I have been named a finalist for UCLA’s Gerald Loeb Awards for my work in Forbes magazine last year.
According to the Loeb Awards website, “The Gerald Loeb Awards were established in 1957 by the late Gerald Loeb, a founding partner of E.F. Hutton. His intention was to encourage reporting on business and finance that would inform and protect the private investor and the general public. As the most prestigious honor in business journalism, distinguished journalists and outlets nationwide submit entries to the competition.”
If you have been a reader of this blog for a while, you may recall that it was a Loeb Awards finalist in 2010, the first year the award was given for online commentary. The Loeb Awards actively sought out financial and business bloggers for the new category in 2010. Jonathan Daillak, Loeb Awards Program Manager at the UCLA Anderson School of Management, emailed me and invited me to submit an entry for the award’s Online Commentary/Blogging category. At that time I thought of myself as a non-journalist “Subject Matter Expert” (SME) who writes, so I was thrilled. But I wasn’t sure if they really meant it so I called Jonathan and asked if he was sincere.
I sent the following three blog posts from 2009, including the text of reader comments. I think they are some of the best examples of original reporting and reader involvement from that year:
They Werenʼt There: Auditors And The Financial Crisis (12 comments at that time, now 25.)
KPMG Has A $1 Billion New Century Problem (23 comments at that time, now 36.)
Veteranʼs Day In PwC Advisory: Say Auf Wiedersehen (366 comments at that time now 396.)
I said at that time:
But, in spite of my desire to not compete with the professionals, the world has changed. I’m a girl with a MacBook, sitting in Chicago, with only her wits, her ego and twenty-five years of experience in an industry most find boring. But I can now use these tools in a powerful way to gain attention to the government-sponsored franchise the rest of you call public accounting.
The writing should make my case, prima facie, about why it’s important for you to read it. Events have caught up to my rhetoric. My natural tendency to investigate, instigate and illuminate has resulted in a specialized news site offering opinion, analysis and, most importantly, original reporting about a critical component of our capital markets system.
My goal is always to produce content not found anywhere else. I’m writing about an industry I know well and one I feel more people should understand and appreciate. Some of my work has been newsworthy. Readers are finding it useful to make decisions, make policy and make up their minds.
I attended the awards dinner and, although I did not win, I had a chance to meet many veteran journalists that were supportive of my work. The blogging award that year was won by David Pogue at the New York Times. I submitted my work the following two years and was not named a finalist. The award was won in those years by two more major media bloggers, Kara Swisher of AllThingsD, at that time run by the Wall Street Journal, and Felix Salmon, who actually protested the way the category was set up when it first was announced. Felix is Reuters’ finance blogger.
Later the Loeb team asked me to write something short about my experience as a finalist. They have been using it for promotion ever since.
I did not submit my blog for the award this year. So much of my writing here has been an expansion of columns at American Banker and Forbes.com. I still write original posts that only show up here – mostly more technical or industry focused pieces that are too long for the others. However, while writing for American Banker and Forbes.com I’ve learned a lot about style, form and, most important, brevity. So the posts that were exclusively re: The Auditors last year were not what is now the standard for online blogging, column-style reported commentary. It has to be tight. It has to be almost magazine-style, which implies a certain method and order to the writing.
So… I was surprised and pleased to hear Forbes would submit my two magazine articles from 2012 for the Loeb magazine category. Not only did I not have to pay the application fees – Ha – but Forbes thought the work – my first pieces for the magazine – was worthy. (This year I was also asked to be an onsite preliminary judge for the Large Newspapers category. I was honored to be there judging work by major media organizations alongside some veteran editors.)
I worked very hard on those two pieces. For the first one, everyone got involved – Editor in Chief Randall Lane, the personal finance managing editor Matt Schifrin, my day-to-day guide and online babysitter tax expert Janet Novack, and some fantastic graphics professionals. The second one was pretty much super editor Janet Novack, production support, and me slogging though a lot of material to make the case the SEC is neglecting accounting fraud, and auditors, post-Madoff while pursuing a bucketload of Ponzi scheme, inside trading and investment advisor enforcement actions.
Trying to get a quote from SEC enforcement head Robert Khuzami for that piece was probably the most difficult back-and-forth I’ve had with anyone in a long time – and I worked for JP Morgan in Latin America and two of the Big four audit firms! Later when Khuzami resigned and others also started questioning his actual enforcement legacy, I was gratified. We focused on his enforcement record when it wasn’t cool. You could, if you were generous, read what’s in this recent Bloomberg piece and see the SEC’s statements as a direct response to my Forbes magazine article.
White, who was sworn in last week, has already provided a few signals about what that might be. During her Senate confirmation hearing, she said she intends to focus on high- frequency and automated trading. She has also raised questions about a drop in the number of accounting fraud cases the agency has brought in recent years…
All the same, the number of such cases still in the pipeline has dwindled, and in recent months, the enforcement staff has formed teams to reevaluate how they are organized and what kinds of misconduct are most ripe for investigation. One consideration is whether to dismantle or reorient some of the specialized units that were formed three years ago by Robert Khuzami, who stepped down as enforcement director this year, the people said.
“To the extent you make structural changes, you have to ask yourself how much disruption and distraction it will cause,” said Steve Crimmins, a former SEC attorney who is now a partner at law firm K&L Gates in Washington. “He has to find ways to stoke the fire and keep the staff motivated.”
Canellos said in February that investigators are looking into new ways of detecting accounting fraud, an area that has seen fewer enforcement actions in recent years. James Cox, a securities law professor at Duke University, said scrutiny of auditors and accountants is overdue.
“We have only seen the SEC be active against accountants with the Chinese reverse merger cases,” said Cox, referring to cases involving China-based companies that bought public shell companies in the U.S. and reported false financial results. Inspections of auditors “repeatedly show an amazing lack of professional skepticism by accountants who repeatedly defer to very questionable applications” of the industry’s accepted accounting principles, he said.
Update: Now the Wall Street Journal is reporting “top SEC officials are expected to announce soon a broad shuffling of resources in the agency’s enforcement division that will include an increased focus on accounting fraud…”
Mr. Ceresney, a former federal prosecutor who joined the SEC in April, and Mr. Canellos have told employees there are no plans to get rid of five specialized enforcement units started in 2009 that are devoted to market abuse, asset management, foreign corrupt practices, municipal securities and structured products. People close to the SEC expect changes to some of the units, though, which they say could give the agency more leeway to make accounting fraud a top priority.
“We have to be more proactive in looking for it,” Scott Friestad, a senior SEC enforcement official, told a legal conference last month. “There’s a feeling internally that the issue hasn’t gone away.”
Wish me luck, please. As always there’s a formidable list of finalists in my category, including another veteran Forbes magazine writer, Richard Behar. Go take a look at what he’s written about Hess Oil and Russian mobsters. Incredible. My understanding is that it’s been a long, long time since Forbes had a Loeb finalist and this year they have two.
At my age you have to hustle every day to make the moments matter. We don’t know how many we have left and how many those we love, who are watching and waiting to see us happy, have left either. I have many more stories to tell. I’m still here to help others with their stories about the accounting industry, to be quoted, and to continue to encourage those who want to write.
I’m now a journalist and I learn quickly. Don’t say I didn’t warn you.
Although I didn’t submit my blog posts and American Banker and Forbes.com didn’t submit the columns on those platforms for an award, I think I did some good original reporting and “reported” commentary and analysis that had an impact last year.
I’m nothing if not prolific…
1. January 26, 2012, KPMG Nixes GE Loaned Tax Staff Engagement
I started 2012 with a big win. An earlier exposé of a significant auditor independence violation was vindicated. A multi-year, multimillion dollar engagement stopped as a result of my reporting, not with a bang, but probably plenty of whimpers at KPMG.
2. February 22, 2012, Are Auditors Reporting Fraud And Illegal Acts? The SEC Knows But Isn’t Telling
I am very proud of this piece. It’s the result of a Freedom of Information Act request I made to the SEC. Academics, regulators, lawyers and the audit firms now reference it often and it’s a topic that’s frequently requested for speeches.
3. August 5, 2012, More Sarbanes-Oxley Anniversary Thoughts
The Sarbanes-Oxley Act of 2002 was ten years old in 2012. I wrote an Op-Ed for the Financial Times on the subject. Here’s a post with a link to that piece and more thoughts.
4. August 30, 2012, Four Years After Madoff, Audits and Auditors of Broker-Dealers Still Lousy
Because of my deep knowledge of the futures industry and the Chicago pedigree of spectacular failures MF Global and PFG Best, I have been following this story for years. No one made a dent in the problem of broker dealer and FCM audits in 2012 and then we saw another case with the auditor of Linn Group. More failures – and breaches of customer segregated funds such as we saw at Sentinel, MF Global and PFGBest – are coming.
5. October 8, 2012, Casino Industry Suffering From China Denial Syndrome
Combine Chinese reverse merger frauds and the gaming industry and what do you get? An example of how diversionary tactics work. Look over there at those little Chinese companies! All the while supposedly native companies such as the casino operators are pretending to be American exchange listings while generating substantial revenue outside the jurisdiction or control of U.S. regulators. This story foreshadowed the recent resignation of LVS auditor PwC because of the company’s legal and regulatory issues.
The New York Times announced on December 31st that the OCC and Federal Reserve Bank will most likely scrap the “independent” foreclosure reviews in exchange for a modest settlement from the same fourteen banks. This post summarizes all my writing on the subject beginning in 2011 – how it happened and how the Big Four audit firms, acting as consultants, got paid billions while borrowers who were harmed still languish. My writing in American Banker was cited in Congressional testimony and by Congressmen during hearings.
7. November 18, 2012, My Big Fat Overrated CEO: McKenna On Dimon On The Keiser Report
I did a lot of speeches and media in 2012. The Keiser Report is very supportive of my work and loves when I talk about Jamie Dimon. This post sums up all the reasons – including fallout for MF Global – I predicted in January of 2012 that Dimon would be out of a job by now. That American Banker column is one of BankThink’s most popular of 2012.
8. December 1, 2012, Deloitte, HP And Autonomy: You Lose Some But You Win Some More, Much More
Big, big story at the end of 2012 that involves all four of the Big Four audit firms and is a prime example of the growing influence – and the threat to auditor independence – of the reestablished consulting practices in the firms. The original post on Forbes.com took a hot story and gave it a unique angle. It’s one of my top five columns for page views at Forbes.
9. December 7, 2012, Deutsche Bank Fair Value Fakeout Didn’t Prevent Backdoor Fed Bailout
Just when you think the year is winding up, we get another scandal. There’s more to this story from the auditor – KPMG – angle. This story used data from the Bloomberg FOIA results for Fed support for banks and other companies during the crisis. This is also another example of a phenomenon I wrote about in another very popular post on re: The Auditors, the “Great American Financial Sandwich”.
10. December 26, 2012, PwC and Thomson Reuters: Too Close For Comfort
I started the year with an auditor independence exposé and was lucky enough to fall into an even bigger violation of auditor independence regulations to close the year. This one is so brazen, so stupid, and probably so common, I’m not sure how the SEC will force its unwinding and still ignore the fact that I had to tell them about it. Will there be a sanction or a fine this time, unlike the quiet end to the KPMG/GE violation? I hope I’m still alive to see it.
11. February 18, 2013, Tax Pays: HP Pays Ernst & Young Two Million To Testify
Last September Senator Carl Levin’s Permanent Subcommittee on Investigations called auditor Ernst & Young to Washington DC to explain how its audit client HP moves profits offshore to avoid taxes. Beth Carr, the partner responsible for the tax-related services provided to audit client HP, testified on behalf of Ernst & Young. Ernst & Young’s testimony cost HP almost $2 million dollars, according to HP’s latest proxy.
The $2 million paid to Ernst & Young for showing up is recorded as “Other” advisory fees, not audit-related or even tax services, in the proxy. That’s a potential auditor independence violation since after Sarbanes-Oxley, auditors are prohibited from advocating for their clients in court or legal proceedings. For that much walking around money, I’m sure the firm, and Ms. Carr, are more than willing to take an oath and sit through some grilling by Levin.
12. April 22, 2013, Scott London Subverted Sarbanes-Oxley: Big Four Mock Audit Partner Rotation
London seems to have subverted the intent of Sarbanes-Oxley Section 203 that requires lead engagement partner rotation off engagements to promote objectivity, independence and professional skepticism. That matters a lot to the current debate in the U.S. and U.K regarding audit firm rotation and the Sarbanes-Oxley compromise rules for lead partner rotation on audit engagements.
But he’s not alone. The more I looked into this the more I realized it’s probably pretty common in the firms. After ten plus years of Sarbanes-Oxley, we’ve probably got quite a few of these roll off, roll back on partners out there. The Financial Times reported the details of London’s interrupted assignment to Skechers but not the broader implications. I can do that kind of analysis because of my deep knowledge of the industry and continuous coverage over the last six years.