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De[constructing/functing] Ernst & Young

Tyler Durden's picture





 

Ultimately the biggest loser from the whole Repo 105 scandal may not be the perpetrators, i.e., Fuld, the firm's numerous CFOs, Tim Geithner and Mary Schapiro, but the alleged "fact-checkers" - auditors Ernst & Young. Just like Enron's Star Wars-based off balance sheet accounting gimmicks brought down Arthur Anderson, so "Repo 105" may likely be responsible for the downfall of E&Y. Although while in Enron's case, it was just the accounting that brought the firm down, in Lehman's case the confluence of numerous factors will render each individual one relatively less critical, potentially to the point of irrelevance. And while book cooking was just as big of an issue for Lehman as it was for Enron, the fact that the bank did pretty much every other borderline illegal thing possible, will take away focus from just the Repo 105 fiasco, or just the liquidity misrepresentations, or just the commercial real estate book mismarking, and so forth. So to facilitate a decision on E&Y culpability, we present a candid look at Ernst & Young's Financial Services Office, the company's presentation on Paragraph 10 of IAS 39 overseeing Repo agreements, E&Ys analysis of FAS 140 "Accounting for Financial Transfers and Repurchase Financial Transactions", the Examiner's conclusions on the firm's breach of conduct, the firm's soon to be dwindling banking client base, and last, and most certainly least, a snapshot of E&Y's Lehman co-lead partner, Hillary Hansen, against whose negligent actions, as part of the Lehman E&Y practice, the Examiner concludes "that sufficient evidence exists to support a colorable claim for malpractice."

Follows a presentation of E&Y's Financial Services Office.

In the United States, Ernst & Young LLP is the only public accounting firm with a separate business unit dedicated to the financial services marketplace. Created in 2000, the New York–based Financial Services Office today includes more than 3,300 professionals in more than 30 locations across the US, as well as in Bermuda, the Bahamas and the Cayman  Islands. Key offices throughout the US include Boston, Charlotte, Chicago, Dallas, Los Angeles, McLean, Minneapolis, New York, Philadelphia, San Francisco and Stamford. Our financial services professionals provide high-quality assurance, tax, transaction and advisory services, including operations, risk and technology, to our asset management, banking, capital markets and insurance clients.

In addition, Ernst & Young professionals in our financial services practices worldwide align with key global industry groups, including Ernst & Young’s Global Asset Management Center, Global Banking & Capital Markets Center and Global Insurance Center, which act as hubs for sharing industry-focused knowledge on current and emerging trends and  regulations in order to help our clients address key issues.

The group's key contacts are listed in the attached presentation. Note the name of Bill Schlich, one of the two E&Y people named by the Examiner as responsible for the negligence colorable claim against the firm in the Lehman case.

E&Y was quite aware of the concept of traditional Repos, as can be ascertained by the following company presentation:

 

 

Furthermore, E&Y was certainly quite aware of the nuances of SFAS 140, the accounting board's green light of what would, with Linklaters' blessing shortly, become known as Repo 105. In essence, SFAS 140 is what allowed the accounting of repos as true sales. Some complications, as E&Y itself notes, arising from SFAS, are that "in saome cases it may not be possible for attorneys to provide true sale opinions under U.S. bankruptcy law when the transactions are combined and integrated." The full E&Y SFAS 140-associated education session is presented below.

EY SFAS 140 Repo Alert

A brief tangent here, which goes toward disclosure. Surely the use of SFAS 140 in Lehman's operations should have merited some mention in the firm's public filings, which after all would need E&Y's blessing. Yes and no. As the examiner points out, Lehman did not follow through on full disclosure requirements:

In a few of its financial statements, Lehman stated that “The Company accounts for transfers of financial assets in accordance with SFAS 140” and followed this statement with a summary of SFAS 140’s three criteria for recognizing the transfer of financial assets as sales (LBHI 10?Q, filed July 15, 2002), at p. 8; see also id. at p. 42 (discussing SFAS 140 in the context of securitizations and special purpose entities). In these instances where Lehman made the general disclosure regarding SFAS 140: (1) the SFAS 140 disclosure was listed under “Consolidation Accounting Policies” along with a disclosure regarding Special Purpose Entities or was part of a “Securitization activities” disclosure; (2) Lehman did not state that it treated some repo transactions as sales under SFAS 140; and (3) the financial statement contained other disclosure(s) stating that Lehman treats repo transactions as secured financings (i.e., not as sales) and/or regarding securities owned and pledged as collateral (as described above) (LBHI 10?Q (filed July 15, 2002), at pp. 8, 14; LBHI 10?Q (filed Oct. 15, 2002), at pp. 9?10, 17; LBHI 2002 10?K, at pp. 69, 71, 91; LBHI 10?Q (filed Oct. 15, 2003), at pp. 10?11, 12?13, 20; Lehman Brothers Holdings Inc., Quarterly Report as of Feb. 28, 2007 (Form 10?Q) (filed on Apr. 9, 2007), at pp. 11?12 (“LBHI 10?Q (filed Apr. 9, 2007)”); LBHI 10?Q (filed July 10, 2007), at pp. 11?12; LBHI 10?Q (filed Oct. 10, 2007), at pp. 11?12).

Back to E&Y - where things get really bleak for Ernst & Young is the following disclosure of a whistleblower arising from Lehman's soon to be ashes, and E&Y's treatment of his brand new information.

On May 16, 2008, Matthew Lee, then?Senior Vice President in the Finance Division responsible for Lehman’s Global Balance Sheet and Legal Entity Accounting, sent a letter to certain members of Lehman’s senior management identifying possible violations of Lehman’s Ethics Code related to accounting/balance sheet issues. Lehman involved Ernst & Young in its investigation of the concerns raised in Lee’s May 16, 2008 letter.

Subsequently, less than a month later, on June 12, 2008, Ernst & Young – Schlich and Hillary Hansen – interviewed Lee. Hansen’s notes of the interview reveal that Lee made certain statements to Ernst & Young about Lehman’s Repo 105 practice, including, most notably, the volume of Repo 105 activity that Lehman engaged in at quarter?end (May 31, 2008). Hansen’s notes specifically recount Lee’s allegation that Lehman moved $50 billion of inventory off its balance sheet at quarter?end through Repo 105 transactions and that these assets returned to the balance sheet approximately a week later.

To wit:

Hansen’s notes indicate that Lehman’s “Rates [and] Liquid Markets” businesses engaged in “Repo 105/Repo 108 [to] reduce[] assets by 50B [by] moving off B/S [i.e., balance sheet] in Europe & back in 5 days later.” Hillary Hansen, Ernst & Young, Handwritten Notes (June 12, 2008), at p. 1 [EY?LE?LBHIKEYPERS 5826869]. This is consistent with the Examiner’s conclusions that at quarter?end in second quarter 2008, Lehman reduced its balance sheet by slightly more than $50 billion through Repo 105 transactions.

Amusingly, while yesterday we discussed the interorganizational scapegoating, today we arrive at the intra-version. Bill Schlich, the partner named above, is quick to make thing Hansen's fault.

When interviewed by the Examiner, Schlich did not recall Lee saying anything about Repo 105 transactions during that interview, although he did not dispute the authenticity of Hansen’s notes from the Lee interview. In spite of Hansen’s notes, Schlich maintained that Ernst & Young did not know that Lehman engaged in the following Repo 105 activity during the listed time periods: $49.1 billion at first quarter 2008 (Feb. 29, 2008); and $50.38 billion at second quarter 2008 (May 31, 2008).

Now Hillary Hansen, unwilling to be thrown under the bus without some token defense, also comes out with a scapegoating excuse. Left with little recourse, she blames incompetence.

During the Examiner’s interview of Hansen, Hansen recalled that while Ernst & Young questioned Lee about his May 16, 2008 letter, Lee “rattled off” a list of additional issues and concerns he held, one of which was Lehman’s use of Repo 105 transactions. Ernst & Young had no further conversations with Lee about Repo 105 transactions. Prior to her interview of Lee in June 2008, Hansen had heard the term Repo 105 “thrown around” but she did not know its meaning; according to Hansen, Schlich described Repo 105 transactions to her shortly after they met with Lee.

It is good to know that a head auditor on a top 5 investment bank was unfamiliar with its business practices, and the implications of SFAS 140, even though the firm, as presented above, was edumacating its partners about such things.

We are not sure, however, who Schlich and Hansen will be able to scapegoat this on. Full summary of key events follows:

On June 13, 2008 – the day after Lee informed Ernst & Young of the $50 billion in Repo 105 transactions that Lehman undertook at the end of the second quarter 2008 – Ernst & Young spoke to Lehman’s Audit Committee but did not inform the committee of Lee’s allegation, even though the Chairman of the Audit Committee had clearly stated that he wanted every allegation made by Lee – whether in Lee’s May 16 letter or during the course of the investigation – to be investigated. Ernst & Young met with the Audit Committee on July 8, 2008, to review the second quarter financial  statements and again did not mention Lee’s allegations regarding Repo 105. On July 22, 2008, Ernst & Young was also present when Beth Rudofker, Head of Corporate Audit, gave a presentation to the Audit Committee on the results of the investigation into Lee’s allegations.

 

Ernst & Young did not disclose to the Audit Committee – either during the meetings or in private executive sessions after – that Lee made an allegation related to Repo 105 transactions being used to move assets off Lehman’s balance sheet at quarter-end. Cruikshank told the Examiner that he would have expected to be told about Lee’s Repo 105 allegations. Similarly, Sir Gent told the Examiner that the alleged volume of Lehman’s Repo 105 transactions mandated disclosure to the Audit Committee as well as further investigation...Ernst & Young did not follow?up on either Lee’s allegations regarding Lehman’s Repo 105 activity or Reilly’s claim that he had no knowledge of Lehman’s alleged $50 billion Repo 105 usage figure. Ernst & Young signed a Report of Independent Registered Public Accounting Firm for Lehman’s second quarter 2008 Form 10?Q on July 10, 2008, less than four weeks after Schlich and Hansen interviewed Lee.

Not to beat a dead horse, but E&Y was at fault: as the Examiner points out:

Disclosure of the agreement to repurchase component of Repo 105 transactions was required in the MD&A. Lehman’s repurchase of the securities was a known event that was reasonably likely to occur and would have had a material effect on the company’s financial condition or results of operations. Lehman’s disclosure in the Liquidity and Capital Resources section should have included a discussion of what was known with respect to the timing and/or amounts of the cash flow created by the repayment of the Repo 105 cash borrowing in the first seven to ten days after quarter-end, specifically: (1) the availability of cash as a result of the repayment of the Repo 105 cash borrowing; (2) the ability to borrow more capital because of a reduction in debt rating or deterioration in leverage ratio due to the repayment of the Repo 105 cash borrowing; (3) the effect of the repayment of the Repo 105 cash borrowing on the cost of capital/credit rating; and (4) the economic substance and business purpose of the Repo 105 arrangements.

Indeed, there was a "duty to report":

SEC Rule 12b?20 requires that all filings contain such additional information necessary to make the information contained in the filing not misleading. Moreover, “Once defendants choose to speak about their company, they undertake a duty to ‘speak truthfully and to make such additional disclosures as…necessary to avoid rendering the statements misleading.’”

And here is why the plaintiff bar is really hung over today. The lawsuits are coming:

An investor reviewing Lehman’s 2007 Form 10?K and two 2008 Forms 10?Q would not have been able to discern that Lehman was engaged in Repo 105 transactions. Indeed, Lehman made no disclosures in its Statement of Income, Statement of Financial Condition, Statement of Cash Flows, or MD&A sections (including its section on liquidity) from which an investor could infer that Lehman treated a certain volume of repo transactions as sales under SFAS 140, thereby decreasing its net assets and its net leverage ratio...In addition, even a sophisticated reader of Lehman’s financial statements would not have been able to ascertain from Lehman’s 2007 Form 10?K or its first and second quarter 2008 Forms 10?Q the amount of Lehman’s Repo 105 usage, nor even ascertain the fact that Lehman was engaged in these transactions, by attempting to quantify the amount of liquid securities temporarily removed from the balance sheet, as reported in Lehman’s public financial statements.

We sure hope that Fuld, O'Meara, Callan, Lowitt and all of E&Y are promtly depositing money in their legal representation singking fund:

The Examiner finds that sufficient evidence exists to support the finding of colorable claims against Richard Fuld, Christopher O’Meara, Erin Callan, and Ian Lowitt in connection with their actions in causing or allowing Lehman to file periodic reports that did not disclose Lehman’s use of Repo 105 transactions and against Ernst & Young for its failure to meet professional standards in connection with that lack of disclosure... While there were credible facts and arguments presented by each that may form the basis for a successful defense, the Examiner concluded that these possible defenses do not change the now final conclusion that there is sufficient evidence to support a finding that claims of breach of fiduciary duty exist against Fuld, O’Meara, Callan, and Lowitt and a colorable claim of professional malpractice exists against Ernst & Young.

And focusing again purely on E&Y:

The Examiner concludes that sufficient evidence exists to support colorable claims against Ernst & Young LLP (“Ernst & Young”) for professional malpractice arising from Ernst & Young’s failure to follow professional standards of care with respect to communications with Lehman’s Audit Committee, investigation of a whistleblower claim, and audits and reviews of Lehman’s public filings.

This surely can not be good news to E&Ys current batch of existing banking clients, which are US Bancorp, SunTrust, CapitalOne, Regions Financial, KeyCorp, Comerica, Cullen/Frost Bankers, and Zions Bancorp, among the largest ones. In fact, we anticipate that the termination letters are already in the mail.

Meet Hillary Hansen.

The weakest link in the above presentation is surely E&Y partner, and co-head of the Lehman account, Hillary Hansen. For all of you who would like to get a glimpse of this presumably tireless workhorse which was supposed to be working 24/7 figuring out what the hell was going on with Lehman's books, you may be in for a disappointment. 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. What we found hilarious is Ms. Hansen's sentiment vis-a-vis her audit client Lehman Brothers. Fast forward to 17:15, where Hansen discloses that "We audit Lehman Brothers, UNFORTUNATELY." Once again prophetic. However in the wrong direction. Something tells us that Lehman's shareholders, despite knowing how great of a woman networker and a terrific partially-stay at home mom M.s Hansen may be, coupled with just how horrendous of an auditor, the lawsuits that are sure to follow will focus on the latter.

Full link of Hansen's brief unspired monologue after the jump.

With all this information, we are confident that (again, with the assumption that we live in some semblance of a sane/ration world), E&Y's Financial Services Office is done (even despite such ironically apropos warnings on the firm's website as "Top six liquidity risk management challenges for global banks "), and quite possibly the entire firm. Integrity is the number one currency for an auditor, and just like Anderson, E&Y's just went out in a puff of green-colored smoke. Then again, with America's population broadly distracted by the healthcare debate, by the phantasmagorical market, and by mass scapegoating campaigns in which nobody seems intent on getting to the bottom of the responsibility chain, we will be very much unsurprised if nothing ends up happening, and the well-greased machine of endless corruption keeps chugging along as per usual.

And here, due to popular demand, is E&Y's Global Code Of Conduct.

 


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Sun, 03/14/2010 - 15:12 | Link to Comment asdf
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!

Sun, 03/14/2010 - 16:42 | Link to Comment Missing_Link
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."

Mon, 03/15/2010 - 10:30 | Link to Comment ConfederateH
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.

Mon, 03/15/2010 - 10:33 | Link to Comment ConfederateH
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.

Mon, 03/15/2010 - 10:33 | Link to Comment ConfederateH
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.

Mon, 03/15/2010 - 15:59 | Link to Comment Ripped Chunk
Ripped Chunk's picture

What was the last 2 posts about again?

Tue, 04/05/2011 - 05:23 | Link to Comment jamesk
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

Sun, 03/14/2010 - 18:50 | Link to Comment Anonymous
Mon, 03/15/2010 - 16:14 | Link to Comment Ripped Chunk
Ripped Chunk's picture

Shut up, asshole

Sun, 03/14/2010 - 15:13 | Link to Comment Mongo
Mongo's picture

That dog just aint gonna hunt!

Sun, 03/14/2010 - 15:25 | Link to Comment Anonymous
Sun, 03/14/2010 - 15:36 | Link to Comment Keep It Simple ...
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/

Sun, 03/14/2010 - 16:09 | Link to Comment Anonymous
Sun, 03/14/2010 - 18:10 | Link to Comment Tethys
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

Sun, 03/14/2010 - 15:44 | Link to Comment M31Capital
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.

Sun, 03/14/2010 - 15:44 | Link to Comment Anonymous
Mon, 03/15/2010 - 16:17 | Link to Comment Ripped Chunk
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

Sun, 03/14/2010 - 15:49 | Link to Comment assumptionblindness
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 :-) 

Sun, 03/14/2010 - 16:03 | Link to Comment assumptionblindness
assumptionblindness's picture

edit:  fraudulent balance sheet representation.

Sun, 03/14/2010 - 16:04 | Link to Comment Harbourcity
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.

 

Sun, 03/14/2010 - 16:05 | Link to Comment Kayman
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.

Sun, 03/14/2010 - 16:33 | Link to Comment Missing_Link
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.

Sun, 03/14/2010 - 16:47 | Link to Comment Anonymous
Sun, 03/14/2010 - 18:23 | Link to Comment Tethys
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?

Sun, 03/14/2010 - 18:25 | Link to Comment Anonymous
Sun, 03/14/2010 - 18:59 | Link to Comment Tethys
Tethys's picture

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

Mon, 03/15/2010 - 09:43 | Link to Comment Hulk
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...

Sun, 03/14/2010 - 18:25 | Link to Comment TheGoodDoctor
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.

Sun, 03/14/2010 - 21:14 | Link to Comment Problem Is
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."

Sun, 03/14/2010 - 18:42 | Link to Comment Careless Whisper
Careless Whisper's picture

She seems a little ditzy to me.

Sun, 03/14/2010 - 16:25 | Link to Comment williambanzai7
Sun, 03/14/2010 - 16:53 | Link to Comment Anonymous
Sun, 03/14/2010 - 17:07 | Link to Comment Anonymous
Sun, 03/14/2010 - 17:21 | Link to Comment Anonymous
Sun, 03/14/2010 - 19:33 | Link to Comment Anonymous
Sun, 03/14/2010 - 17:31 | Link to Comment Anonymous
Sun, 03/14/2010 - 17:40 | Link to Comment Miles Kendig
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.

Sun, 03/14/2010 - 17:40 | Link to Comment Anonymous
Sun, 03/14/2010 - 17:40 | Link to Comment darkpool2
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?  

Sun, 03/14/2010 - 20:00 | Link to Comment Reflexivity
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.

 

 

Mon, 03/15/2010 - 16:27 | Link to Comment Ripped Chunk
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.................

 

 

 

 

Sun, 03/14/2010 - 17:40 | Link to Comment Anonymous
Sun, 03/14/2010 - 17:43 | Link to Comment Anonymous
Sun, 03/14/2010 - 17:53 | Link to Comment Fritz
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.

 

 

Sun, 03/14/2010 - 18:07 | Link to Comment hooligan2009
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.

Sun, 03/14/2010 - 18:09 | Link to Comment Anonymous
Sun, 03/14/2010 - 18:21 | Link to Comment Miyagi_san
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

Sun, 03/14/2010 - 18:25 | Link to Comment deadhead
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.  

Sun, 03/14/2010 - 18:41 | Link to Comment umop episdn
umop episdn's picture

What deadhead said.
Doubleplus good.

Sun, 03/14/2010 - 18:53 | Link to Comment Careless Whisper
Careless Whisper's picture

Props to ZH, and don't forget David Einhorn.

http://www.businessinsider.com/the-vindication-of-david-einhorn-2010-3

 

 

Sun, 03/14/2010 - 19:58 | Link to Comment B9K9
B9K9's picture

We happened to be out at the desert this weekend. When I went to take the dog for a walk this morning, there was a newspaper at the door. Thinking it was just the LA Times, I tossed it aside. When I came back from the walk, I noticed instead that it was the NY Times.

Not that the NYT is any different/better, but I hadn't taken a look at any MSM publication in awhile, so I sat down to peruse the day's offering of propaganda over a cup of coffee. What I found unremarkable, of course, was the complete lack of insight or self-respect - the cheerleading is palpable.

But I come from an era when the NYT employed very good investigative journalists and great writers. Where have they gone? What has become of them? Then it dawned on me; they haven't gone anywhere - they're still here hiding in plain site: Zero Hedge.

Oh, sure, they may still phone it in for their MSM paycheck, but the sheer volume of really high quality analyses and communication found on a daily basis @ ZH suggests there are some high-powered players using this platform to get the word out. It's inconceivable how almost everyday brings another full-on research project that under normal circumstances would have taken a small team 1-2 weeks in the old MSM news cycle.

Something to consider, no?

Sun, 03/14/2010 - 22:30 | Link to Comment deadhead
deadhead's picture

Something to consider, no?

Oh yes.

Mon, 03/15/2010 - 10:13 | Link to Comment gilligan
gilligan's picture

...the sheer volume of really high quality analyses and communication found on a daily basis @ ZH suggests there are some high-powered players using this platform to get the word out. It's inconceivable how almost everyday brings another full-on research project that under normal circumstances would have taken a small team 1-2 weeks in the old MSM news cycle.

Something to consider, no?

 

That's a yes.

Sun, 03/14/2010 - 18:52 | Link to Comment merehuman
merehuman's picture

Its sunday 3:47 Pacific time

Australia market is not open today?  No changes on kitco.com board yet!

Anybody know whats going on? Mayhap they are on holiday or...

Sun, 03/14/2010 - 19:38 | Link to Comment Madcow
Madcow's picture

What happens when global markets re-open - now that it is beyond question that Western financial assets are nothing but souvenirs from a massive crime spree ??

 

Sun, 03/14/2010 - 19:43 | Link to Comment Rusty_Shackleford
Rusty_Shackleford's picture

Complete and utter lawlessness.

 

Plain and simple.

Sun, 03/14/2010 - 20:28 | Link to Comment williambanzai7
williambanzai7's picture

I love the way this blog drills down. It's like the dentist's office for Wall Street Bankstas.

Is it safe?

Please have a go at Linklaters, or is it Wallpapers?

REPO 105.11: 2BIG2AUDIT:

http://williambanzai7.blogspot.com/2010/03/repo-10511-2big2audit.html

Sun, 03/14/2010 - 20:03 | Link to Comment svendthrift
svendthrift's picture

http://www.nytimes.com/2009/09/11/business/economy/11norris.html?_r=3&pa...

http://www.telegraph.co.uk/finance/newsbysector/supportservices/6111149/...

http://www.guardian.co.uk/business/2009/oct/27/financial-reporting-counc...

 

I have long known that one or more of the Big 4 would die as a result of this crisis. All 4 should fail, but that's too much to ask for now.

 

Mon, 03/15/2010 - 16:31 | Link to Comment Ripped Chunk
Ripped Chunk's picture

But you don't work for a non- BIG 4 accounting firm do you?

Tue, 03/16/2010 - 17:57 | Link to Comment svendthrift
svendthrift's picture

No, I don't. But thank you for asking.

Sun, 03/14/2010 - 20:06 | Link to Comment svendthrift
svendthrift's picture

http://business.maktoob.com/20090000446710/Saudi_regulator_revokes_Ernst...

DUBAI - Saudi Arabia's Capital Market Authority, or CMA, said Sunday it revoked the securities business license of Ernst & Young because of "several violations" of the kingdom's capital market law and implementing regulations.

^ related.

 

Sun, 03/14/2010 - 21:45 | Link to Comment Bob
Bob's picture

Of course, this will turn into a hand-wringing marathon of disbelief and shock among the remaining players, who will turn yet again to the time-worn "bad apple" metaphor to disavow any participation in the larger "Nod and Wink" reality of the financial industry. 

Time for some whistleblowers to stand up. 

 

Sun, 03/14/2010 - 22:33 | Link to Comment deadhead
deadhead's picture

Time for some whistleblowers to stand up.

they should email to  tips at zerohedge dot com

You'll feel better when you get it off your chest.  

Sun, 03/14/2010 - 21:47 | Link to Comment Bob
Bob's picture

<duplicate entry>

Sun, 03/14/2010 - 22:34 | Link to Comment deadhead
deadhead's picture

nice catch svendthrift....i hope TD saw this one, kinda helps the ball keep rolling on these phucking scumbags.

Mon, 03/15/2010 - 00:51 | Link to Comment Anonymous
Mon, 03/15/2010 - 03:41 | Link to Comment chindit13
chindit13's picture

I am by no means an expert on Shari'a Law, but if I remember correctly, in Saudi Arabia the punishment for accounting fraud is an Habanero enema followed by the forced consumption of an Ex-Lax Souffle.  One might think this would have acted as a deterent.

Sun, 03/14/2010 - 20:42 | Link to Comment Anonymous
Mon, 03/15/2010 - 16:34 | Link to Comment Ripped Chunk
Ripped Chunk's picture

"I wonder how much worse Wells and some of the others transgressions will be when everything finally comes out in the wash."

They are insolvent. Seized by the FDIC and or bailed out similar to the Continental Illinois debacle.  But they are TBTF!

Sun, 03/14/2010 - 22:04 | Link to Comment Anonymous
Sun, 03/14/2010 - 22:25 | Link to Comment BlackBeard
BlackBeard's picture

fucking awesome.

Sun, 03/14/2010 - 22:57 | Link to Comment Anonymous
Mon, 03/15/2010 - 04:10 | Link to Comment Alexandra Hamilton
Alexandra Hamilton's picture

By signing off on the balance sheet and the quarterly and annual reports, both the CEO and the CFO are on the hook because of this:
http://www.law.cornell.edu/uscode/html/uscode18/usc_sec_18_00001350—-000-.html

Please note that for U.S.C. § 1350(c)(1) no intent is required, knowledge is enough.

Both the Lehmann CEO and the CFOs, are claiming in essence that they didn't know their business and had no clue how the money was made. Impossible defense for the best and brightest. What were they getting their huge bonuses for, anyway.

Now, look at the Lehman Report Volume 2, Valuations. Valuations for their products were clearly wrong in about 90% of the cases.

Mon, 03/15/2010 - 09:22 | Link to Comment bugs_
bugs_'s picture

wtg TD as usual.  A lot of homework thanks.

"the file was complex, it had a lot of tabs".

Mon, 03/15/2010 - 09:36 | Link to Comment Anonymous
Mon, 03/15/2010 - 10:02 | Link to Comment Ruth
Ruth's picture

i like those bars on her dress, she looks good in that

oh, yeah, and thank you ZH for pointing out that 2+2=50+BILLIONS!

...assholes, singking love it!

Mon, 03/15/2010 - 15:58 | Link to Comment Ripped Chunk
Ripped Chunk's picture

If E&Y is crushed the employees just go work for the remaining 3 or 2. I can't remember any more.  You could see this coming for a thousand miles.

But it makes for good TV and that is after all what America is all about.

The audit function remains a requirement. You need X number of worker bees to git er done.

Wed, 03/31/2010 - 14:56 | Link to Comment Calley121
Calley121's picture

Although the Examiner’s Report expressly declined to take a position on the issue, it seems quite unlikely that Lehman’s repo 105 program in fact met the standards required by FAS 140 for off-balance sheet treatment. In particular, LBIE (Lehman’s UK entity) apparently repo’d two different “buckets” of securities in the UK: (i) securities that were already owned LBIE, and (ii) securities transferred to LBIE from U.S. Lehman entities. With respect to the second category, the means of transfer was a repo between the U.S. Lehman entity and LBIE. That repo between the U.S. Lehman entity and LBIE, however, would not be characterized as a true sale for U.S. bankruptcy law purposes; indeed, the very impetus for the repo 105 structure was Lehman’s inability to obtain a true sale opinion from a U.S. law firm for repos transacted by U.S. Lehman entities. And there lies the problem: the transfer of securities from U.S. Lehman entities to LBIE, and the characterization of such transfer for U.S. bankruptcy law purposes, were not addressed in the Linklaters UK legal opinion upon which Lehman depended for FAS 140 purposes (and one might conjecture that Lehman probably never informed Linklaters of the specific providence of the securities). Instead, the Linklaters UK legal opinion simply included an express assumption that there were no provisions of foreign law that would have any effect on the opinion. Accordingly, it is hard to imagine that Linklaters would still have been able to provide its UK legal opinion if there had been an explicit statement of the fact that certain of the securities that were repo’d in the UK by LBIE were first acquired by LBIE from U.S. Lehman entities in repo transactions that did not constitute true sales for U.S. bankruptcy law purposes.

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mark456's picture

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