March 23, 2007
Room for Improvement
It looks like it is almost twice as likely for Canadian public company mergers to have insider trading than for US public companies. From an article today in the Globe and Mail, this was reported:
"Aberrant trading patterns preceded 33 of the 52 Canadian mergers valued at more than $200-million last year, says a study by Measuredmarkets Inc. for Bloomberg News. Those patterns could indicate insider trading.
"Insider trading goes on all the time," says Stephen Jarislowsky, chief executive officer of Montreal-based Jarislowsky Fraser Ltd., which manages about $63-billion. "There's no real surveillance."
The rate of unusual trading found in Canada -- 63 per cent -- was higher than in the United States, where a Measuredmarkets study last year flagged 41 per cent of comparable mergers. The London-based Financial Services Authority said on March 7 that insider trading may have preceded almost 25 per cent of U.K. merger announcements in 2005...
Michael Watson, enforcement director at the Ontario Securities Commission, disagrees, saying his commission "routinely monitors trading and reviews instances of unusual trading." He says it has investigated 254 cases so far this fiscal year, which ends March 31.
By comparison, the U.S. Securities and Exchange Commission started 914 investigations in fiscal year 2006 and imposed $3.3-billion (U.S.) in fines, its report says.
The value of U.S. markets is 10 times greater than Canada's markets, though. The Standard & Poor's/TSX composite index, Canada's benchmark, is valued at about $1.6-trillion (Canadian)."
So something does not make sense here. Sounds like there is room for improvement in Canada. But one point needs to be made. Canada has thirteen (13) securities regulators! The US has one. So guess who has the easier time in doing this type of monitoring.
This sounds like just one more reason to have one securities regulator in Canada. Does every province and territory need its own regulatory body?
"Aberrant trading patterns preceded 33 of the 52 Canadian mergers valued at more than $200-million last year, says a study by Measuredmarkets Inc. for Bloomberg News. Those patterns could indicate insider trading.
"Insider trading goes on all the time," says Stephen Jarislowsky, chief executive officer of Montreal-based Jarislowsky Fraser Ltd., which manages about $63-billion. "There's no real surveillance."
The rate of unusual trading found in Canada -- 63 per cent -- was higher than in the United States, where a Measuredmarkets study last year flagged 41 per cent of comparable mergers. The London-based Financial Services Authority said on March 7 that insider trading may have preceded almost 25 per cent of U.K. merger announcements in 2005...
Michael Watson, enforcement director at the Ontario Securities Commission, disagrees, saying his commission "routinely monitors trading and reviews instances of unusual trading." He says it has investigated 254 cases so far this fiscal year, which ends March 31.
By comparison, the U.S. Securities and Exchange Commission started 914 investigations in fiscal year 2006 and imposed $3.3-billion (U.S.) in fines, its report says.
The value of U.S. markets is 10 times greater than Canada's markets, though. The Standard & Poor's/TSX composite index, Canada's benchmark, is valued at about $1.6-trillion (Canadian)."
So something does not make sense here. Sounds like there is room for improvement in Canada. But one point needs to be made. Canada has thirteen (13) securities regulators! The US has one. So guess who has the easier time in doing this type of monitoring.
This sounds like just one more reason to have one securities regulator in Canada. Does every province and territory need its own regulatory body?
No Roll Back on SOX! It is here to Stay.
Not so fast there boys. In the legal land of technicalities, SOX and the PCAOB cannot be dismissed so easily. The benefits are clear. These frivolous lawsuits are part of the problem with SOX 404 implementations in the first place.
If accounting firms were not so worried about getting sued, they would not be so conservative in their approach to SOX 404 audits. If they were not so conservative, then the legislation would be more effective and not so costly. So there you go! The lawsuit happy society causes the very problems in first place and then tries to sue to fix them! If that is not perverse, circular logic, I do not know what is!
"Washington (March 23, 2007) - A federal judge has dismissed a lawsuit filed by a small Nevada audit firm challenging the constitutionality of the Public Company Accounting Oversight Board.
In a 14-page decision, U.S. District Judge James Robertson ruled against the suit, which was filed by Beckstead & Watts LLP of Henderson, Nev., and later joined by the tax and government reform activist group the Free Enterprise Fund. The suit had not only challenged the PCAOB, but also the Sarbanes-Oxley Act -- the sweeping corporate reform law that mandated the creation of the audit watchdog."
If your company has to comply with SOX 404 or MI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell
If accounting firms were not so worried about getting sued, they would not be so conservative in their approach to SOX 404 audits. If they were not so conservative, then the legislation would be more effective and not so costly. So there you go! The lawsuit happy society causes the very problems in first place and then tries to sue to fix them! If that is not perverse, circular logic, I do not know what is!
"Washington (March 23, 2007) - A federal judge has dismissed a lawsuit filed by a small Nevada audit firm challenging the constitutionality of the Public Company Accounting Oversight Board.
In a 14-page decision, U.S. District Judge James Robertson ruled against the suit, which was filed by Beckstead & Watts LLP of Henderson, Nev., and later joined by the tax and government reform activist group the Free Enterprise Fund. The suit had not only challenged the PCAOB, but also the Sarbanes-Oxley Act -- the sweeping corporate reform law that mandated the creation of the audit watchdog."
If your company has to comply with SOX 404 or MI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell
March 21, 2007
Hedge Funds Being Reviewed Again.
The problem that Hedge Funds have is that they have grown exponentially and without regulation. While estimates vary, a new survey by Institutional Investor News and HedgeFund.net released on Monday valued industry assets at $1.89 trillion in 2006, up 24 percent from 2005. A mass failure could have huge impact on the economy. Pension funds are heavily invested in hedge funds and banks have lent the money.
If there were large scale impact on pension funds, this could make the Savings and Loan failures look small.
This from, a congressional study last week:
"The perception of hedge funds as high-risk investments continues to play on the minds of US politicians, who discussed pension investments in the asset class during US congressional hearings last week.
Congressman Al Green told a congressional committee: “If pension beneficiaries lose their retirement money because of bad hedge fund investments, taxpayers could be forced to pay for the pensioners’ social security.”
Once a lot of noise is made about a sector, can regulations be far away. Recent scandals have brought hedge funds under the microscope.
If there were large scale impact on pension funds, this could make the Savings and Loan failures look small.
This from, a congressional study last week:
"The perception of hedge funds as high-risk investments continues to play on the minds of US politicians, who discussed pension investments in the asset class during US congressional hearings last week.
Congressman Al Green told a congressional committee: “If pension beneficiaries lose their retirement money because of bad hedge fund investments, taxpayers could be forced to pay for the pensioners’ social security.”
Once a lot of noise is made about a sector, can regulations be far away. Recent scandals have brought hedge funds under the microscope.
March 20, 2007
Take Cramer to the Woodshed!
This guy is unbelievable! How can he brag about "illegal activities" so openly? See the excerpt of an article published today by Investment News:
"In an interview for a financial website, Jim Cramer, the extroverted host of CNBC’s “Mad Money,” boasted about manipulating stock prices when he was a Wall Street trader..."
Does he think he is immune to the law of the land? He even goes so far as "goading the SEC".
"In the segment, Mr. Cramer gave advice on how to keep a profit on a short-position by driving a stock price down.
Although that is illegal, he said it was passable because, "the Securities and Exchange Commission never understands this."
He also commented: “What's important when you are in that hedge fund mode is to not do anything remotely truthful because the truth is so against your view, that it’s important to create a new truth, to develop a fiction.”
Dude, where is your brain? Do you watch the news where the SEC takes lawyers to jail who commit illegal acts? Are you still committing illegal acts? Does this remind you a little of Saddam Hussein and the WMD? Does he have them or not? Should we find out?
Wow, Jim you go where Angels fear to tread. Because obviously you are not an angel. You are just the kind of ammo the SEC needs to bring Hedge Funds under new regulations. You go Jim.
If your company has to comply with SOX 404 or MI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.
Let's not go crazy with "Risk and Cost Focus with a Fear Chaser"
While I totally believe in the Sarbanes-Oxley legislation, I am concerned about a trend that this legislation has brought on in US businesses.
The legislation was meant to bring transparency to financial reporting and to focus on the quality of financial reporting. This was a good goal. This goal seems to have been hijacked by over zealous Big Four accounting firms. They were so Draconian in their approach to audits that they made this legislation about fear and busy work. They cared little for the true spirit of the legislation - report fairly and accurately to the investing public.
The reporting analytical framework used by most US registrants is called COSO (Committee of Sponsoring Organizations). There are essentially two frameworks, both centering around a "Risk Based" approach to internal control over financial reporting.
This is a good thing if it is not taken too far. It is good to analyze the risk to an objective and consider the risks of errors in fraud in financial reporting. It is good to analyze risk in business.
But let us not forget that American innovation and business was founded on taking risks. Not all risks can be mitigated. Not all of them should be.
Risk has become the modern day "boogie man". We fear the risks. One company's risk is another's opportunity.
Let's keep risk in focus. Let's not make it the total focus of business and fear the Big Four and the SEC so much that revenue suffers. Then you really have risk - the risk of going out of business because you were too risk averse.
Let's not become a nation of businesses, with only a "Risk and Cost Focus, with a Fear Chaser". Let's remember where we came from and keep this in perspective. Risk is to be analyzed and dealt with but it should not rule our worlds.
The Big Four perform a service, let's not let them dictate good entrepreneurial business practices. That is not their job nor their expertise. That is the job of optimistic CEO's who have to "Take the Hill" when they see opportunity.
If your company has to comply with SOX 404 or MI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.
The legislation was meant to bring transparency to financial reporting and to focus on the quality of financial reporting. This was a good goal. This goal seems to have been hijacked by over zealous Big Four accounting firms. They were so Draconian in their approach to audits that they made this legislation about fear and busy work. They cared little for the true spirit of the legislation - report fairly and accurately to the investing public.
The reporting analytical framework used by most US registrants is called COSO (Committee of Sponsoring Organizations). There are essentially two frameworks, both centering around a "Risk Based" approach to internal control over financial reporting.
This is a good thing if it is not taken too far. It is good to analyze the risk to an objective and consider the risks of errors in fraud in financial reporting. It is good to analyze risk in business.
But let us not forget that American innovation and business was founded on taking risks. Not all risks can be mitigated. Not all of them should be.
Risk has become the modern day "boogie man". We fear the risks. One company's risk is another's opportunity.
Let's keep risk in focus. Let's not make it the total focus of business and fear the Big Four and the SEC so much that revenue suffers. Then you really have risk - the risk of going out of business because you were too risk averse.
Let's not become a nation of businesses, with only a "Risk and Cost Focus, with a Fear Chaser". Let's remember where we came from and keep this in perspective. Risk is to be analyzed and dealt with but it should not rule our worlds.
The Big Four perform a service, let's not let them dictate good entrepreneurial business practices. That is not their job nor their expertise. That is the job of optimistic CEO's who have to "Take the Hill" when they see opportunity.
If your company has to comply with SOX 404 or MI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.
March 15, 2007
"My Friend" is not Ready for MI 52-109, but I am!
Remember as a kid when you needed to find out information from an expert? You told the "expert" that your friend had this problem and you needed to help your friend, so could you please have the answer?
So goes the results from a Symantec Corp.(Nasdaq: SYMC) survey of Canadian public companies published yesterday.
An excerpt here " only 10 per cent of executives believe Canadian businesses are fully prepared to conform to Bill 198 compliance legislation. Moreover, only 67 per cent of C-level respondents reported having a clearly defined role in supportingcompliance processes..."
The basis of this survey is a little erroneous when it assumes that the deadline for all companies was in fact December 31 for phase 1 of MI 52-109. The phase 1 deadline is based on a company's fiscal year end. So other companies with June 30 and September 30 year ends have already filed. Additionally, companies with year ends through June 29 have yet to file. This is the first phase of the legislation, the "Design and Implement" portion.
However, the point is still well taken that very few companies have fully embraced this exercise nor have a great deal of comfort with it. Further the Canadian Securities Regulators has not publicized the legislation.
From the survey: Despite the deadline, stiff penalties, and the legislation's intentions, more than half (55 per cent) of respondents from across Canada indicated their companies were, at best, "mostly but not completely compliant."
Wow! And you have to wonder what "mostly" means. Is that like: we have started this project but have not finished it...
Another piece of misinformation is this: "With only nine months left until plans must be fully implemented, Karbaliotis advises executives responsible for compliance to make the effort an organizational priority". On February 9, 2007, the Canadian Securities Administrators (CSA)
issued staff notice 52-317 revising the deadline for Phase 2 of MI 52-109 to allow companies more time on "Effectiveness Testing" of internal controls. So now the deadline is "in respect of financial years ending on or after June 30, 2008" instead of 2007.
This allows more time. But if the survey results are true and our experience would find them to very true, companies should finalize the first phase of the legislation and get it right because you cannot test what you do not have documented or designed.
There will be a company who has a serious fraud or problem. It is a statistics game. Just wait! Then their internal control reports will be reviewed and if they are found to be non-existent or worse yet, fraudulent, a bright light will be shining on the legislation requirements.
It would be best to embrace good governance for the right reasons. Then if there is a problem, a company would know it WAS covered by good project planning and good execution. Most companies do not have adequate internal controls over financial reporting if they have never designed them or documented them. This is our experience over the last five years of working typical North American companies. Good controls do not just happen. They have to be deliberately designed, tested and periodically recalibrated. It is good business to have good controls.
If your company needs assistance in the effective and sustainable compliance in SOX 404 or MI 52-109, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.
So goes the results from a Symantec Corp.(Nasdaq: SYMC) survey of Canadian public companies published yesterday.
An excerpt here " only 10 per cent of executives believe Canadian businesses are fully prepared to conform to Bill 198 compliance legislation. Moreover, only 67 per cent of C-level respondents reported having a clearly defined role in supportingcompliance processes..."
The basis of this survey is a little erroneous when it assumes that the deadline for all companies was in fact December 31 for phase 1 of MI 52-109. The phase 1 deadline is based on a company's fiscal year end. So other companies with June 30 and September 30 year ends have already filed. Additionally, companies with year ends through June 29 have yet to file. This is the first phase of the legislation, the "Design and Implement" portion.
However, the point is still well taken that very few companies have fully embraced this exercise nor have a great deal of comfort with it. Further the Canadian Securities Regulators has not publicized the legislation.
From the survey: Despite the deadline, stiff penalties, and the legislation's intentions, more than half (55 per cent) of respondents from across Canada indicated their companies were, at best, "mostly but not completely compliant."
Wow! And you have to wonder what "mostly" means. Is that like: we have started this project but have not finished it...
Another piece of misinformation is this: "With only nine months left until plans must be fully implemented, Karbaliotis advises executives responsible for compliance to make the effort an organizational priority". On February 9, 2007, the Canadian Securities Administrators (CSA)
issued staff notice 52-317 revising the deadline for Phase 2 of MI 52-109 to allow companies more time on "Effectiveness Testing" of internal controls. So now the deadline is "in respect of financial years ending on or after June 30, 2008" instead of 2007.
This allows more time. But if the survey results are true and our experience would find them to very true, companies should finalize the first phase of the legislation and get it right because you cannot test what you do not have documented or designed.
There will be a company who has a serious fraud or problem. It is a statistics game. Just wait! Then their internal control reports will be reviewed and if they are found to be non-existent or worse yet, fraudulent, a bright light will be shining on the legislation requirements.
It would be best to embrace good governance for the right reasons. Then if there is a problem, a company would know it WAS covered by good project planning and good execution. Most companies do not have adequate internal controls over financial reporting if they have never designed them or documented them. This is our experience over the last five years of working typical North American companies. Good controls do not just happen. They have to be deliberately designed, tested and periodically recalibrated. It is good business to have good controls.
If your company needs assistance in the effective and sustainable compliance in SOX 404 or MI 52-109, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.
March 02, 2007
Insider Trading Scandal Hits Top Wall Street Firms and Hedge Funds
On February 23rd, this blog indicated its disappointment with the Bush Administration's decision not to pursue additional compliance legislation for Hedge Funds. We indicated that all it would take is a fraud to possibly revisit this decision.
Even we did not think it would just a little more than a week to have a fraud emerge. March 1st, the SEC arrested fourteen Wall Street officials including some Hedge Fund officials.
If this is not enough to revisit this issue and bring the Hedge Funds under SOX, I do not know what is. Hedge Funds have a profound effect on our economy and if there is a major fraud/bankruptcy, this could rock US markets to their core. Surely we do not need the equivalent of Enron for Hedge Funds to take a closer look at the practices of Hedge Funds and impose some needed regulations now.
If your company needs assistance in the effective and sustainable compliance in SOX 404 or MI 52-109, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.
Even we did not think it would just a little more than a week to have a fraud emerge. March 1st, the SEC arrested fourteen Wall Street officials including some Hedge Fund officials.
If this is not enough to revisit this issue and bring the Hedge Funds under SOX, I do not know what is. Hedge Funds have a profound effect on our economy and if there is a major fraud/bankruptcy, this could rock US markets to their core. Surely we do not need the equivalent of Enron for Hedge Funds to take a closer look at the practices of Hedge Funds and impose some needed regulations now.
If your company needs assistance in the effective and sustainable compliance in SOX 404 or MI 52-109, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.
