January 16, 2003
Disgraced Pitt Still Calling The Shots
SEC Chairman Harvey Pitt, forced to resign on November 5 because he repeatedly took company officials that were under investigation out to lunch and didn’t tell anyone about Webster’s checkered past, still serves as SEC boss today. In fact, during yesterday’s open meeting Pitt was thanking his staff (which was rumored to be fed up with his antics), and touting how important the next two weeks are. What Pitt was not doing, however, was admitting that the new rules being discussed would not even be on the table if it were not for Sarbanes-Oxley.
During his tenure Pitt did not bring about one notable change. Instead, he formed a new accounting board that is going to be made up of millionaires whose first item of business was to soundly reject internal audit controls and ask the government for a loan, he destroyed the POB (an Anti Corporate America accounting board), and he made corporate officers sign financial statement they had already been signing for 20-years. Incidentally, do you remember everyone telling investors how important ‘certification’ day was back in August? Well, Charter Communications, Xerox, and Allegheny Energy all signed-off on Pitt’s ‘certification’ plan in August 2002, and each company has since restated their financial results. Was anyone arrested? Did the SEC hold the CEOs and CFOs accountable for the financial statements they signed? No, of course not. Rather, Pitt was sure to word his useless certification plan so that ignorance gives even the most hardened criminals a get of jail free card.
Pitt bashing aside, next weeks SEC meeting could be important because the topic of Off Balance Sheet financing (SPEs) will be discussed. On October 30 the SEC began the SPE debate with the following S-A guidelines:
“The proposed rules would require companies to provide in their "Management's Discussion and Analysis" section of Commission filings: (a) a discussion of off-balance sheet arrangements; (b) a table of aggregate contractual obligations due in short and long-term time horizons; and (c) either a table or textual disclosure of aggregate contingent liabilities and commitments in the short and long-term.”
In October, during a long and seemingly pointless debate, SEC members grappled with the idea of forcing companies to consolidate off balance sheet assets/debts. However, this plan – which would actually be a solution to the problem – was quickly dismissed because of the potential for ‘information overload’.
Yesterday the SEC attacked pro forma, insider trading, and ‘softened controversial proposals governing the composition of company audit committees in the face of heavy lobbying from business.’ Suffice it to say, if the SEC is buckling to corporate pressures on the term ‘financial expert’, just wait until the average investors reads, or tries to read, what is sure to be a complicated and broad set of governing suggestions for SPEs next week.
SPEs, unlike stock options and pension related issues, is one area of accounting the media jumped all over following Enron, but immediately stopped covering due to how complex some of the financing schemes are and the lack of information made available by Corporate America. In sum, SPEs, not unlike unregulated derivatives, hedge funds, GSEs, etc., are something the average investor is unlikely to ever really know about until the next LTCM or Enron arrives. Thanks for nothing Mr. Pitt.
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