Compliments of Jack Pearson, ABC Corp.

Weekly Quote: "It's only when the tide goes out that you can see who's swimming naked."
 - Warren Buffett

Monday, July 22

• Stock option accounting reform should be "low on the list of priorities," said SEC Chief
  Accountant Robert Herdman, who is at the center of the SEC’s accounting reforms. -FT
• Big Four campaign contributions rose by two thirds this year to $350,000. Biggest recipients are NY State Gov. Pataki and Eliot Spitzer. Issue: NY reforms moving too fast. -NYT Front page
• A new study by Deloitte & Touche found the share price of merged firms underperformed the stock market by 11 percent over the first three years. But corporate divorces increased values.
• PwC’s DiPiazza argues in a provocative new book that auditors should exceed GAAP. -FT
• WorldCom’s $10b bankruptcy filed Sunday is the largest ever. Telecom shakeup next? -WSJ

• J.P. Morgan and Citicorp were accused by Senate investigators of helping Enron "camouflage" $8 billion in off-the-book loans over six years. -NYT/FP
• Deloitte Consulting was renamed Braxton, after the consultancy it purchased in 1984. -WSJ
• On behalf of the IRS, the Justice Dept. sued US arms of KPMG and BDO. The IRS is seeking evidence that those firms have been marketing tax shelters improperly. -UK’s Accountancy Age
• Bush: "Corporate governance legislation will spark market recovery." Market responds negatively.
• The El Paso Corporation is growing more reliant on deals so complex that securities experts call them incomprehensible. Expect more media scrutiny. -NYT
• CMS Energy Corp., accused of false power trades, announced CFO Alan Wright's resignation.
• 3Com's new CFO Mark Slaven announced the company was dropping its pro forma reporting.

• Citigroup, J.P. Morgan Chase officials told Senators their Enron financing (and structured finance) was legit. Senators disagreed. Bank stocks dropped sharply. -WS/FP, NYT /FP
• Accounting regulators put PNC Financial under six-month watch. -Knight-Ridder
• Investorside is a new NY-based group formed to promote financial analysis that is independent from investment banks. It is comprised of 10 financial research providers -FT/FP
• Many fear that the Enron debacle will push regulators to end today’s structured finance. -FT
• Warren Buffet wrote on NYT’s editorial page that misrepresentations in stock-option accounting and in assumptions about pension fund returns "dwarf the lies of Enron and WorldCom."
• British MPs called for a Competition Commission inquiry into the Big Four. -London Times
• "Legislation could have the perverse effect of making the corporate governance crisis appear worse…," said Brookings Institution’s Robert E. Litan. Lobbyists warn that lawyers will swarm around "a whole new class of corporate criminals," raising costs all around. -WSJ

• AOL reveals it is latest SEC accounting target. Share price drops six percent. -NYT/FP
• Grant Thornton, topped the Public Accounting Report's M&A survey, first non-Big Five to
  do so. GT, 59 deals; KPMG, 25; Andersen, 21; PwC, 7, E&Y, 5; D&T, 2. -Chicago Tribune
• Harvey Pitt asked for a higher salary and more clout. No. -Wash. Post, NYT
• JP Morgan Chase appears to have been skilled at having its cake and eating it too—that is, keeping special purpose entities independent, yet exercising control. -CFO.com
• The Sarbanes Bill’s provision giving US regulators overseas authority threatens to escalate
  into a US-UK diplomatic row. -Accountancy Age
• Audit committees and their non executive directors will bear the brunt of the government's efforts to re-establish the integrity of auditors. -Accountancy Age
• The IRS apologized for revealing the names of hundreds of taxpayers in its tax-shelter lawsuit against KPMG. Those involved should be investigated. Partisan too. -WSJ Editorial page
• The Financial Accounting Foundation (which runs FASB and GASB) voted to increase the independence of its trustee appointment process, announced FAF chair Manuel H. Johnson.
• Telecom next-- Adelphia, Global Crossing, Qwest, billions gone, no sector reform. -NYT
• The White House initiated a market fallout containment strategy. Yesterday it took credit for the Adelphia arrests and cancelled Treasury Secretary Paul H. O'Neill trips. -NYT/FP

• NY Insurer MBIA hired former Sen. Bob Packwood to oppose corporate tax-avoidance
  schemes. Rival offshore XL Capital hired its own lobbyist in response. -National Journal
• PwC sold U.S. restructuring business to Annapolis, Md.-based FTI Consulting Inc., in a
  $230m deal. The auditor has also sold valuation, lobbying, and HR businesses. -WSJ
• Sandy Weill apologized to his 270 thousand Citigroup employees for supporting Enron. "By today's new standards…we will evaluate client transactions in an entirely different light." Also,
  its potential Achilles heel – ubiquitous financial services -- is exposed. -FT, WSJ/FP
• Amazon.com is latest to deduct stock option costs, perversely evading black ink.
• Nasdaq proposed and publicized new sweeping corporate governance reforms. -Nasdaq
• JP Morgan Chase's Marc Shapiro: "Everything that was good a year ago is now bad." -NYT

• It’s a tax loophole blessed by the IRS. Milbank, Tweed, Hadley & McCloy’s tax head uses life insurance to pass wealth without much taxation and it’s a hit. Controversy alert. -NYT/FP
• (Re: When Greenspan Shrugged) Ayn Rand was no advocate of greed…She wrote with scathing insight about such unprincipled…behavior. -NYT letter, David Kelley, The Objectivist Center
• Accounting firm KPMG was put on probation for a year for alleged gross negligence and unprofessional conduct that contributed to Orange County's 1994 bankruptcy filing. -LA Times
• Next hot Wall Street growth biz --compliance-- Analysts and bankers get lawyers. -Daily Deal
• "…If our markets are rattled right now and foreigners are starting to wonder, it isn't just because people are worried about WorldCom or Enron. It's because they're worried about the SEC and
  the IRS..." -NYT Op/Ed, T. Friedman
• The FASB board’s rest-of-year to-do list: Final interpretations on consolidation of some
  special-purpose entities and on guarantor’s accounting and disclosure requirements for guarantees; Definitions and setting of "principle-based" standards; Identification of necessary changes if the US moves toward issuing less rule-based standards; Preparation for the Sept. 18 FASB-IASB meeting on the basic principles of reporting financial performance -- a formal step in harmonized  US and international standards. -FASB

To discuss any of the above items or related topics, call ABC Partner Jack Pearson at (212) 555-5555.