertion of Chuine et al. about Burgundy temperatures. Rather, what is important is that a paper on what is arguably the world's most important scientific topic (global warming) was published in the world's most prestigious scientific journal with essentially no checking of the work prior to publication.

Moreover—and crucially—this lack of checking is not the result of some fluke failures in the publication process. Rather, it is common for researchers to submit papers without supporting data, and it is frequent that peer reviewers do not have the requisite mathematical or statistical skills needed to check the work (medical sciences largely excepted). In other words, the publication of the work of Chuine et al. was due to systemic problems in the scientific publication process.

The systemic nature of the problems indicates that there might be many other scientific papers that, like the paper of Chuine et al., were inappropriately published. Indeed, that is true and I could list numerous examples. The only thing really unusual about the paper of Chuine et al. is that the main problem with it is understandable for people without specialist scientific training. Actually, that is why I decided to publish about it. In many cases of incorrect research the authors will try to hide behind an obfuscating smokescreen of complexity and sophistry. That is not very feasible for Chuine et al. (though the authors did try).

Finally, it is worth noting that Chuine et al. had the data; so they must have known that their conclusions were unfounded. In other words, there is prima facie evidence of scientific fraud. What will happen to the researchers as a result of this? Probably nothing. That is another systemic problem with the scientific publication process.

Bob Jensen's threads on research replication, or lack thereof in accounting research, are at

Cendant CEO Guilty at Cendant in 3rd Trial
It took eight years and three trials, but federal prosecutors finally won their case on Tuesday against Walter A. Forbes, the former chairman of the Cendant Corporation. Mr. Forbes was convicted here on charges that he masterminded an accounting fraud that was considered at the time it was discovered — 1998 — to be the largest on record. Investors lost $19 billion when Cendant’s stock fell after the disclosure. The Cendant fraud was later eclipsed by the scandals at Enron and WorldCom. A jury of eight men and four women in Federal District Court deliberated for two and a half days before finding Mr. Forbes, 63, of New Canaan, Conn., guilty of conspiracy and of two counts of submitting false reports to the Securities and Exchange Commission in overstating his company’s earnings by more than $250 million. He was acquitted on a fourth count, securities fraud.
Stacey Stowe, "Chief Guilty at Cendant in 3rd Trial," The New York Times, November 1, 2006 ---

The company's auditor, Ernst & Young, paid $335 million to settle.

"Before Enron, There Was Cendant," by Gretchen Morgenson, The New York Times, May 9, 2004 --- 

The fraud that time forgot is finally going to trial.

Tomorrow in Federal District Court in Hartford, opening arguments are scheduled to begin in the case against Walter A. Forbes, former chairman of the Cendant Corporation, and E. Kirk Shelton, former vice chairman. The government has accused the two men of orchestrating a titanic accounting and securities fraud that misled investors over a decade beginning in the late 1980's. The trial will open more than six years after the problems at Cendant came to light.

Cendant was formed in late 1997 when CUC International, a seller of shopping-club memberships that was run by Mr. Forbes, merged with HFS Inc., a hotel, car-rental and real estate company overseen by Henry R. Silverman.

Three months after the merger, Cendant disclosed evidence of accounting irregularities; the stock lost almost half its value in one day. Later, Cendant told investors that operating profits for the three years beginning in 1995 would be reduced by $640 million.

Mr. Forbes and Mr. Shelton have been accused of securities fraud, conspiracy and lying to the Securities and Exchange Commission. The charges of fraud and making false statements to regulators each carry a maximum penalty of 10 years in prison and a $1 million fine. Mr. Forbes is also accused of insider trading, relating to an $11 million stock sale he made about a month before the accounting irregularities were disclosed.

Both men have pleaded not guilty. Mr. Forbes's lawyer did not return a phone call requesting an interview. Mr. Shelton's lawyer said: "He is innocent and expects to be vindicated."

Thanks to the creative corporate minds at Enron, WorldCom, Tyco and Adelphia, investors are up to their necks in revelations of accounting shenanigans. But the scandal at Cendant still ranks as one of the world's costliest corporate calamities.

The day after the company disclosed evidence of accounting irregularities, holders of Cendant stock and convertible bonds lost more than $14 billion. And in 2000, Cendant, now based in New York, paid $2.85 billion to settle a securities suit filed by investors who had bought its stock. The company's auditor, Ernst & Young, paid $335 million to settle.

And the scandal is still costing Cendant. Under the company's bylaws, Mr. Forbes is entitled to reimbursement for his legal fees, which are running $1 million a month, according to court documents. The company can sue to recover the fees if Mr. Forbes is convicted.

Cendant has also sued Mr. Forbes to recover $35 million in cash and $12.5 million worth of stock options he received after he resigned from the company in July 1998.

Prosecutors have built their case against Mr. Forbes and Mr. Shelton with help from three former CUC financial executives who have pleaded guilty to fraud. The case has taken six years to reach the courtroom, in part because lawyers for Mr. Forbes and Mr. Shelton persuaded a judge to move the trial from New Jersey, where Cendant had been based, to Hartford, closer to Mr. Forbes's home in New Canaan, Conn., and Mr. Shelton's home in Darien, Conn.

Continued in article

Bob Jensen's threads on Ernst & Young are at

Ex-Software Officer Settles With S.E.C
A former executive of McAfee, the antiviral software maker, agreed to pay about $757,000 to settle charges that he played a role in the company’s $622 million accounting fraud, the Securities and Exchange Commission said Tuesday. The S.E.C. charged in a civil lawsuit filed Monday in federal court in San Francisco that the company’s former treasurer, Eric Borrmann, aided in fraud from mid-1999 until he left McAfee in July 2000.
"Ex-Software Officer Settles With S.E.C.," The New York Times, November 1, 2006 ---

McAfee's outside auditor is Deloitte and Touche. You can read more about Deloitte's litigations at

"Booming Audit Firms Seek Shield From Suits," by David Reilly, The Wall Street Journal, by November 1, 2006; Page C1 ---

Business is booming at the world's biggest accounting firms, so their top lobbying priority may seem ironic: They want government protection from a big financial hit.

Revenues at the Big Four -- PricewaterhouseCoopers, Deloitte & Touche, Ernst & Young and KPMG -- have grown at a double-digit pace in recent years as audit fees soared. Regulatory overhauls enacted in the wake of accounting scandals earlier this decade have led to new work for firms. One of the biggest problems facing the Big Four these days is a lack of staff to meet the huge demand for services.

Yet the Big Four want to limit court damages that investors and others can seek from them for flawed audits of public companies. Without such a shield, the firms say, it's only a matter of time before one of them is felled by a massive court award.

Their argument is being championed by an influential group recently formed to study the competitiveness of U.S. financial markets with the encouragement of Treasury Secretary Henry Paulson. The group is expected to recommend in coming weeks that the government enact new protections for auditors. A panel set up within the powerful U.S. Chamber of Commerce is sounding a similar theme. In Europe, the European Commission is studying the issue and is likely to recommend limitations on the damages accounting firms can face.

How much risk the big firms actually face has been largely absent from the debate over auditor liability. Despite a slew of big-ticket lawsuits that emanated from corporate scandals earlier this decade, none of the firms suffered a fatal blow from those legal actions. The one big firm that folded, Arthur Andersen LLP in 2002, fell victim not to a lawsuit but to a criminal obstruction-of-justice conviction, later overturned on appeal.

"I don't see that auditors have a real need for any kind of special protections," said Bill Kelley, general counsel at the Retirement Systems of Alabama, which has sued accounting firms following corporate blowups. "Auditors need to be held to a high standard. Those are the outsiders we rely on. It's tough to have that responsibility, but that's what they're getting paid for."

Mr. Kelley and likeminded critics say it's also difficult to quantify the risk the firms face from a big court award. That's because the accounting firms are private partnerships that don't, in most cases, disclose their financial condition or results. So outsiders don't know how much capital the firms have, their level of profitability or even how much insurance they carry.

If anything, the risk from class-action lawsuits appears to be dwindling. The number of class actions that cite auditors as defendants declined to five last year from 14 in 2002, according to the Stanford Law School Securities Class Action Clearinghouse.

The bigger threat to firms has stemmed not from civil litigation, but from alleged criminal actions related to their conduct. In addition to the Arthur Andersen case, KPMG LLP suffered a near-death experience last year due to its sale of improper tax shelters; federal prosecutors ultimately decided not to indict the firm, a move that likely would have put it out of business.

The Andersen and KPMG cases have led some lawyers to claim that the Big Four are already seen by government as too big to fail. "The fact is that the government couldn't indict KPMG for policy reasons," said Sean Coffey, a partner at New York law firm Bernstein Litowitz Berger & Grossmann LLP, who has sued several accounting firms. "These folks are effectively immune to being put out of business and now they're trying to find ways to further inoculate themselves from accountability."

The firms also have shown they can weather pretty big hits. Over the past two years, KPMG has agreed to pay out nearly $700 million in fines and settlements related to criminal and civil actions. In 2000, Ernst & Young LLP settled for $335 million a shareholder suit related to its work for Cendant Corp.

Accounting firms argue the danger they face from civil litigation is real and that there are still many scandal-era actions that have yet to work their way through the courts. What is needed, the firms say, are litigation caps similar to those many states have enacted to protect doctors from malpractice suits.

The firms say special protection is warranted because they can be sued not just by the companies whose books they audit, but also by others, such as investors. These investors, the firms add, try to use auditors to recoup stock-market losses.

"The cost of our audits was never built for insuring the capital markets," said William G. Parrett, chief executive of Deloitte Touche Tohmatsu, the international arm of Deloitte & Touche. "I don't think we're saying we shouldn't have any liability, but it has to be in proportion to our participation in any problem."

The firms also say they can't get sufficient insurance because their liability is almost unlimited, encompassing in a worst-case scenario the total stock-market value of the companies they audit. So they are forced to settle lawsuits rather than risk a trial.

A study for the European Commission, released in September, said the total costs of judgments, settlements, legal fees and related expenses for the U.S. audit practices of the Big Four firms had risen to $1.3 billion in 2004, or 14.2% of revenue, up from 7.7% in 1999. In addition, according to a study by insurer Aon, there were 20 claims outstanding against U.S. auditors as of September 2005 where damages sought or estimated losses topped $1 billion. Accounting firms say they couldn't survive an award of that size.

Advocates of liability caps frame the issue around the broader debate over U.S. market competitiveness.

"I think the whole issue of liability is one of the major reasons why foreign companies aren't coming here" to list their stocks on U.S. exchanges, said Hal S. Scott, a Harvard Law School professor and a founding member of the Committee on Capital Markets Regulation, the group formed with Mr. Paulson's blessing to study market competitiveness. Mr. Scott added that while court awards can serve as a deterrent to shoddy audit work, "if we left this to the legal process, we might come up with the right amount of damages to deter bad behavior but have just two or three accounting firms" because one will have gone out of business.

Recognizing, though, that auditor liability overhaul might be a tough sell on Capitol Hill, the committee may suggest that the U.S. Securities and Exchange Commission come up with a solution, Mr. Scott said. "The SEC could modify their own rules regarding liability," he added. One idea under study: Allowing accounting firms to negotiate liability caps with clients, a practice now barred to preserve auditors' independence.

Bob Jensen's threads on proposed reforms are at

Doral Financiali Settles Financial Fraud Charges
The Securities and Exchange Commission on September 19, 2006 filed financial fraud charges against Doral Financial Corporation, alleging that the NYSE-listed Puerto Rican bank holding company overstated income by 100 percent on a pre-tax, cumulative basis between 2000 and 2004. The Commission further alleges that by overstating its income by $921 million over the period, the company reported an apparent 28-quarter streak of “record earnings” that facilitated the placement of over $1 billion of debt and equity. Since Doral Financial’s accounting and disclosure problems began to surface in early 2005, the market price of the company’s common stock plummeted from almost $50 to under $10, reducing the company’s market value by over $4 billion. Without admitting or denying the Commission’s allegations, Doral Financial has consented to the entry of a court order enjoining it from violating the antifraud, reporting, books and records and internal control provisions of the federal securities laws and ordering that it pay a $25 million civil penalty. The settlement reflects the significant cooperation provided by Doral in the Commission’s investigation.

The independent auditor for Doral Financial is PricewaterhouseCoopers LLP (PwC) --- Click Here for Doral's 10-K
PwC's charges to Doral increased from $2.2 million in 2004 to $5.6 million in 2006.

How KB Home CEO's pay went through the roof
KB Home may be the fifth-largest U.S. home builder, but it was No. 1 when it came to pay for its chief executive. Over the last three years, former CEO Bruce Karatz made $232.6 million in compensation.
Kathy M. Kristof and Annette Haddad, LA Times, December 17, 2006 ---

Jensen Comment
I'd be more impressed if KB homes bought back the fundamentally-flawed cracked foundations of all those defective homes built in Texas ---

Bob Jensen's threads on outrageous executive compensation are at

A Home Valuation Web Site Is Accused of Discrimination, the Web site that provides free home valuations, has been accused by a coalition of community activist groups of undervaluing the homes in black and Latino neighborhoods. In a letter sent by the National Community Reinvestment Coalition to the Federal Trade Commission last Thursday, the group asserted that Zillow’s Web site misrepresented home values and placed residents in low-income neighborhoods “more at risk for discriminatory and predatory lending practices.” The organization also asserted, but would not provide substantiation for the accusation, that real estate and lending industry professionals use Zillow’s information to “perpetrate fraud.” An improper appraisal could force a homeowner to borrow more than the value of the home and put money invested in the home at risk, according to the group. It urged the F.T.C. to start an investigation and permanently restrain Zillow from providing home value estimates.
Daman Darlin, "A Home Valuation Web Site Is Accused of Discrimination," The New York Times, October 31, 2006 --- Click Here

"Embezzler Sentenced," The New York Times, October 11, 2006 ---

LUBBOCK, Tex. Oct. 10 (AP) — A former executive who admitted to embezzling millions of dollars from Patterson-UTI Energy Inc., the oil and gas drilling company, was sentenced to 25 years in prison Tuesday.

The executive, Jonathan D. Nelson, 36, was accused of using a bogus invoice scheme to take more than $77 million from the company, a large operator of land-based oil and gas drilling rigs.

The authorities said he spent the money on an airplane, an airfield, a cattle ranch, a truck stop, homes and vehicles.

Mr. Nelson was also fined $200,000 and ordered to pay restitution of about $77 million minus the money that has been recouped from the sale of assets purchased with the stolen money.

“We are at a crossroads in America where malfeasance in corporate America has reached an all-time high,” Judge Sam R. Cummings of United States District Court said in comments to Mr. Nelson. “This type of conduct simply cannot be tolerated in our society.”

The independent external auditor was Pricewaterhouse Coopers --- Click Here

Fees Incurred in Fees Incurred in Fiscal Year Fiscal Year Description
                                                       2004              2003
Audit fees                                $ 419,000      $ 323,000
Audit-related fees                     1,141,000        180,000
Tax fees                                      573,000          81,000
All other fees                                 19,000          31,000
                            Totals         $2,152,000      $615,000

Bob Jensen's threads on Pricewaterhouse Coopers are at

Congressional Crooks are Democrats and Republicans
"Politicians preying on the public," by Mychal Massie, WorldNetDaily, October 3, 2006 ---

Finance Chief of Refco Is Indicted
The former finance chief of Refco, once one of the world’s largest commodities brokerage firms, was indicted yesterday, accused of helping to hide hundreds of millions of dollars in losses. Federal prosecutors in Manhattan said the former chief financial officer, Robert C. Trosten, 37, helped the firm’s former chief executive, Phillip R. Bennett, engage in a complex series of transactions that hid customer trading debts that Mr. Bennett had assumed. Their actions defrauded Refco’s investors of more than $1 billion, prosecutors said in a statement.
Michael J. de la Merced, "Finance Chief of Refco Is Indicted," The New York Times, October 25, 2006 --- Click Here

The CEO Who Jousted With Regulators
The tumultuous tenure of Robert P. Cummins as chairman, president and chief executive of the medical device maker Cyberonics has ended, the company disclosed yesterday. Mr. Cummins, 52, who is known as Skip, is a former venture capitalist who joined the board of Cyberonics in 1988 and became chief executive in 1995. He gained a reputation as one of nation’s most passionate and intimidating business leaders in dealing with critics, regulators and investors.
Barnaby J. Feder, "Head of Cyberonics Resigns as Options Inquiry Expands," The New York Times, November 21, 2006 ---

Yet Again the SEC Amends Executive Compensation Disclosure (particularly regarding stock options)
The US Securities and Exchange Commission has amended its executive and director compensation disclosure rules to more closely conform the reporting of stock and option awards to FASB Statement No. 123 (revised 2004) Share-Based Payment. FAS 123R is similar to IFRS 2 Share-based Payment. The amendment modifies rules that were adopted in July 2006.
SEC Press Release 2006 219 ---

Bob Jensen's threads on outrageous executive compensation are at


Bob Jensen's threads on accounting for employee stock options are at

Home Depot may see fallout over options backdating
Home Depot Inc.'s admission this week that some stock option grants were backdated could spur lawsuits, result in fines and have tax implications, analysts and other experts said. The disclosure of 19 years of backdating tops off a difficult year for the world's No. 1 home improvement retailer as it continues to be dogged by criticism about executive pay, a disappointing stock performance and the fallout from the slower U.S. housing market.
"Home Depot may see fallout over options backdating," Reuters, December 8, 2006 --- Click Here
Jensen Comment
Those that blame back dating on changes in tax laws and/or newer options expense requirements under FAS 123(R) should note the 19 years of backdating by Home Depot.

Bob Jensen's threads on accounting for employee stock options are at

"How Backdating Helped Executives Cut Their Taxes:  Evidence Suggests Recipients Of Some Stock-Option Grants Manipulated Exercise Dates," by Mark Maremont and Charles Forelle, The Wall Street Journal, December 12, 2006; Page A1 ---

New evidence suggests that corporate executives may have found another way to manipulate their stock options, this time to cheat on their income taxes.

In a paper that began circulating in recent days, a Securities and Exchange Commission economist concludes there is strong statistical evidence that executives manipulated the exercise dates of their options as part of a tax dodge. And a review of corporate filings turns up some companies with startling options-exercise patterns.

The new information could open another front in the options-backdating scandal. Backdating already has sparked the broadest corporate-fraud probe in decades, with more than 130 companies under investigation by federal authorities. So far, attention has focused on the practice of retroactively selecting favorable dates to grant options. The new wrinkle involves rigging the dates on which options are exercised, sometimes years after they're granted.

The tax dodge related to options, however, almost certainly involves fewer executives than are caught up in the furor over the backdating of grants. (See related article.)

The reason it can be tempting to backdate the exercise of options lies in the way the Internal Revenue Service treats different types of income for tax purposes. Options, a common part of executive pay packages, give the recipient the right to buy a company's stock at a fixed price in the future. That price, known as the strike price, is usually the stock's market price on the day the options were granted.

About three-quarters of the time, executives immediately sell the shares they buy when they exercise options. Under IRS rules that typically apply, those executives must pay ordinary income tax, as well as payroll taxes, on the difference between the stock's value on the date the option was exercised and the option's strike price. The highest federal marginal income tax rate is 35%.

But for a variety of reasons, including corporate rules that require top managers to own a certain amount of stock, some executives don't sell immediately. Those who hold the shares for at least a year pay a much lower capital-gains tax -- currently 15% -- on any profit between the time they exercise and when they eventually dispose of the shares. That lower rate gives the executive an incentive to exercise the options at a relative low point for the stock: The move reduces the amount of money that would be owed at the ordinary income tax rate, and shifts the difference so it is potentially taxed at the much-lower capital gains rate.

Consider an executive who holds options on 100,000 shares with a strike price of $10. If he exercises and sells when the price is $20, he realizes $1 million in income and must pay $350,000 in income taxes.

If he instead can claim an exercise price of $16, he lowers his income tax to $210,000. If he then sells a year later and the stock is at the same price of $20, he pays $60,000 in capital-gains levies, for a total tax bite of $270,000. In other words, he has the same $1 million gain but saves $80,000 in taxes. The problem arises if the executive misrepresents when the exercise occurred to claim a lower exercise price.

Determining which executives or companies might be involved is difficult, and it's impossible to know what information they may have included in their tax returns. But some executives have exhibited unusual timing in their options exercises.

At Maxim Integrated Products Inc., a Sunnyvale, Calif., chip maker, chief executive John F. Gifford exercised options and held shares seven times between 1997 and 2002, according to regulatory filings and insider-trading data from Thomson Financial. In all but one case, Mr. Gifford's reported exercise date was the very day the stock reached its lowest closing price of the month. After the Sarbanes-Oxley corporate-reform law took effect in 2002, drastically reducing the opportunity to backdate by tightening reporting requirements, his fortunate timing vanished.

Maxim is facing investigations by the SEC and federal prosecutors in California over its option-granting practices. A special committee of directors is also probing the matter.

Chuck Rigg, a Maxim vice president, said the company is "looking into" questions about Mr. Gifford's options exercises, but said initial data don't indicate any problems. Mr. Rigg added that the company used an outside broker to handle options exercises. "There's not a way you can backdate that," he said. Mr. Gifford didn't respond to requests for comment.

Continued in article

Bob Jensen's threads on accounting for employee stock options are at

Hundreds of old-economy companies also committed backdating fraud
Abuses of stock option grants are perceived to have spread like a virus among high-technology companies. But a new study suggests that hundreds of old-economy companies may also have caught the backdating bug. In a paper to be released today, researchers estimate that 590 nontechnology companies appear to have manipulated options so their chief executives received them at the lowest price of the month. That compares with 130 technology companies that appear to have backdated their chief executives’ options to a monthly low.
Eric Dash, "Study Charts Broad Manipulation of Options," The New York Times, November 17, 2006 ---

Recall when "agency theory" assumed that CEO's had personal incentives to make accounting transparent without the need for outside regulation requirements? This is probably still being taught in accounting theory courses where instructors rely on old textbooks and journal articles.
In the latest twist in the stock options game, some executives may have changed the so-called exercise date — the date options can be converted to stock — to avoid paying hundreds of thousands of dollars in income tax, federal investigators say . . . As those cases have progressed, at least 46 executives and directors have been ousted from their positions. Companies have taken charges totaling $5.3 billion to account for the impact of improper grants, according to Glass Lewis & Company, a research firm that advises big investors on shareholder issues. And further investigations, indictments and restatements are expected. Securities regulators are now focusing on several cases where it appears the exercise dates of the options were backdated, according to a senior S.E.C. enforcement official, who asked not to be identified because of the agency’s policy of not commenting on active cases. Besides raising disclosure and accounting problems, backdating an exercise date can result in tax fraud.
Eric Dash, "Dodging Taxes Is a New Stock Options Scheme," The New York Times, October 30, 2006 ---

You can read about agency theory at

You can read the following at

Incentive-Intensity Principle

However, setting incentives as intense as possible is not necessarily optimal from the point of view of the employer. The Incentive-Intensity Principle states that the optimal intensity of incentives depends on four factors: the incremental profits created by additional effort, the precision with which the desired activities are assessed, the agent’s risk tolerance, and the agent’s responsiveness to incentives. According to Prendergast (1999, 8), “the primary constraint on [performance-related pay] is that [its] provision imposes additional risk on workers…” A typical result of the early principal-agent literature was that piece rates tend to 100% (of the compensation package) as the worker becomes more able to handle risk, as this ensures that workers fully internalize the consequences of their costly actions. In incentive terms, where we conceive of workers as self-interested rational individuals who provide costly effort (in the most general sense of the worker’s input to the firm’s production function), the more compensation varies with effort, the better the incentives for the worker to produce.

Monitoring Intensity Principle

The third principle – the Monitoring Intensity Principle – is complementary to the second, in that situations in which the optimal intensity of incentives is high correspond to situations in which the optimal level of monitoring is also high. Thus employers effectively choose from a “menu” of monitoring/incentive intensities. This is because monitoring is a costly means of reducing the variance of employee performance, which makes more difference to profits in the kinds of situations where it is also optimal to make incentives intense.

Bob Jensen's threads on earnings management and agency theory are at

A Plea of Guilty in Options Case
The former chief financial officer of Comverse Technology pleaded guilty yesterday to conspiracy and securities fraud for his role in a stock options scheme. David Kreinberg, who left the top finance job at Comverse in May, entered his plea in Federal District Court in Brooklyn. Prosecutors have charged Mr. Kreinberg; Comverse’s former general counsel, William F. Sorin; and its former chief executive, Jacob Alexander, with engaging in an options scheme that let them reap millions of dollars in profits by altering the grant dates of stock option awards. Mr. Kreinberg has agreed to cooperate with federal prosecutors. He faces a possible 15 years in prison. Sentencing was set for Feb. 23.
Reuters, "A Plea of Guilty in Options Case," The New York Times, October 25, 2006 ---

Maybe Apple Corporation will backdate its 2006 annual report
Apple Computer Delays Filing Annual Report With SEC Due to Ongoing Stock Option Investigation NEW YORK (AP) -- Apple Computer Inc. said Friday it has delayed filing its annual report with the Securities and Exchange Commission due to its ongoing investigation into stock option grants. In a filing with the SEC, the company said it needs to restate historical financial statements to record charges for compensation related to past grants. As a result, Apple was unable to file its 10-K Form for the fiscal year ended Sept. 30 by the required filing date of Dec. 14.
"Apple Delays Filing Its Annual Report," Yahoo News, December 15, 2006 ---

Executive Compensation Fraud at Apple Corporation:
Apple's mea culpa on backdating last week was eloquently incomplete
Apple's mea culpa on backdating last week was eloquently incomplete, and all the more intriguing because the gaps seemed almost Socratically mapped to invite the media to fill the holes by asking obvious questions. The big joke here is that the logic of the witch hunt will stop the media from asking the obvious questions, not least because CEO Steve Jobs is a hero to much of the press and there's little appetite for bringing him down. Don't misunderstand. We believe it would be a gross injustice if he were defenestrated over backdating, just as we have serious doubts about the prosecutions launched against other backdating CEOS. And Apple's likely purpose in issuing its statement, naturally, was not lexical comprehensiveness but saving Mr. Jobs's job.
Holman W. Jenkins, Jr., "A Typical Backdating Miscreant, The Wall Street Journal, October 11, 2006; Page A15 ---

"Apple C.E.O. Apologizes for Stock Practices," The New York Times, October 5, 2006 --- Click Here

Now that an internal investigation over Apple Computer Inc.'s stock-option practices has helped abate investor worries over Steve Jobs' role as CEO, a key lingering concern will be the impact of pending earnings restatements.

Apple said Wednesday its three-month investigation did not uncover any misconduct of any current employees but did raise ''serious concerns'' over the accounting actions of two unnamed former officers.

The iPod and Macintosh maker also said its former chief financial officer, Fred Anderson, had resigned from the company's board of directors.

Jobs -- his position intact -- apologized.

The probe found that Jobs knew that some option grants had been given favorable dates in ''a few instances,'' but he did not benefit from them and was not aware of the accounting implications, the company said.

''I apologize to Apple's shareholders and employees for these problems, which happened on my watch,'' Jobs said in a statement. ''We will now work to resolve the remaining issues as quickly as possible and to put the proper remedial measures in place to ensure that this never happens again.''

Apple said it will likely have to restate some earnings due to revised tax and stock option-related charges. Auditors are still reviewing the situation, and Apple said it has not yet determined the extent of the financial impact.

The looming restatements could dramatically reduce some of the windfall generated during the company's recent run of record profit, analysts said.

Shares of Apple shed 10 cents to $75.28 in midday trading Thursday on the Nasdaq Stock Market. The stock has traded between $47.87 and $86.40 over the past year.

Apple has reported profit totaling $3.1 billion during the past four years. If the restatements are severe, it could dent Apple's stock, said IDC analyst Richard Shim.

''The restatements have the potential to bite them again depending on how large they end up being,'' Shim said. ''That said, the company is certainly firing on all cylinders so investors may be willing to forgive them, but it's something that will linger in the backs of their minds.''

Piper Jaffray analyst Gene Munster said he and other investors are breathing a sigh of relief that Jobs kept his job throughout the scandal.

''The risk was that if something bizarre happened and Steve Jobs got fired over it,'' Munster said from his office in Minneapolis. ''That could have significantly impacted the company in a negative way. Steve Jobs is Apple. Ultimately, the scope of the backdating was bigger than we thought, but the impact turned out to be less severe.''

Apple is one of the most prominent among more than 100 companies caught in the nationwide stock options mishandling scandal. Cupertino-based Apple initiated its own stock-options investigation in June after problems at other companies began to unravel.

In many instances, the problem has centered on the ''backdating'' of stock options -- a practice in which insiders could make the rewards more lucrative by retroactively pinning the option's exercise price to a low point in the stock's value.

Apple said its probe found irregularities in the recording of stock option grants made on 15 dates between 1997 and 2002, with the last one involving a January 2002 grant, the company said. The grants had dates that preceded the approval of those grants.

Apple spokesman Steve Dowling said the 15 grants represented 6 percent of the total issued during that period. He said he did not have further details regarding the specific grants or whether they were awarded to officers or employees.

The company did not identify the two former officers whose accounting, recording and reporting of option grants raised ''serious concerns'' during the probe.

Apple said Anderson, who served as the company's chief financial officer from 1996 until 2004, resigned from the board, citing he did so in ''Apple's best interest.''

Dowling said the company will provide more details about the probe to the Securities and Exchange Commission.

The company's special committee conducting the investigation examined more than 650,000 e-mails and documents, and interviewed more than 40 current and former employees, directors and advisers.

"Apple Says Jobs Knew of Options," by Laurie J. Flynn, The New York Times, October 5, 2006 --- Click Here

The external auditor for Apple Corporation is KPMG ---

They not only teach about options backdating at the University of Phoenix
The Apollo Group, which as owner of the University of Phoenix is the largest player in for-profit higher education in the United States, on Thursday announced that some former officials may have concealed information about the handling of stock-option grants, a key issue in light of ongoing investigations by various authorities into stock-option violations at many top American corporations. As a result of Apollo’s continuing investigation, the company announced that it would need to delay the release of quarterly and annual financial reports that would normally be due on December 31. Bloomberg reported on some of the details of the problems at Apollo.
Inside Higher Ed, December 15, 2006 ---

Bob Jensen's threads on accounting for employee stock options are at

"Stock Option Probes Force Out McAfee, CNET Execs," by Howard Schneider, The Washington Post, October 11, 2006 --- Click Here

Top executives at two technology companies quit or were fired today as the repercussions of a broad government investigation into stock option awards continued to expand.

Computer security expert McAfee Inc. announced that chairman and chief executive George Samenuk had retired and that president Kevin Weiss had been terminated following an internal investigation of company stock option awards.

Internet publisher CNET Networks Inc., meanwhile, announced the resignations of three top executives, including company co-founder and current chairman and chief executive Shelby Bonnie.

Continued in article

Timely Filing of 10-K Reports is not "Optional"
Corinthian Colleges, Inc. announced Thursday that the staff of the Nasdaq stock exchange has threatened the company with de-listing for its failure to submit its 2006 annual financial statements to the Securities and Exchange Commission on time. Corinthian said it has appealed the staff’s recommendation and sought a hearing to challenge the ruling, noting that the company had previously told the SEC that it would be filing its Form 10-K late while it conducts an outside review of its awarding of historic stock option grants. The company is one of several for-profit higher education companies facing scrutiny from federal regulators for their procedures and practices in awarding stock options.
Inside Higher Ed, October 5, 2006

Bob Jensen's threads on options accounting scandals are at

"Options backdating might never have happened if reasonable options accounting had been required years ago," by Floyd Norris, The New York Times, October 13, 2006 ---

Evidence that options backdating scandals are not uniquely caused by U.S. tax law

"Options backdating:  The latest U.S. corporate scandal involves executives falsifying the dates on stock options. A series of reviews in Canada is starting to reveal worrisome patterns," by Janet McFarland and Paul Waldie, The Globe and Mail, January 12, 2006 --- Click Here 

In the spring of 2001, the two founders and co-chief executive officers of Research In Motion Ltd. were each granted 100,000 stock options. Back then, the company relied heavily on stock options for its compensation, and often granted its executives 100,000 options at a time.

The timing was fortuitous for the executives. RIM's share price was $33.60 on April 2 when the options were granted -- its lowest point so far that year and its lowest level since the previous May, almost a year earlier.

By the time investors learned of the grant when it was disclosed publicly on June 8, the share price had climbed to $50, an increase of $16.40. That means within five weeks of the grant date, each CEO already had seen a gain of $1.64-million in the value of his options.

It wasn't the first time RIM had granted its CEOs options before a healthy climb in the company's share price. In 1998 and 1999, RIM granted options at a particularly low point, just prior to an increase in the share price.

How did this good luck come about?

This is the question being pondered by investors and regulators. The company itself has launched an internal review of its past stock option grants. RIM is not saying anything about what it is specifically examining, but co-CEO Jim Balsillie has said that RIM is "in the same position as a lot of other companies" these days.

Canadian companies haven't been drawn into the stock option backdating scandal that has swept through the United States, where regulators have launched more than 180 investigations of backdating cases, and many top executives have been forced to resign in disgrace.

But legal and accounting experts believe Canada will not remain immune to the scandal. They say many Canadian companies have quietly launched internal reviews of their options practices to determine whether they have scandals lurking in their corporate closets. And while Canada had tougher rules for options than the U.S., these same experts believe they do not prevent options backdating.

Backdating involves manipulating the date that stock options are granted to executives. Normally options are granted at the price of the company's stock that day. That means the options only have value if the share price climbs in the future. Many companies, including RIM, don't allow executives to cash out options right away, often making them wait several years.

Companies involved in backdating use the benefit of hindsight to look back and choose a date when their share price was low, then falsely claim that the options were granted on that date. It's as if a participant in a hockey pool could retroactively pick winners of games after they were played.

A Report on Business review of option grants to CEOs at more than 30 large Canadian companies between 1997 (when company filings were first available electronically) and 2005 found numerous examples of especially well-timed option grants just before an increase in the company's share price. But it is hard to draw conclusions from individual examples because an outsider cannot easily determine which cases were lucky timing and which, if any, were manipulation.

Some studies have suggested there is a problem in Canada based on a broader market review. Independent analysis firm Veritas Investment Research, for example, looked at all companies comprising the S&P/TSX 60 index and examined their option grants between 2003 and 2006. It concluded option timing "is alive and well in Canada," with stock prices over all tending to drop toward the date of option grants and climb afterward.

University of Manitoba economists have done a more detailed review of the same period, examining 5,644 options granted to senior executives by companies listed in the S&P/TSX 60 between June, 2003, and October, 2006.

According to a preliminary review of the data, "the evidence is suggestive of the occurrence of backdating in Canada," the researchers found.

"We expected to find nothing with that kind of data, and the fact that we found something is sort of like, wow," said Lindsay Tedds, an assistant professor who led the study. Prof. Tedds said the results don't confirm that backdating is necessarily occurring, but she added: "There's something going on. We didn't expect to find much of a pattern in this aggregate data."

Continued in article

The HealthSouth Settlement Does Not Include Ernst & Young

From The Wall Street Journal Accounting Weekly Review on November 10, 2006

TITLE: UnitedHealth Expects Probe to Result in 'Greater' Charges
REPORTER: Steve Stecklow and Vanessa Fuhrmans
DATE: Nov 09, 2006
TOPICS: Accounting, Accounting Changes and Error Corrections, Sarbanes-Oxley Act, Securities and Exchange Commission, Stock Options

SUMMARY: "UnitedHealth Group Inc. said it would have to take charges related to its backdated stock options that will be 'significantly greater' than its previous estimates and expects the charges to impact more than 10 years of previously reported earnings."

1.) Describe the options backdating scandal that has developed since March, 2006. If you are unfamiliar with the issue, you may click on the link for "Perfect Payday: Complete coverage" on the left hand side of the on-line article.

2.) For how long has options backdating been going on at UnitedHealth? Have the accounting requirements remained the same throughout that period of time? Summarize the required accounting and other financial reporting practices for executive and employee stock options over the last 10 years.

3.) Suppose that, once UnitedHealth finishes its review, the restatement of earnings nearly doubles to $500 million and that the restatement applies equally to each of the preceding 10 years. What accounting entry must be made to correct this $500 million error? What will be the ultimate impact on each year's earnings and on stockholders' equity at the end of each year? How will this correction be disclosed? In your answer, cite the accounting standards which require the treatment you present.

4.) Click on "Read the full text" of UnitedHealth's Nov. 8 filing with the SEC on the right-hand side of the on-line article. What Form number did UnitedHealth file? Summarize the implications of the depth of the options backdating problem found at this company.

5.) Refer to the related article. What role does the Public Accounting Oversight Board fill in assisting accountants to audit companies' accounting for stock options?

Reviewed By: Judy Beckman, University of Rhode Island

TITLE: Guidelines Set for How to Audit Stock Options
REPORTER: Siobhan Hughes
PAGE: A10 ISSUE: Oct 18, 2006

Bob Jensen's threads on accounting for employee stock options are at

"HealthSouth Agrees to $445 Million Settlement," AccountingWeb, October 2, 2006 ---

HealthSouth Corp. announced on Wednesday that it will pay $445 million to settle several lawsuits that were filed against the company and some of its former directors after an accounting scandal.

HealthSouth will pay $215 million in common stock and warrants, and its insurance carriers will pay $230 million in cash, the company said. Also, federal securities class-action plaintiffs will get 25 percent of any future judgments obtained by or on behalf of HealthSouth regarding certain claims against fired CEO Richard Scrushy, former auditors Ernst & Young, and the company’s former investment bank, UBS. Each party remains a defendant in the derivative actions and the federal securities class actions.

A judge must approve the settlement, which is nearly the same as a preliminary settlement that was reached in February.

"This settlement represents another significant milestone in HealthSouth's recovery and is a powerful symbol of the progress we have made as a company," said HealthSouth President and CEO Jay Grinney. HealthSouth, the Birmingham, Ala.-based rehabilitation and medical services chain, does not admit any wrongdoing in the settlement, nor does any other settling defendant, the company said.

The settlement does not include Ernst & Young, UBS, Scrushy or any former HealthSouth officer who entered a guilty plea or was convicted of a crime in connection with the company's financial reporting activities ending in March 2003.

Scrushy and more than a dozen top executives were accused of recording as much as $2.7 billion in bogus revenues on the company's books over six years. UBS and Ernst & Young have denied knowing about the fraud. Last year, Scrushy was acquitted of all criminal charges in the fraud. He was convicted of conspiracy, bribery and mail fraud charges in a separate government corruption trial.

Scrushy to Pay HealthSouth $31 Million
Richard M. Scrushy, founder of the HealthSouth Corporation, has agreed to pay the company $31 million as part of a settlement of litigation over his bonuses and legal fees. Mr. Scrushy dropped a lawsuit seeking $21 million for legal fees after HealthSouth agreed to credit that amount against the $52 million he owed for inflated bonuses, said Teresa Tomlinson, one of his lawyers. HealthSouth ousted Mr. Scrushy in 2003 after auditors uncovered a $2.7 billion accounting fraud at the chain of rehabilitation centers.
"Scrushy to Pay HealthSouth $31 Million," The New York Times, November 30, 2006 ---

Bob Jensen's threads on the HealthSouth Corp. fraud are at

How dominant shareholders screw the small investors
What matters, though, is that the non-family shareholders have not fully benefited from deals over the years. Moreover, because of these transactions, investors have lost influence over their company to a dominant shareholder. In essence, the Bouygues' financial cunning enabled the family to acquire stakes in companies that arguably should have been entirely in the hands of Bouygues SA. But the dealing was extremely subtle; any ordinary investor living through the drawn-out creation of the Bouygues family's stake would have found it almost impossible to follow. This raises a broader lesson. Investors battered by scandals over stock-options and golden parachutes sometimes look to family-run companies for salvation. Although professional managers, with the advantages of time and inside knowledge, can run a business to suit their own interests, family owner-managers are often thought to be less prone to such “agency risk”. Yet the story of Bouygues SA suggests that family capitalism, so common in continental Europe, can sometimes backfire as much as any share-option scheme.
"Creative construction," The Economist, November 30, 2006 ---

Skilling Sentenced to 24 Years plus Four Months: Club Fed is Easier Than State Prison, But Very Early Paroles Are Less Likely
Oct-27-2006 - Former Enron Chief Executive Officer (CEO) Jeffrey Skilling was sentenced last Monday to 24 years and four months in prison for his role in the corporate accounting scandal that gave its name to an era. The Securities and Exchange Commission (SEC) announced that it would begin distributions to WorldCom investors from the Fair Fund. And while the Enron and WorldCom corporate accounting scandals set the stage for congressional action and passage of the Sarbanes-Oxley Act (SOX) in 2004, criminal prosecutions in these cases have not lessened the SEC’s work load. The current stock options backdating scandal threatens to keep the SEC occupied for years. U.S. District Court Judge Sim Lake denied bond while Skilling appeals his sentence and ordered him to home confinement with an ankle monitor, the Associated Press reports. Judge Lake has recommended that Skilling be sent to a federal facility in Butner, North Carolina. There is no parole in federal sentencing, but like Bernie Ebbers, former Chief Executive Officer of WorldCom who is serving a 25-year sentence, Skilling could get two months a year taken off for good behavior.
AcountingWeb, October 27, 2006 ---

Bob Jensen's threads on the Enron accounting scandal are at

The Causey of It All --- At Long Last

Of all the Enron accounting executives (Fastow was the CFO who knew epsilon about accounting) I wanted Rick Causey sent up river. Causey was the Chief Accounting Officer who worked out most of the accounting fraud and was the closest conspirator with David Duncan, Andersen's manager of the less-than-independent audit. Causey mysteriously was not called on to testify in the trials of Lay and Skilling, purportedly because he was "not a rat." It appears that he was a bit more of a rat than previously reported.

"Ex-Enron Officer Given 5½ Years in Prison," The New York Times, November 16, 2006 ---

Richard A. Causey, the last of the top Enron executives to learn his punishment, was sentenced Wednesday to five and a half years in prison for his role in the corporate accounting scandal.

Mr. Causey, 46, the company’s former chief accounting officer, pleaded guilty in December to securities fraud, two weeks before he was to be tried along with the founder of Enron, Kenneth L. Lay, and the former chief executive, Jeffrey K. Skilling, on conspiracy, fraud and other charges related to the company’s collapse.

Mr. Causey had agreed to serve seven years in prison. Prosecutors said they could have recommended it be reduced to five if they were pleased with his cooperation.

Mr. Causey also agreed to pay $1.25 million to the government and to forfeit a claim to about $250,000 in deferred compensation as part of his plea deal. Unlike some others at Enron, he did not skim millions of dollars for himself.

Prosecutors dropped their plan to seize Mr. Causey’s home, a $950,000 two-story red-brick house in a Houston suburb.

Mr. Causey had faced more than 30 counts of conspiracy, fraud, insider trading, lying to auditors and money laundering.

In his guilty plea, made in Federal District Court, he admitted making false public findings and statements.

He did not testify in the Lay-Skilling trial this year, though he was on the defense witness list.

Mr. Skilling and Mr. Lay were convicted in May of conspiracy and fraud. Mr. Lay’s convictions were wiped out with his July death from heart disease. Mr. Skilling was sentenced last month to more than 24 years in prison.

Andrew S. Fastow, Enron’s former chief financial officer, whose schemes helped doom the company, was sentenced in September to six years.

Mark E. Koenig, Enron’s former director of investor relations, and Michael J. Kopper, an Enron managing director and Mr. Fastow’s top aide, are scheduled to be sentenced Friday.

Enron collapsed into bankruptcy in December 2001 after years of accounting tricks could no longer hide billions in debt or make failing ventures appear profitable.

Bob Jensen's threads on Rick Causey are at

Why white collar crime pays for Chief Enron Accountant: 
Rick Causey's fine for filing false Enron financial statements:    $1,250,000
Rick Causey's stock sales benefiting from the false reports:     $13,386,896
That averages out to winnings of $2,427,379 per year for each of the five years he's expected to be in prison
You can read what others got at 
Nice work if you can get it:  Club Fed's not so bad if you earn $6,650 per day plus all the accrued interest over the past 15 years.

2006 Update on WorldCom Fraud
U.S. Judge Denise Cote of the U.S. Court for the Southern District of New York said the distribution should be made "as soon as practicable." More than one dozen investment banks, including Citigroup Inc. and JPMorgan Chase & Co., agreed to pay about $6.15 billion to resolve allegations that they helped WorldCom sell bonds when they should have known the phone company was concealing its true financial condition. The remaining balance from available settlement funds will continue to accrue interest until other claims are processed and disputed claims are resolved, Cote said in her four-page order.

"Judge OKs $4.52 bln payout to WorldCom investors," Reuters, November 29, 2006 --- Click Here

2005 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 ---   

University of California gets a settlement from Citigroup as part of its losses in the WorldCom accounting scandal
Citigroup has agreed to pay the University of California more than $13 million to settle a lawsuit over liability for the university’s investments in WorldCom, a company that collapsed in 2002. The university sued over inaccurate analyses of WorldCom, which led UC to pay more than it would have otherwise to buy stock in the company.
Inside Higher Ed, April 7, 2006 ---

The WorldCom audit by Andersen is arguably the worst audit in history. Bob Jensen's threads on the WorldCom scandal are at

"PROFILE OF A FRAUDSTER,"  by Lisa Eversole, LSU Accounting Faculty ---

General characteristics of those who commit occupational fraud:

  • Male
  • Intelligent
  • Egotistical
  • Inquisitive
  • Risk taker
  • Rule breaker
  • Hard worker
  • Under stress
  • Greedy
  • Financial need
  • Disgruntled or a complainer
  • Big spender
  • Overwhelming desire for personal gain
  • Pressured to perform
  • Close relationship with vendors/suppliers

Jensen Comment
I think Lisa is excluding certain types of fraud such as welfare fraud that is most often perpetrated by females. Among persons who fit the Lisa's above profile there are, in my viewpoint, two types persons. The first is someone who does not commit fraud unless an opportunity arises somewhat serendipitously such as fraud opportunities that arose because of the billions being spent by government and by private citizens in the wake of hurricane Katrina. This type of person is heavily influenced by the amount involved and easy of getting away with fraud in a particular circumstance. This person does not always fit neatly into Lisa's profile.

The second type of fraudster is someone who deliberately seeks out opportunities in almost any circumstance. The latter type of fraudsters seem to get thrills apart from monetary rewards. It is in fact a game in which these lowlifes get their kicks win or lose. Some hackers get their thrills this way without intent to cheat or cause great damage.

The problem with profiling is that when using Lisa's list above, this is more likely to be the profile of a hard driving corporate executive who has no intention of committing fraud as well as the an executive intent of committing fraud.

There is also a huge follow-the-herd mentality among fraudsters who are not by nature intent on becoming fraudsters. If others are seemingly getting away with it, there's a huge temptation to go with the flow. I think the huge KPMG tax fraud (the largest criminal tax fraud in history) illustrates an example of where some KPMG employees simply commenced to follow along when their colleagues were having such seeming success at cheating the IRS.

"Prosecutors in KPMG Tax Shelter Case Offer to Try 2 Groups of Defendants Separately," Lynnley Browning, The New York Times, October 5, 2006 --- Click Here

Last year, 16 former KPMG employees, as well as a lawyer and an outside investment adviser, were indicted by a federal grand jury in Manhattan on charges that they conspired to defraud the Internal Revenue Service by creating and selling certain questionable tax shelters.

The proposal to split the group comes after Judge Kaplan raised concerns about some prosecutorial tactics in the complex case. KPMG narrowly averted criminal indictment last year over certain questionable shelters and instead reached a $456 million deferred-prosecution agreement. Judge Kaplan has criticized prosecutors for pressuring KPMG to cut off the payment of legal fees to the defendants.

His concerns how appear to extend to the indictments of the defendants.

According to a transcript of the hearing on Tuesday, Judge Kaplan said: “The government indicted 18 people knowing that the effect of doing that would be to put economic pressure on people, along with whatever else puts pressure on people to cave and to plead, because they can’t afford to defend themselves and because perhaps there are other risks involved in a joint trial. That is the patent reality of this case.”

A representative for the United States attorney’s office in Manhattan did not have a comment on the letter yesterday.

The letter, which was not filed under seal but did not appear on the court’s docket, was confirmed by two persons close to the proceedings.

Under the proposal, the junior defendants would include Jeffrey Eischeid, the rising star who was in charge of KPMG’s personal financial planning division; John Larson, a former KPMG employee who set up an investment boutique that sold shelters; David Amir Makov, a onetime Deutsche Bank employee who later worked with Mr. Larson’s investment boutique, Presidio Advisory Services; and Gregg Ritchie, a former partner; among others.

The senior defendants would include Jeffrey Stein, a former vice chairman who was the No. 2. executive at the firm; John Lanning, a former vice chairman in charge of tax services; Richard Rosenthal, a former chief financial officer; Steven Gremminger, a former associate in-house lawyer; Robert Pfaff, a former KPMG partner who worked with Mr. Larson to set up Presidio Advisory Services; David Greenberg, a former senior tax partner; and Raymond J. Ruble, a former lawyer at Sidley Austin Brown & Wood; among others.

Lawyers for the defendants maintain that their clients did nothing illegal, while prosecutors contend that they created and sold tax shelters, some involving fake loans, that deprived the Treasury of $2.5 billion in tax revenue.

Bob Jensen's threads on this and other KPMG litigations are at

Perhaps even better examples are the thousands of corporate executives who recently went along with backdating option  frauds because these appeared to be such an easy way to steal enormous amounts of money in options timing schemes that were being used so commonly throughout the corporate world. The latter fraudsters did not necessarily fit Lisa's profile very well. They simply followed the heard ---

The Enron stuff is very sexy, but that type of fraud was not pervasive.
Backdatings of executive stock option frauds are another matter.

From Jim Mahar's blog on September 22, 2006 ---

The sleuth who exposed (stock option) backdating scandal

I always like to see finance professors in the news!

Philadelphia Inquirer | 09/21/2006 | Sleuth who exposed backdating scandal:

A few "look-ins":

"From his second-floor office at Iowa's Tippie College of Business, [Erik] Lie spent months analyzing data to demonstrate how companies were illegally and retroactively timing, or backdating, stock option grants to fatten bonuses paid to top executives.


"He's uncovered a scandal that has just mushroomed," said Adam C. Pritchard, a former attorney at the Securities and Exchange Commission and now a law professor at the University of Michigan.

and later in the article:

"'The Enron stuff is very sexy, but that type of fraud was not pervasive,' said Andrew Metrick, a professor of finance and corporate governance at the Wharton School in Philadelphia. 'This is widespread, pervasive. I think when this is all said and done, the total amount of dollars that we'll find have been stolen from the corporate till is larger here than any other case we've seen.'"

Some Firms Specialize in Pre-employment Background Checks ---

Bureau of Justice Statistics ---

FBI Crime Statistics ---

White House Crime Statistics ---
(Many links are provided here)

State Crime Statistics from 1960 - 2005 ---

Sourcebook of Criminal Justice Statistics ---

White Collar Crime Pays Big Even If You Get Caught ---

Bob Jensen's threads on consumer fraud are at

Association of Certified Fraud Examiner's ACFE’s New Fraud Risk Assessment Tool to Aid in Detection, Prevention ---

Businesses, agencies, executives, anti-fraud professionals and private practitioners will soon have an effective new weapon in the fight against fraud - the ACFE's Fraud Risk Assessment Tool.

Austin, TX (PRWEB) October 2, 2006 -- Businesses, agencies, executives, anti-fraud professionals and private practitioners will soon have a new weapon in the fight against fraud. The Association of Certified Fraud Examiners (ACFE), the leading provider of anti-fraud training and education worldwide, announced today the acquisition of the Internal Fraud Vulnerability Assessment Tool.

Created by Larry Cook, CFE, president of Cook Receiver Services Inc in Lenexa, Kansas, the IFVAT has assisted users in the US, Canada, and United Kingdom as a web application. The ACFE has enhanced the IFVAT application to develop a comprehensive Fraud Risk Assessment Tool that empowers business owners and private practitioners to assess any organization’s risk factors and vulnerabilities to fraud.

“All organizations have a risk of internal fraud – any organization is susceptible,” Cook said. “A fraud risk assessment is the most effective measure an organization can take to identify its vulnerabilities and make informed, cost-effective decisions on how to prevent and detect employee theft and fraud.”

The Fraud Risk Assessment Tool uses a standard risk assessment methodology to identify an organization's vulnerabilities to fraud; the threats to the organization's assets; the probability of a fraud occurrence in the organization; and the impact of any loss event to the organization. The tool assists the user with developing cost-effective recommendations for measures to mitigate the risks from employee theft and fraud.

Cook created the program after recognizing the need for a standard, comprehensive fraud assessment tool, especially for small-to-mid-size organizations, Certified Fraud Examiners (CFEs) and anti-fraud practitioners. Cook said that to hire an accounting firm for such a risk assessment can cost “five figures and up.” The Fraud Risk Assessment Tool provides a more cost-effective way to address the crucial need for fraud detection and prevention.

The Fraud Risk Assessment Tool is also simple to understand. The application can be used by business owners, auditors, accountants, or loss prevention personnel to self-assess the organization's vulnerabilities to employee theft and fraud. An employee with knowledge of the organization's accounting system and internal controls can complete the assessment. Additionally, the Fraud Risk Assessment Tool is even more effective when applied by an anti-fraud professional who can assist in developing effective measures to reduce, prevent, and detect fraud.

About the ACFE
The ACFE is the world's premier provider of anti-fraud training and education. Together with more than 38,000 members, the ACFE is reducing business fraud world-wide and inspiring public confidence in the integrity and objectivity within the profession. Certified Fraud Examiners (CFEs) on six continents have investigated more than 2 million suspected cases of civil and criminal fraud.

Bob Jensen's threads on fraud are at

Did the Russian's cheat in world chess tournaments?

"Cheating in world chess championships is nothing new, study suggests," PhysOrg, October 10, 2006 ---

World Chess Championship matches now taking place in Kalmykia, Russia, were suspended late last month amid allegations that Russian chess master Vladimir Kramnik used frequent bathroom breaks to cheat in his match with Bulgarian opponent Veselin Topalov. When play resumed, new allegations surfaced charging that Kramnik's moves seem suspiciously similar to those generated by a computer chess program. 

While it's doubtful that these allegations will be proven, new research from economists at Washington University in St. Louis offers strong evidence that Soviet chess masters very likely engaged in collusion to gain unfair advantage in world chess championships held from 1940 through 1964, a politically volatile period in which chess became a powerful pawn in the Cold War.

"We have shown that such collusion clearly benefited the Soviet players and led to performances against the competition in critical tournaments that were noticeably better than would have been predicted on the basis of past performances and on their relative ratings," conclude study co-authors, John Nye, Ph.D., professor of economics, and Charles Moul, Ph.D., assistant professor of economics, both in Arts & Sciences at Washington University.

"The likelihood that a Soviet player would have won every single candidates tournament up to 1963 was less than one out of four under an assumption of no collusion, but was higher than three out of four when the possibility of draw collusion is factored in," the co-authors wrote.

Continued in article


Other Links
Main Document on the accounting, finance, and business scandals --- 

Bob Jensen's Enron Quiz ---

Bob Jensen's threads on professionalism and independence are at  file:///C:/Documents%20and%20Settings/dbowling/Local%20Settings/Temporary%20Internet%20Files/OLK36/FraudUpdates.htm#Professionalism 

Bob Jensen's threads on pro forma frauds are at 

Bob Jensen's threads on ethics and accounting education are at

The Saga of Auditor Professionalism and Independence ---

Incompetent and Corrupt Audits are Routine ---

Bob Jensen's threads on accounting theory are at 

Future of Auditing --- 




The Consumer Fraud Portion of this Document Was Moved to 


Bob Jensen's home page is at