Bramwell’s Lunch Beat: Here Comes the Big Four’s Appeal
The SEC’s quiet insider-trading loss
Bloomberg columnist Jonathan Weil wrote yesterday about a civil insider-trading trial the US Securities and Exchange Commission (SEC) lost recently against an Illinois farmer and his three sons. The men were accused of misusing confidential information to trade ahead of the 2007 purchase of Florida East Coast Industries Inc., where one of the sons worked.
The SEC quietly posted a one-paragraph disclosure on its website noting the defeat in court.
“One of the morals of the story is that sometimes it pays to fight the government,” Weil wrote. “Originally there were six defendants in this case, all family members. Two of them settled, without admitting or denying the SEC's allegations. Robert Steffes agreed in 2010 to pay about $226,000 in fines, interest, and disgorgement. Gary Griffiths agreed in 2012 to a $120,000 fine. Maybe they would have won if they had taken the SEC to trial. They will never know.
“But remember their predicaments the next time you see the SEC settle with someone it has accused of violating the law,” he continued. “To neither admit nor deny the government's claims isn't the same as a guilty plea. The SEC didn't prove anything.”
SEC faces China auditor appeal as ban imperils diplomacy
Alan Katz of Bloomberg reported early this morning that Chinese affiliates of the Big Four accounting firms plan to file an appeal to the SEC as soon as today to reverse an administrative judge’s decision to bar them for six months after they stymied investigations of possible accounting fraud.
China has signaled that the diplomatic progress could be derailed if the SEC upholds the judge’s January 22 decision. The firms said that day they will submit an appeal, which must be filed by February 12, the article stated.
“The SEC has the latitude to confirm the bar, reverse the judge’s decision, or do anything in between. Under commission rules, the SEC has seven months to consider the matter and can extend that indefinitely if there are ‘extraordinary facts and circumstances,’” Katz wrote.
“The China-based auditors have argued they are caught between US law, which requires them to turn over all documents requested by regulators, and Chinese law, which prohibits transferring data that might contain state secrets to foreign parties,” the article continued. “A compromise could be struck by giving the Public Company Accounting Oversight Board access to work papers or allowing it to meet with auditors outside China, Chairman James Doty said last week.”
China firms head for US IPOs, not fussed by accounting flap
As this whole banning the Big Four’s Chinese affiliates from auditing US-listed companies thing is going on, Reuters reported yesterday that Chinese companies are flocking to the US IPO market in their biggest numbers since 2010, drawn by soaring valuations for tech startups.
Some thirty Chinese companies could list in the United States this year, according to investment bankers interviewed by Reuters.
“The return to US shores comes on the back of renewed investor enthusiasm for China plays, particularly for Internet stocks,” Denny Thomas and Elzio Barreto wrote. “The country's online retail market by transaction volume jumped 42 percent last year to 1.85 trillion yuan ($305 billion) and is expected to almost double in size by 2016, according to figures from iResearch.”
More public company auditors staying put
Emily Chasan and Saranya Kapur of the Wall Street Journal reported today that only thirty-five public company auditors have resigned from their posts this year, representing about a 60 percent decrease from this time last year, according to data tracker Audit Analytics.
The decline could reflect fewer auditor mergers and less contentious fee discussions between auditors and clients, the article stated. When an auditor departs, companies must explain any disagreements and disclose whether the auditor resigned, declined to stand for re-election, or was dismissed.
“The overwhelming majority of all resignations occur at smaller companies, where occasionally auditors resign just for unpaid fees,” Chasan and Kapur noted. “Many resignations also occur when an auditor’s license is revoked.”
The rise of Ron Wyden
Brian Faler of Politico wrote about the rapid ascent of the Oregon Democrat who is expected to take over as chairman of the Senate Finance Committee, as early as today.
“Wyden, a one-time backbencher with a penchant for big ideas, is now poised to take over the Senate’s most powerful committee. It will instantly vault him into the ranks of the chamber’s most influential, giving him a major say over taxes, health care, trade, and programs like those Build America Bonds that made its way into Obama’s stimulus plan,” the article stated.
According to Faler, Wyden will confront a raft of unfinished business: a package of expired tax breaks, looming cuts in Medicare payments to doctors, a trade deal his predecessor Max Baucus worked out with Republicans, and a highway trust fund projected to run dry as soon as this year.
Unnecessary disclosures targeted by SEC
During a speech at the Forum for Corporate Directors in California on Monday, SEC Commissioner Daniel Gallagher said he hopes the US watchdog can “make real headway” in its initiative to reduce unnecessary disclosures. And he said a piece-by-piece approach is preferable to addressing the issue in a comprehensive fashion, wrote Ken Tysiac, senior editor of the Journal of Accountancy.
“In December, SEC Chairman Mary Jo White instructed the commission’s staff to develop recommendations for updating what companies should be required to disclose in public filings,” the article stated. “Gallagher said it’s time to get started on disclosure reform even though the SEC has yet to complete about sixty rules mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203.”
Harvard pledges restitution for 11,000 employees after tax error
Over the weekend, John Lauerman of Bloomberg reported that Harvard University pledged to ensure restitution for as many as 11,000 employees after two of its faculty pointed out the impact of a tax error by the school.
The Ivy League school erroneously reported that approximately $20 million worth of payments for life insurance were taxable, resulting in possibly millions of dollars in overpayments for employees beginning in 2009, law professors Alvin Warren and Daniel Halperin, both of whom specialize in tax law, said February 4 in a memo to staff and faculty obtained by Bloomberg.
“The university said January 21 that employees who bought the life insurance plan would have to apply for refunds from the IRS on the overpayments,” Lauerman wrote. “After Halperin and Warren pointed out that the overpayments were the university’s responsibility and that some were made too long ago to dispute with the IRS, the college said it would either compensate the overbilled employees or assist them in getting refunds.”