2011 Loeb Award Application: Beat Reporting

I thought some readers may find it interesting to see the applications I submitted for this years’ Loeb Awards for Distinguished Business and Financial Journalism. The award is sponsored by UCLA’s Anderson School of Management.

Last year I was a finalist in the Blogging and Online Commentary Category. They’ve rearranged and added categories this year and so I decided to submit in two:  Blogging and Beat Reporting.  I’ll put up the Blogging submission in a separate post.

January 30, 2011

To the Judges:

The release of Anton Valukas’ Lehman Bankruptcy Examiner’s Report on March 11, 2010 threw a fresh match on the still smoldering remains of the 2008 Lehman Brothers failure. The mainstream media, regulators, legislators, and the business community were blaming everything but fraud for the financial meltdown and everyone but the audit firms for preventing, warning, or mitigating the devastating impact of the crisis.

re: The Auditors, my specialized news site, covers the business of the Big 4 audit firms – Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers. The accounting industry is my beat and it’s my passion. It’s a beat that has not been covered consistently by full-time assigned reporters at any major U.S. daily newspaper or general business magazine.

After Ernst & Young was cited negatively in the Valukas Lehman Bankruptcy Examiner report, journalists wrote again about the accounting/audit industry in a way they had not done since the Enron scandal in 2002. But I have been following this beat since late 2006. When the subprime mortgage crisis sparked in 2007, I came to the conclusion that many are still struggling with:

There was widespread fraud at the highest levels and the Big 4 auditors will eventually be accused of malpractice and complicity for doing nothing to prevent it, to warn us, or mitigate the impact on stakeholders.

I’ve published several stories since 2007 on the mortgage originators that failed or were taken over and the lawsuits against their executives and auditors. The Valukas report is not the first bankruptcy examiner’s report to provide a detailed litigation roadmap in a subprime/crisis era fraud and to point to auditor malpractice. I started writing about KPMG and New Century in 2007. New Century is another mortgage originator failure that was autopsied by a bankruptcy examiner.

My stories about Lehman and Ernst & Young go back to 2008 and coverage of David Einhorn’s short position and Lehman’s CFO Erin Callan. In 2010, my coverage started a month before the Bankruptcy Examiner report was issued with a prediction that fraud allegations would center around standard accounting manipulation techniques such as round trip transactions, channel stuffing, and asset parking.

To provide an example of my coverage of the accounting/audit industry beat, I have included five stories that follow the development of the Ernst & Young/Lehman Brothers failure connection. They begin with my story on the Bankruptcy Examiner’s report in March of 2010 and follow developments until December when the New York Attorney General filed a lawsuit for fraud against Ernst & Young.

My coverage of the Ernst & Young and Lehman during 2010 was widely read and drew numerous accolades. It was linked to extensively by other publications. I was quoted as a subject matter expert in BusinessWeek (twice), The New York Times, California Lawyer, and The Times of London in their stories about Lehman, auditors, and fraud.

My response to John Carney at CNBC and a scathing indictment of his point of view by Ryan Chittum in The Audit, a Columbia Journalism Review (CJR) blog, earned me a substantial mention in a later post by Ryan at CJR. Aaron Task also linked to my coverage in a summary of the controversy on the Tech Ticker site.

The Columbia Journalism Review cited my reporting, both on my site and then at Forbes, more than once. Reuters blogger Felix Salmon, a Peterson Fellow at CJR, said, “Meanwhile, Francine McKenna is doing sterling work on this case as well, pointing to the parts of the Valukas report where E&Y comes off as particularly obstructionist…”

A highlight of the series was the first publication of Ernst & Young’s initial response to the Valukas Bankrupttcy Examiner’s report – a letter to Audit Committee members that was obtained exclusively, more than a week before any other media outlet, from a retired Ernst & Young partner. I analyzed the letter in two later posts included in this package. The initial story of this letter was linked to by major media including The Financial Times’ FTAlphaville blog, Reuters in their story on the Lehman whistleblower, prominent finance blogs such as Zero Hedge, and The Times of London as the first publication of this information.

The articles selected for this nomination represent examples of leading-edge, focused journalism: original, extensively researched, relentless, and unique. I believe my stories of the Ernst & Young/Lehman relationship are the best example for 2010 of my coverage of the accounting/audit industry beat. I am confident this coverage was widely read, followed, and used as a resource.

I am proud to nominate re: The Auditors for a 2011 Gerald Loeb Award for Beat Reporting.

Sincerely,

Francine McKenna

Managing Editor

re: The Auditors.com

Five stories that follow the development of the Ernst & Young/Lehman Brothers failure connection.

Liberté, Egalité, Fraternité: Big Lehman Brothers Troubles For Ernst & Young

My Commentary Part 1: Ernst & Youngʼs Letter To Audit Committee Members

My Commentary Part 2: Ernst & Youngʼs Letter To Audit Committee Members

Top Ten Things Lawyers Should Know About Auditors

The Case Against Ernst & Young: NY AG Cuomo Sues Over Lehman