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Tuesday, September 27, 2016

Did Corzine's Crash Reveal Problems At Goldman Sachs?

Nov. 25 (Bloomberg) — Six months ago the accounting firm PricewaterhouseCoopers LLP said MF Global Holdings Ltd. and its units “maintained, in all material respects, effective internal control over financial reporting as of March 31, 2011.” A lot of people who relied on that opinion lost a ton of money.

MF Global filed for bankruptcy on Oct. 31. This week the trustee for the liquidation of its U.S. brokerage unit said as much as $1.2 billion of customer money is missing, maybe more. Those deposits should have been kept segregated from the company’s funds. By all indications, they weren’t.

  • morry1940

    When we wish for less government control over businesses, we just might want to be, as the saying goes, careful of what we wish for. Given the unlimited amount of money corporations can contribute to a politician’s campaign, I guess we’re lucky to have any manner of control over what a business does.

  • puzzledbyitall

    Should have added former Fed chairman Volcker’s name.

  • Anon

    From the article: “The point of having a report by an independent auditor is to assure the public that what a company says is true.” In spite of what CPAs will tell you, no CPA firm is independent – ever. Publicly traded companies must PAY a CPA firm to conduct an annual audit. Having been an auditor, I know that CPA firms, at least the big ones, strive to conduct audits as impartially as possible. The problem is, it isn’t possible because they are paid big fees by the company they audit. That’s a built-in, undeniable conflict of interest. The bigger the fee, the less likely the CPA firm is to be impartial. Given those circumstances, it’s amazing we haven’t had more accounting scandals and I think that reflects the genuine determination of many CPAs to do their jobs as competently as possible. But as long as the CPA firm is paid by the company it’s auditing, there can never be independence, period. Unfortunately, I have no answer to the question, “So if the company shouldn’t pay for the audit in order to help ensure that the CPA firm is truly independent, then who should pay for the audit?”

    “So, to believe Pricewaterhouse got it right when it blessed MF’s controls in May, you would have to accept the notion that MF’s controls were effective in March — and didn’t start going bad until sometime later.” I agree. It is implausible. However, it isn’t impossible. As a Certified Fraud Examiner, I can say that when fraud is being committed, the higher up in the company that the person is committing the fraud, the less likely it is that fraud will be detected. That’s because it’s easier for a higher ranking individual to cover up fraud. While excellent internal controls guard against fraud and other problems, they don’t necessarily prevent it or detect it. I’m not saying fraud was involved in this particular case.

    It’s interesting to note that an audit only ranks number 4 or 5 on the list of the most common ways that fraud is detected. The number one way is from a tip by a whistleblower. Perhaps one way to help prevent or discover major problems (be it from fraud or something else) in public companies is to create an excellent anonymous tip line and/or provide big rewards to whistleblowers and make sure they are well protected and perhaps even paid huge amounts of money (to compensate for the probable loss of job and benefits) for accurately bringing major problems to light. Whatever that costs is bound to be far less expensive than the kinds of monetary losses and bailouts that taxpayers have been subjected to in recent years.

  • oneofthefreds

    Perhaps the first private company we should regulate is the FED. They and their member banks are the only organizations that are legally allowed to create money from thin air. Whatever fraud Goldman, CF Capital and all the major banks have contrived is dwarfed by the FED.

  • buzzquick

    Make all of these “banks” be required to participate to the regulations in the FDIC. Reserves on hand and with coverage purchased to cover potential losses. This should be adhered to or break them up to smaller banks.

  • dawnowens

    will a lot of financial executives just disappear and someone looking a lot like them be seen in out of the way tropical vacation spots?

    If the financial industry cannot police themselves (I realize the idea is a joke), at what point will they One, not have any investors anymore, and Two, be hunted down like the criminals they are?

    Oh, I forgot. It’s way more important to put pot smokers in jail than indict people who steal millions.