Wasn't Sarbanes-Oxley Supposed To Stop Your Execs From Setting Up Fake Companies For Financing Vacation Homes?

from the just-wondering... dept

Whenever people point out the problems with Sarbanes-Oxley regulations, someone usually chimes in to say they're necessary to stop "Enron-type" situations. The thing is, people looking to create scams in companies will always figure out ways to do so. GE, who already is going through a bit of a mess as the SEC is questioning some of their accounting methods may be facing another problem, as it turns out that the former treasurer of GE-owned NBC Universal had apparently set up a fake company named NBCU Media Productions, which he then used to funnel nearly a million dollars into his own personal bank account and used for luxury items, such as "private jet flights, liquor and a vacation home." This story actually sounds quite similar to the one of Robert Gordon, former Cisco business development VP who, in 2001 (pre-Sarbanes-Oxley) was accused of setting up shell companies and sending himself money. His defense, at the time, was that he was "thinking out of the box." Indeed.


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  1.  
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    Anonymous Coward, Jan 26th, 2007 @ 4:17pm

    Time to pull up the SOX...

    If SOX has any teeth, this should be a slam dunk case for the SEC and for Federal prosecutors. Since the SOX legislation clearly states that all company directors shall sign off and be directly responsible for any financial misdeeds, the next step is to see NBC Universal and possibly even GE directors being charged with a crime.

    Will it happen? Maybe people should contact the FBI and let them know what their thoughts on this are.

     

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  2.  
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    misanthropic humanist, Jan 26th, 2007 @ 4:42pm

    The system is working

    The thing is, people looking to create scams in companies will always figure out ways to do so.

    Of course they will. Just as people who want to blow up buildings will always find a way to do so, and people who want to copy CDs will always find a way to do so. Whichever end of the spectrum you go to this is universally true. The criminal mind is always busy looking for new ways.

    The questions are, is the system sufficent to:

    1) Stop them wanting to.

    2) Deter them.

    3) Find them.

    4) Successfully prosecute them.

    (In rank order of desirability)

    It looks like this time we have failed on 1 and 2 but succeeded on 3, and hopefully 4.

    However it would be guileful to impy that a law was no good because it is selectively applied or because there are cases it doesn't catch. Looks like SOX worked perfectly in executing (3) here. :)

     

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  3.  
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    Mike (profile), Jan 26th, 2007 @ 4:44pm

    Re: The system is working

    It looks like this time we have failed on 1 and 2 but succeeded on 3, and hopefully 4.

    But not because of SOX. That's the thing. This was just as illegal before, and SOX did nothing to make it easier to catch this guy.

     

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  4.  
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    Alex, Jan 26th, 2007 @ 5:00pm

    Re: The system is working

    Good comet, more mature that the main article...

     

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  5.  
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    misanthropic humanist, Jan 26th, 2007 @ 5:20pm

    Re: Re: The system is working

    Oh. I couldn't see that from TFA Mike. So how did they nail him? What role does SOX play in this, I assumed accounting anomolies had brought this to light.

     

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  6.  
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    Lonny Paul (profile), Jan 26th, 2007 @ 5:51pm

    System? Working? LMAO!

    C'mon you guys! As long as these blood-thirsty, wealth inspired people continue to have a burning passion to accumulate all the wealth they possibly can until they are bulging with satisfaction, how could we ever have enough checks and balances to stop them?

    We never will.

     

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  7.  
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    Scott, Jan 26th, 2007 @ 6:04pm

    Read it this way...

    SOX was not conceived to actually stop dumb asses like this, it was designed to be able to prosecute them for it. I work in infosec and the information we gather about who touched which files and when, spending millions of dollars for software and technical services and personnel to manage and monitor it was all just so that when something like this comes up, we have ammo to load into the breach for the SEC, and the corp who has taken it in the seat. It is not really a preventative type of situation.

     

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  8.  
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    Morgan, Jan 26th, 2007 @ 11:42pm

    So is it worth it?

    London and Hong Kong are loving SOx, as nearly every major IPO last year jumped ship from the US and went there. Read any story about the situation, and you'll see that both London and Hong Kong are shocked at our stupidity, but are going to enjoy it until we wake up. Why volunteer for personal liability in your job when there are perfectly good free markets elsewhere in the world?

    CEOs that aren't worth their money, or that misuse money, will lose their jobs, or the companies will lose money. It regulates itself.

    The real problem is Americans that can't take the responsibility for making bad investments, and instead of selling a bad investment, want the government to step in. Well, here they are, and there goes the money.

    The other major problem, and no offense to Lonny, is people like Lonny, that are either jealous or that think there's something inherently evil in the pursuit of wealth. Money is a measure of the value of my time. The money I make comes from my own productivity, and takes nothing away from anyone else. Often I employ others to help make me even more money. They trade the upside money, along with downside risk, for a predictable payout. I take the risk, I win if I win, or I lose if I lose.

    I can't think of any voluntary transaction I could make that I would ever feel guilty about. And anyone that would begrudge me any level of money I make in a voluntary transaction with another free human can quite literally go pound sand.

     

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  9.  
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    misanthropic humanist, Jan 27th, 2007 @ 2:26am

    give it a rest Morgan

    London and Hong Kong are loving SOx, as nearly every major IPO last year jumped ship from the US and went there.

    That's nothing to do with SOX Morgan. It's because the USA is in a spiralling decline. Here's a clue: It's got something to do with the 3 trillion dollar war your monkey presedent started.

    The real problem is Americans that can't take the responsibility for making bad investments,

    You're trolling right? Or you haven't the first fucking clue about financial markets and their recent history in the USA.

    Spare us the "people like" pocket philosopher diatribe on your spiritual failings. You reveal yourself all too easily. This subject is to do with fraud and negligence, and you're arguing against it by telling us all how much money you like to make. And you're responding to a post in defence of "blood-thirsty greed". I doubt you're any better at making money than you are at tact and politics, which is why you talk it up.

     

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  10.  
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    Anonymous Coward, Jan 27th, 2007 @ 2:37am

    Re: So is it worth it?

    "... can't take responsibility for a bad investment..."

    The most reliable way to judge your investment is to crunch numbers reported on the books every quarter/year. When the books are cooked, you may determine you've got a good investment -- but it's based on fake numbers. This is what Sarbanes-Oxley was developed to combat -- the executive(s) in the company sign off on the financial statements and take responsibility if things are different in reality than what's reported on the books.

    The only thing it has to do with a "bad investment" is that you were tricked into making a bad investment by false figures on financial statements.

     

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  11.  
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    koz, Jan 27th, 2007 @ 3:02am

    Isn't it about Techdirt attempted to justify it's opinion on SOX instead of just making derogatory statements ?.
    Perhaps if techdirt invested as much thought in SOX as it does in e.g. network neutrality or the ecconomics of scarcity they might be able to make some valid points.

     

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  12.  
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    Howard Bowen, Jan 27th, 2007 @ 6:25am

    only two knees for a tzar

    would "core back(knee) sox lee (ward to the wind) be a buck to au natural?

     

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  13.  
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    johng, Jan 27th, 2007 @ 7:19am

    SOX has nothing to do with submitting phony invoices. Submitting phony invoices was illegal long, long before SOX and still is without SOX.

    SOX was written and passed in a complete panic. It is a bad, poorly thought out, law.

     

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  14.  
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    Proud Capitalist Pig, Jan 27th, 2007 @ 9:46am

    Re: give it a rest Morgan

    That's nothing to do with SOX Morgan. It's because the USA is in a spiralling decline. Here's a clue: It's got something to do with the 3 trillion dollar war your monkey presedent started.

    Seems like you have a problem with decimal points, the war our President (this is how it's spelled in the USA) has entered, it was started long, long before he came to office, has cost $3.67 Billion Dollars US. That's Billion with a "B" or "thousand million" for our friends outside the US.

    Spare us the "people like" pocket philosopher diatribe on your spiritual failings. You reveal yourself all too easily. This subject is to do with fraud and negligence, and you're arguing against it by telling us all how much money you like to make. And you're responding to a post in defence of "blood-thirsty greed". I doubt you're any better at making money than you are at tact and politics, which is why you talk it up.

    Spare us YOUR unwarranted diatribe. Could it be you are just jealous of us Americans because we have the benefit of the best economy in the world? Yes, I said the BEST economy in the world, despite what you or your like-minded liberal extremists try to make it out to be. I don't call our President names no matter who it is. I don't trash the nation whose soldiers are bravely standing in defense of the free world all around the globe, not just in the Middle East. I don't hide behind anything, I am proud to be in a nation that has given me the opportunity to accumulate wealth in an honest manner not a "blood-thirsty greed" as you so eloquently phrased it.

    No excuses, no apologies. Self-made immigrant-descent, by the way of hard work and smart decision making - no fraud, no handouts or re-distribution for me!

     

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  15.  
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    Gonnosuke, Jan 27th, 2007 @ 4:25pm

    Re: Re: give it a rest Morgan

    Quote from Proud Capitalist Pig: 'Seems like you have a problem with decimal points, the war our President (this is how it's spelled in the USA) has entered, it was started long, long before he came to office, has cost $3.67 Billion Dollars US. That's Billion with a "B" or "thousand million" for our friends outside the US.'

    Uh, more like 3.67 billion per month. Last I heard, we had topped 200 billion and were fast approaching the time when POTUS would have to ask Congress for another 90 billion.

     

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  16.  
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    KelpBoots, Jan 27th, 2007 @ 8:34pm

    Re: give it a rest Morgan

    Seems like you have a problem with decimal points,

    Seems hes not the only one.

    has cost $3.67 Billion Dollars US. That's Billion with a "B" or.

    Try $367 billion USD. Thats hundred with an "H". Thats also just the current direct cost i.e it doesn't include the substantial indirect costs. Nor is it the final total cost which is obviously what MH was referring too. So if you want to play the role of the sarcastic correctionist the least you could do is ensure you're correct.

    And heres a tip.... when you want to know the TCO of given product/service or WAR try talking to an accountant or an economist rather than relying on what the salesmen say it will be.... you'll generally find that methodology offers a far more accurate assessment of total fiscal benefit..... or lack thereof...... funny that.

     

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  17.  
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    An American, Jan 28th, 2007 @ 8:21am

    WOW...SOX huh?

    From SOX battle to "oh your President spends too much money and you can't spell"

    Classic TechDirt crap.

    So the sucess of a war is defined by how many hundreds of millions or billions of dollars are spent?

    What about lives?

    Compare how many lives we lost in Vietnam to how many lives we lost in Afghanistan and Iraq since the war began (not to mention Vietnam never attacked us)...screw the money part, we're still very much ahead. Opinions are like @$$holes, everyone's got one.

     

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  18.  
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    KelpBoots, Jan 28th, 2007 @ 1:10pm

    So the sucess of a war is defined by how many hundreds of millions or billions of dollars are spent?

    No, cost was being used as one example of why Iraq is a failure not a success.

    Compare how many lives we lost in Vietnam to how many lives we lost in Afghanistan and Iraq since the war began

    You know how bad things have gotten when supporters for a given action have to use the single worst event of its type for a given entity (i.e US military conflicts in terms of outcome, not death toll) in order to try and lessen the obvious and highly negative impact of that action. Whats next? Are you going to try and justify a lift on DUI laws this year because last years road toll was less than the road toll in 1980?

    To summarize: you believe we should continue in Iraq and Afganistan because the fiscal cost is irrelevant and we still have another 10 years and 55,000 lives to burn before anyone can factually state that this is as bad as Vietnam? Using your logic why dont we stay there for 50 years and ensure that 500,000 of our troops die over there...... that way no matter what we do in the future our children will be able to justify it's merit by pointing out that although "it might be really really bad we should continue because its not yet as bad as Iraq". Seriously, beyond just giving you a hard time, yours is the single dumbest if not desparate rationale Ive heard for continuing this war yet.

    (not to mention Vietnam never attacked us)

    Neither did Afganistan or Iraq, as with Vietnam it was US who attacked them.

    Opinions are like @$$holes, everyone's got one.

    Yes but unlike you the MAJORITY of US are not about to roll over and let the President and his neocon handlers try and f@#k us in ours. Thats MAJORITY with an "M".

    ...End of OT rant...

     

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  19.  
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    |333173|3|_||3, Jan 28th, 2007 @ 9:02pm

    Vietnam

    In Vietnam, it was not just that the USA attacked them, but hat they had been providing the Vietnamese with explosives for years beforehand, so that they could fight the French (US allies against the USSR), but when things got out of control, the USA invaded, were defeated by one of the most sucessfull generals of all time (who only lost one battle, when he was 16), and wasted thousands of lives.

    THe parallels with Afganistan/Iraq are failry obvious, even if you ignore the casulaty lists.

    Back on topic, the problem is not the ones you catch, its the crooks that you never know about that are the problem. One of the best scams was years ago in the UK, farthings were dropped form the accounting computers in a major business. A clever senior employee modified the system to move the money into an account he had set up insead, and made an absolute fortune off it, and was only found out because he had too much money, and police were checking to see if he was a spy.

     

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  20.  
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    An American, Jan 29th, 2007 @ 12:01am

    Jump to conclusion mat

    I'm not a supporter of the war, I was just pointing out the obvious.

    I ask you this, what would have been the right thing to do when those planes went into our towers? Obviously you didn't lose anyone close to you, so I guess we should just brush it off.

    Personally I think we should bring everyone home from the Middle East, Germany, EVERYWHERE, and put them on our borders and let no one in. That'd be the "cheapest" solution with the "least" amount of casualties.

    ...End of OT rant...

     

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  21.  
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    DontCall, Jan 29th, 2007 @ 5:33am

    SOX protects who from what?

    I just have no understanding of why we even have SOX. Enron was a mess, however I am not sure I care. Some company misused it's funds. Perhaps the issue is all the unemployed who collected unemployment and the financial burden on all of us for it. As for losing their pensions, well I do not remember a pension being the same as a bank account. The pension is based solely on the company being solvent I thought. No company, no company pension. Most companies are moving to 401K compensation and if you work at one that still works on a pension then that portion of your compensation is at risk. As for a stock holder, well I was pretty sure stock was a risk as well. If you invest in a company that goes under then your stock is worthless. Or at least worth less than what you originally paid for it...:) So far none of this seems to be a problem. So what would SOX actually do for any of us? I mean it created new jobs for people to track compliance I suppose that is a plus somehow.

     

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  22.  
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    MyNameIsMatt, Jan 29th, 2007 @ 12:22pm

    SOX is an economic gain for stockholders

    SOX isn't an enforcement tool. It doesn't go out and actively prevent companies from being bad. It does improve the controls, auditing, and monitoring processes around financial decisions, though.

    The big wind fall from the Enron, Tyco, etc. financial trickiers is that there was a lack of confidence in publicly traded companies. How can the stockholder who is buying these companies be certain that the financial report and 10-Ks and all are actually accurate? This is what SOX addresses, and for good reason.

    This in turn helps boost confidence in public companies, and returns some of the lost confidence that is a major economic impact. This is akin to saying that if you can't establish courts in Iraq that people trust, then governing Iraq won't really work; if you can't establish accountability and trust in the stock market, then operating it won't work.

    SOX imposes stricter rules on financial statement such as requiring CxOs to be accountable for that reported information. It also imposes stricter tracking and more independent auditing measures so that A) people can be caught sooner or it's harder to fake the numbers, and B) when someone is caught, it's easier to show who did what and who's truly accountable. I'd enjoy seeing if anyone can point anything bad with each of those.

    Yes, for companies that have bad processes that would easily allow corporate fraud, this will be a new expense, but this builds back corporate confidence and market confidence, which will only increase the value of the market, not deter it. If corporate frauds are then afraid of the costs of doing business in the US, the best financial market in the world, and they run off the more lax markets, then it's only a benefit to the US because we don't need shitty corporates harming our market.

     

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  23.  
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    a, Jan 29th, 2007 @ 2:33pm

    SOX was brought into existance due to senior executives that were getting away with criminal acts, making millions of dollars and blaming it on lower or middle management.

    SOX is all about oversight. Senior leaders have to sign on the dotted line that says they agree that their financial statements are correct. No longer can a CEO make millions and then lay the blame on some smuck.

    Oversight is the key. Senior executives (criminals) know what the regulations are, and they ensure that they don't leave proof of what they have done. SOX cuts through that bullshit and says "you signed your financials, and if they are wrong, you are in trouble."

    Look at the penalties here, failure to provide sufficient oversight is about as serious as actually doing illegal shit. Why is that? Because regulators know that the smart ones won't leave a papertrail of their wrongdoing. The evil ones are not the ones who look at the risk and take the chance, the evil ones are the ones who set up other people to go to jail for them. That is who SOX targets.

     

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  24.  
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    |333173|3|_||3, Jan 29th, 2007 @ 4:22pm

    Now if I were a scammer...

    ... I would stay just low enough to milk things without it being my own head on the line. the CxOs would not be able to check everything themselves, they have to rely on someone else, and he is the man to be.

    The way I understand it, SOX was supposed to simply prevent CxOs getting away because they cannot prove that they took the money themselves.

     

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  25.  
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    MICHAEL R., Feb 2nd, 2007 @ 6:46pm

    SOX

    YOU ALL REALLY NEED TO UNDERSTAND THAT CORPORATE AMERICA WILL NOT CHANGE HOW IT HAS CONDUCTED BUSINESS ON ITS OWN.

    THIS IS AN ABSOLUTE FACT..CEOs ETC. NEVER FEEL THAT THEY WILL BE THE ONE CAUGHT, ONLY THE OTHER GUY GETS CAUGHT.

    IMAGINE WHAT HAPPENS TO "WHISTLEBLOWERS" IF YOU CHANGE SOX...SAME OLE SAME OLE..THE GUYS WITH THE MONEY WINS

     

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