Tuesday, February 3, 2009

Roadmaps Delayed

Earlier today (Feb. 3), the SEC issued a release extending the comment period on its proposed IFRS Roadmap. Originally published in the Federal Register on Nov. 21, 2008 with a comment deadline of Feb. 19, 2009, the SEC has extended the comment period by an additional 60 days, ending on Monday, April 20, 2009.

FEI’s comment letter asking for an extension of the comment period is among the letters cited by name in footnote 1 of the SEC’s release granting the extension, in addition to comment letters sent by Northrop Grumman Corporation, Raytheon Company, Honeywell, Aerospace Industries Association, and United Technologies Corporation.

Note that the SEC has simply delayed the ultimate comment deadline on this proposal, it has not yet made a determination whether to delay the year at which it would plan to reach a decision on a potential move of U.S. public companies from U.S. GAAP to IFRS, nor has SEC determined yet whether it would delay the proposed effective date at which companies would have to switch over, if indeed the SEC were to decide to switch companies over. Hat tip to Securities Mosaic for publicising this development in a regulation alert earlier tonight.

For more IFRS news, see Greg Millman's IFRS Reporter. Millman is a long-time journalist, one of his most recent postings on IFRS Reporter is Execs Hail Mary Schapiro for Folding IFRS Roadmap. See also Darla Sycamore's blog: IFRS Canada: The Devil's in the Details.

And, check out the webcast at 2pm EST Wed. Feb. 4, on Technology Co's: Preparing for the R&D and intangible assets transition from U.S. GAAP to IFRS. The webcast is sponsored by KPMG and FEI. Featured speakers include: Frank Brod, Chief Accounting Officer, Microsoft; Jim Campbell, Corporate Controller, Intel; and Christoph Huetten, Chief Accounting Officer, SAP.

Markopolos to Testify At Madoff Hearing
In other news, top SEC officials, including the Director of Enforcement and Director of Trading and Markets, are set to testify Wednesday at the second in a series of House Financial Services Committee hearings on Assessing the Madoff Ponzi Scheme and Regulatory Failures.

Leading off the hearing will be the long-awaited testimony of Harry Markopolos, whose lengthy memos to the SEC (such as Markopolos' 19 page submission to the SEC dated Nov. 7, 2005) essentially drew a roadmap of how Bernard Madoff was allegedly, according to Markopolos, committing fraud – specifically, in Markopolos’ view - the world’s largest Ponzi scheme. The essense of the question being addresed at Congressional hearings like the one on Wednesday (and in the SEC's own internal report, being led by its Inspector General, H. David Kotz) is to learn why the SEC appears to have failed to follow the roadmap it was handed by Markopolos.

Props to Footnoted.org for highlighting tonight the upcoming hearing, and providing a link to Markopolos’ 65 page testimony (via Fox Bus News), which walks through his interactions with the SEC and other key parties over the years.

It Takes a Fox to Catch a Fox
Markopolos goes one step further in his written testimony (possibly at the prompting of Members of the Congressional committee) to provide detailed recommendations on what he believes the SEC should do to avoid missing such frauds in the future, including Markopolos’ recommendations that the SEC offer its staff more training on complex derivative products, better facilitation of whistle-blower complaints, and by hiring ‘foxes’ to catch other ‘foxes’ committing fraud. The discussion of 'foxes' is quite interesting, excerpted below:

Markopolos says in his testimony: “Besides upgrading its staff at the junior and mid-levels, the SEC needs to recruit foxes to join the SEC staff in senior, very high paying positions that offer incentive pay for catching foxes and bringing them to justice.” He continues, “The revolving door between industry and regulators can be precluded if the SEC recruits highly successful industry practitioners who have succeeded financially during their long careers and now want to serve the American Public by fighting securities abuses.”

“The ideal candidates would all have gray hair (or no hair at all),” continues Markopolos, “and the SEC would be the capstone on their already illustrious careers. The main hiring criteria would be that each candidate would have to submit a written list of securities frauds that he/she would attach and list the estimated dollar recoveries for each of these frauds. These ‘foxes’ would then be brought on board specifically to lead mission-oriented task forces dedicated to closing down these previously undiscovered frauds, restoring trust in the marketplace, thereby lowering the cost of capital and minimizing the regulatory burden for honest American businesses. My theory is that it’s better to target your enforcement efforts at known fraudsters while leaving honest American businesses alone than for occasional but thorough spot inspection visits. The fraudsters would be terrified but most businesses would be relived if the SEC adopted the proposed regulatory scheme.”

You know, it would be a really bold (albeit perhaps risky) move, but maybe the SEC (or the FBI) will ultimately hire Markopolos, either as a full-time 'fox' (albeit he lacks the requisite gray hair or bald head he specifies for 'foxes') or as a consultant or expert witness, which presumably could still allow him the ability to reach his own independent conclusions and conduct his own analysis. And, Markopolos certainly is a shining example of a Certified Fraud Examiner, the current poster child (in a good way) for the ACFE. The reason why I say 'perhaps risky' is I'm not sure of the source of some of the information behind his broad accusations - particularly as relate to internal administrative matters at the SEC - which seem somewhat exaggerated, and which I assume the SEC may refute in their testimony - such as his allegations relating to an alleged lack of paid subscriptions to major periodicals like Barrons for SEC staff, or alleged lack of access to training.

You can also access a copy of Markopolos’ testimony (in a format you may find easier to read) in a public link on WSJ.com. All testimony will be posted on the hearing website following the hearing. See some of our previous coveage of Madoff here, here, here, and here.

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