De[constructing/functing] Ernst & Young

Tyler Durden's picture

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asdf's picture

In this Fora TV presentation on the topic of "Women's Networks Help Level the Playing Field" from January, 2009, we get a glimpse into Ms. Hansen's busy lifestyle "I am a woman raising three small children, I commute from far away, I work home two days, usually I am not in on Fridays (laughter), I telecommute and often times I get asked how I fit it all together." Oh yes, Ms. Hansen we are confident you will be getting that question and many others very soon. 

ROFL!

Missing_Link's picture

I can imagine what E&Y's pitch must have been.  "Oh, you've got a nasty off-balance-sheet transaction you need to hide?  Don't worry  ...  for a little extra, we can assign it to one of our partners, a single mom with 3 kids and a long commute.  She's not exactly what you'd call 'thorough' in the best of times, and with all that going on, she's just gonna rubber-stamp everything, guaranteed."

ConfederateH's picture

There used to be the "old boys" network.  Now we have the Feminist Housewives network.

In real terms, she's just Dilberts pointy-haired boss who makes it in 2 days a week.

ConfederateH's picture

There used to be the "old boys" network.  Now we have the Feminist Housewives network.

In real terms, she's just Dilberts pointy-haired boss who makes it in 2 days a week.

ConfederateH's picture

There used to be the "old boys" network.  Now we have the Feminist Housewives network.

In real terms, she's just Dilberts pointy-haired boss who makes it in 2 days a week.

Ripped Chunk's picture

What was the last 2 posts about again?

jamesk's picture

You made various nice points there. I did a search on the matter and found nearly all persons will consent with your blog.
price pfister kitchen faucets | ge profile refrigerator | ge dryer parts

Anonymous's picture

Fuck Chuck! And why is TD running ads for these scum bagss?

When there was NO talk of banning or limiting derivative contracts after the crisis, we should of known where this was going.

TD, why are you still in the game?

Mongo's picture

That dog just aint gonna hunt!

Anonymous's picture

bless you, sir. this is why i keep coming back to this site.

Keep It Simple Stupid's picture

It appears that E & Y has somewhat of a history of doing this. This is from a 2001 lawsuit that they settled:

 

The original complaint charges PNC, certain of its officers and directors, and its auditor and consultant Ernst & Young, LLP ("E&Y") with violations of the Securities Exchange Act of 1934. PNC is a diversified financial services company operating community banking, corporate banking, real estate financial, asset-based lending, wealth management, asset management and global fund services businesses. The complaint alleges that during the Class Period, defendants misrepresented PNC's financial results and issued false and misleading statements with regard to PNC's financial condition. Defendants failed to properly consolidate liabilities associated with three subsidiaries PNC had established with American Insurance Group ("AIG"). Throughout the Class Period, defendants misrepresented PNC's earnings as well as the Company's ability to reduce its liabilities related to non-performing assets. In fact, defendants' failure to conform with proper accounting standards produced inflated earnings and misled investors as to PNC's true financial condition. The complaint further alleges that while acting as auditor and a consultant for PNC, E&Y was also acting as a consultant for AIG. In fact, as PNC's auditor, E&Y approved PNC's transactions with AIG while at the same time acting as an "accounting adviser" to AIG. E&Y drew up the financial structure for the subsidiaries in question and approved them for implementation by AIG. E&Y also issued a letter that helped AIG pitch its product to banks. On January 29, 2002, PNC announced that the Federal Reserve Board had contacted the Company about accounting inaccuracies and as a result, PNC's financial results for 2Q 01 and 3Q 01 would be restated and its financial results for 4Q 01 would be revised. PNC also stated that the updated financials would result in year-end earnings being reduced $155 million to approximately $412 million, or $1.38 a share. The Company also revealed that these accounting adjustments would cause PNC's nonperforming assets to rise by $125 million to $393 million. In addition, the Company announced that the Federal Reserve Board and the SEC were making inquiries about PNC's transactions and that PNC would cooperate with their investigations. These disclosures shocked the market, causing PNC's stock to close on January 29, 2002 down $5.79 or nearly 10% at $56.08 in extremely heavy trading volume of 6,305,100 shares.

http://securities.stanford.edu/1023/PNC02-01/

Anonymous's picture

No doubt this badge of dishonor won the firm many more big bank clients.

Tethys's picture

Hmmm, following a little further down the rabbit hole:

Back in May 2003:

 

Ernst & Young should pay the government $1.7 million and be barred from taking new auditing clients for six months for breaching a Securities and Exchange Commission conflict-of-interest regulation, an administrative law judge recommended Friday.

The proposed penalty stems from a joint marketing agreement the accounting firm had in the 1990s withPeopleSoft(PSFT), a former client. The judge found that the pact violated SEC rules that forbid auditors from having anything more than a "consumer" relationship with businesses whose books they review.

 

The SEC brought a proceeding against Ernst & Young in May 2003 after determining the firm collected huge royalties under a marketing agreement with PeopleSoft. PeopleSoft wasn't charged.

In a 69-page ruling, Chief Administrative Law Judge Brenda Murray found that Ernst "engaged in improper professional conduct because it violated applicable professional standards for auditors by conduct that was both reckless and negligent."

The judge, who presided over an 11-day hearing last spring, said she found "overwhelming evidence" that Ernst's "day-to-day operations were profit-driven and ignored consideration of auditor independence in business relationships with PeopleSoft."

 

Apparently, E&Y was not dissuaded by the $1.7M slap on the wrist:

 

Lehman Brothers filed quarterly accounts with the SEC for the period of May 31 2008 and on July 10 2008 and these (see page 52) too received a clean bill of health. Despite the deepening financial crisis, auditors did not express any reservations about the value of the derivatives or any scenarios under which company may be unable to honour its obligations. Just two months later, Lehman collapsed.

During 2007, Ernst & Young collected fees (see page 43) of $31,307,000 from Lehman Brothers, compared to $29,451,000 for 2006. The fees for 2005 and 2004 were $25,324,000 and $24,748,000 respectively. Over the last four years, Ernst & Young collected over $110m in fees, of which nearly $14m is for advice on tax and other consultancy services.

The scale of fees raises questions about auditor independence. By providing other services auditors begin to perform quasi management functions and cannot objectively evaluate the outcome of the transactions they themselves have helped to create. The fee of $110m for the New York office of Ernst & Young is likely to be significant in influencing the financial rewards of local partners and managers. The fee dependency exerts pressure on auditors to acquiesce with management. 

So it appears E&Y had a vested interest in overlooking problems with Lehman...

 

Sources:

http://www.thestreet.com/story/10154603/ernst-young-hit-hard-in-peopleso...

http://www.guardian.co.uk/commentisfree/2008/sep/18/marketturmoil.economics

M31Capital's picture

Haa this is great, I'm sure they can somehow blame the NYFED, who in turn just deny everything and no heads roll.

Anonymous's picture

Sadly the whole system is rotten to the core. The Credit Rating Agencies, the Auditors, the Banksters, the Fed, the Treasury, and yes,of course, our Government - including the Prosecutors and the Courts.

I wonder if the Crooked Clowns in Wall Street can even understand what they have created.

Ultimately the country is paying and will continue to pay a hell of a price for letting the foxes run the chicken coop.

When the necessary and eventual asset writedowns occur we could well be underwater on a national basis.

The alternative can be Weimar or perhaps the (unthinkable) sale of U.S. foreign military bases to China (an American creation) just like Roosevelt had England do, to finance their defense against Hitler.

One thing for certain, the Movie about the present and future is already out- Alice in Wonderland.

Ripped Chunk's picture

I wonder if the Crooked Clowns in Wall Street can even understand what they have created?

Only when they are down hard in the street bloody and dying. There is no other way with those who need a wheel barrow to transport their balls to & fro

assumptionblindness's picture

Will Ernst & Young's unfortunate approval of Lehman's "Repo 105" influence the content of soon to be released corporate Q1 2010 earning reports?  I believe it will. 

The big accounting firms have got to be shaking in their boots.  Under the spot light of scrutiny there is no way that accounting firms are going to jeopardize their corporate reputations by signing off on anything that may be a fraudulent balance (or perhaps even off balance) sheet misrepresentation.  Nobody is going to want to be the next Arthur Andersen/Ernst & Young.  

The impact from the Lehman report may be a sooner-than-expected revelation of big losses in the financial sector.  As such, expect new equity offerings from banks and REITs before Q1 reporting :-) 

assumptionblindness's picture

edit:  fraudulent balance sheet representation.

Harbourcity's picture

All we need now is someone at E&Y to profess that they did so at the insistence of the NYFed... woot.

 

Kayman's picture

2 Comments:

1. As a minimum, the public should be able to rely on audited statements. Moving assets/liabilities on and off a B/S in a non-arms length transaction is nothing less than fraud.

2. All bonuses paid when the books are cooked, should be recaptured and minimum jail time ought to be the penalty for participating in the fraud.

Missing_Link's picture

18:12: "I think you gotta ask the tough questions, but do the easy things."

Well you certainly did that, didn't you, Ms. Hansen.

Ms. Hansen, if you want to see more women in the upper echelons of finance, may I suggest you try leading by example?  Perhaps by not making mistakes that allow clients to get away with hiding multibillion-dollar transactions that lead to the collapse of their entire firm and almost destroy the entire economy of the Western world in the process.

Anonymous's picture

Really? I enjoy zerohedge's more serious pieces just like anyone but the bitter undertones are striking here. We are going to blame this one woman for the collapse of LEH? Or lets throw Callahn in here as well. Boom. Problem solved, no women in power.

Tethys's picture

So you find no irony in how she complains that, as she gets higher up on the ladder, there are fewer and fewer women, and then goes on to describe with pride to a group of women how she barely shows up to work?

Anonymous's picture

Yes. Being chained to a desk. That is the key to success.
Christ.

Tethys's picture

Chained to a desk?  No.  Showing up to work and performing your job?  Some might suggest Yes.

Hulk's picture

Anon must work for the SEC.

Fed workers aren't actually required to show up to work

and don't understand the difference between telecommuting

and facetime...

TheGoodDoctor's picture

I think what he is saying is the old boy's club just fortified the glass ceiling and that many a woman may break their neck trying to get in now.

I think if he was being bitter that the point of the matter was that it just be blamed on this gal. And the fact that no one else would know thus making her the patsy which obviously someone esle knew. Sometimes Tyler's sarcasm is hard to judge.

Problem Is's picture

I think it shows crooks come in all genders...

Give women more access to top jobs with the opportunity to commit crimes (For Payola? Advancement? Career Enhancement?), then you will see more women crooks.

Mary Shapiro is just Christopher Cox with bigger balls... just as clueless...

Ms. Hanson is just a non-nepotism Shana Madoff...

"Sign the audit here, hun, and take the cash."

Careless Whisper's picture

She seems a little ditzy to me.

Anonymous's picture

What other banking clients of E&Y are now on the list of to-be shorted stocks ?

Finaly I love the US stock market.

Its all disolving finally.

Anonymous's picture

Where did I hear the financial collapse was do just to men? Women need to be in the role of man so this never happens again! LOL

We do not live in a sane or reality based world a.k.a. The Matrix

http://www.youtube.com/watch?v=arcJksDgCOU

Wa! Haaa! Haaa!

Anonymous's picture

I think Ernst & Young were Healthsouth's auditors but didn't notice Richard Scrushy's "dirt" in the financial statements. I think Scrushy had E&Y audit the johns too.

Anonymous's picture

Yes. E&Y got tagged for $109 million as a result. I wonder what ever happened to Richard Scrushy's bronze bust from their HQ in Birmingham?

Anonymous's picture

http://www.linkedin.com/pub/hillary-hansen/5/7a6/6b6

Ivy League all the way, or should I say she shares an academic background from Steve Liesman`s alma mater (State University of New York) although his was from Buffalo and hers, Albany. Moreover she has a 4 year degree though the major is not disclosed while Steve opted for a 3 year BA in English. Not to focus on Steve but he also has an MA from Columbia in journalism (one of those 10 month programs) where grueling courses such as Report Writing and Advanced Report Writing are required along with killer courses in Ethics.

http://www.journalism.columbia.edu/cs/ContentServer/jrn/1165270052336/pa...

Miles Kendig's picture

I am just loving all the texture.  Don't give 'em a moments respite ZH and have fun keeping these areas of consideration flowing as we begin to gain a better idea of how all of these streams influence each other.

Anonymous's picture

Great work Tyler (as usual!). E&Y is the worst of the worst. KPMG was right after AA went down, but cleaned up their act (especially after almost getting terminated b/c of the tax shelters it sold to clients...incidentally, E&Y sold as much if not more than KPMG, but E&Y -- in one of the few things it has done right recently besides cross sell all those M&A and accounting policy shopping opinions -- "settled early" with the Feds on the tax shelters, whereas KPMG fought the Feds, and almost lost (everything...KPMG was oh so close to getting shut down).

Hopefully the Feds don't just settle with E&Y (who settled with the RTC/FDIC after the S&L crisis in the early 90s....what a history of shoddy auditing!).

Put E&Y out of business, PwC, D&T and KPMG will either get the message, or the same euthanasia order in a few years....

darkpool2's picture

We have lost the capacity to see the forest through the trees. I really believe a big part of the US problem, comes from levels of complexity, piled on further levels of complexity. Really, if it doesnt pass the KISS principle, should we be doing it?  

Reflexivity's picture

Good point, darkpool2.

Complexity does not equal better.

Statistically, it may be that the more complex our banks, business and governments get, the worse they operate (over the long-term).

Nassim talks about this in the Black Swan:  Complex systems are more brittle systems.

[Descriptive definition of brittle from wikipedia:  A material is brittle if it is liable to fracture  when subjected to stress. That is, it has little tendency to deform (or strain) before fracture. This fracture absorbs relatively little energy, even in materials of high strength, and usually makes a snapping sound.]

Nassim has this to say in his 10 Principles for a Black-Swan Free World:

"5. Counter-balance complexity with simplicity. Complexity from globalisation and highly
networked economic life needs to be countered by simplicity in financial products. The complex
economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks
to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no
room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have
proved to be mild; debt bubbles are vicious."

http://www.fooledbyrandomness.com/tenprinciples.pdf

Also, I recall Buffett once saying/complaining that there were so many derivative (and other types of) contracts in the belly of these banks that even an auditing team full of securities lawyers couldn't read every word of every contract in even a life time.  So, there was no way anyone really knew what they had.

How can you sleep at night as a CEO or CFO (or the external auditor) if you know that these business are built on assets and agreements that are so complex that no one really knows what they own (or owe)?

I guess you just take that salary (and bonus) every year hoping the powder keg doesn't blow up on your watch.  And if it does, you can claim ignorance and still keep a heck of a lot of cash (even if you go to court).

So, yes, keeping is simple is probably a good business plan.

In fact, the people who I know that make the most money year in and year out operate very simple, very boring and very predictable businesses.  The millionaire trash hauler laughs louder and louder the more the news stories come out about highfalutin Wall Street charlatans.

 

 

Ripped Chunk's picture

It is purposely made to appear as though it is much more complex than it actually is in order to continue to grow the hoax that finance is complex and most of you folks just don't get it and never will.

Where do we remeber that line from?????  Step right up folks, see the amazing.................

 

 

 

 

Anonymous's picture

Great work Tyler (as usual!). E&Y is the worst of the worst. KPMG was right after AA went down, but cleaned up their act (especially after almost getting terminated b/c of the tax shelters it sold to clients...incidentally, E&Y sold as much if not more than KPMG, but E&Y -- in one of the few things it has done right recently besides cross sell all those M&A and accounting policy shopping opinions -- "settled early" with the Feds on the tax shelters, whereas KPMG fought the Feds, and almost lost (everything...KPMG was oh so close to getting shut down).

Hopefully the Feds don't just settle with E&Y (who settled with the RTC/FDIC after the S&L crisis in the early 90s....what a history of shoddy auditing!).

Put E&Y out of business, PwC, D&T and KPMG will either get the message, or the same euthanasia order in a few years....

Anonymous's picture

Changes long overdue in the accounting prostitution business to restore to a profession

1) Changing the fee structure to a set amount, placed into escrow,
2) no firing at the whims of criminally negligent audit committees,
3) no changing auditors in mid-stream
4) fraudulence detection included in the audit program
5) no partners or managers permitted to associate with those in charge of the company's they audit

might begin the long road back to some semblance of trust in the audit opinion.

AND partners in accounting firms who threaten managers and senior accountants who have uncovered material problems should be subject to prosecution and harassment lawsuits.

Fritz's picture

The post-Enron scramble for accounting credibility ended up giving accounting firms cover to jam their clients with a sharp increase in billable hours and higher rates.

Look for FASB/accounting firms to invent ways to screw clients after this fiasco also.

 

 

hooligan2009's picture

ok bear with me here..i am cross referencing this with a most excellent post

On Banning CDS


http://www.zerohedge.com/article/banning-cds#comment-265219

now 105 is one aspect of systemic risk that has been identified and continues. My thought is that, to unravel the whole ball of wax, the point that the bail out and guarantees have cost more than the actual cost of building all the houses in the US for the last 50 years, provides the bigger dose of reality. The additional costs being borne by this housing finance infrastructure system mean that is unaffordable by anyone, going forward. See what you think.

Miyagi_san's picture

E&Y gets a Mandatory Quality Review every 3 years from the state of NY...I wonder if they'll pass with flying colors again. (or is it a shell company with an offshore P.O. Box)    Wiki ...look at there major clients, under Government

deadhead's picture

I continue to be absolutely amazed at ZH's ability to put the whole package together and to exert enormous efforts (and brains) to do so.

Once again I warn people that owning U.S. bank stocks is a very, very high risk proposition.  We've seen this wall street ponzi scheme so very many times.....

 

Congrats and thank you to ZH for the best financial journalism and muckraking on the planet.