Year: 2009

Lessons from Rome

Mary Bennett of the Ethical Leadership Group wrote three lessons we can learn from the ancient Roman army:

First, there is the timeless importance of culture. People in a society or organization will behave according to the most widely accepted common denominator, modeled by those at the top. We must train and communicate with our leaders so they get this.  So that they can communicate and stress the importance of this culture on the organization

Second, we must realize that human behavior is motivated by both the carrot and stick. Roman soldiers got paid if they followed the rules; they got executed if they did not. A simple and effective approach. We may not be able to adopt this exact approach in our ethics and compliance efforts.  But must be sure to reward good behavior as well as discipline bad behavior. Do both consistently.

Third, good controls are a must. The Roman army minimized its risks through clear rules, repeated training, and swift reinforcement with the carrot and stick. What worked in Rome can work in your organization through your ethics and compliance efforts.

Secured Creditor Filings

It recently popped into the news that the lender for the bankrupt law firm Heller Ehrman terminated its UCC filing: Banks May Lose $51 million in Heller Dispute.

On August 3, 2007, a UCC Financing Amendment was filed with the termination box checked. (See a copy of the UCC Amendment.) The lender filed a correction statement in an attempt to fix this problem. Given that the correction was filed in the 90 days prior to the bankruptcy filing, it would be treated as a “preference” under the bankruptcy code. That means instead of being a secured creditor, first in line for its share of the assets, the lender is unsecured and in with a large group seeking a proportionate share of what is left.

If you are a secured creditor (or at least you think you are) you need a program in place to periodically check the status of your filings. You also need an internal process to double-check filings before they are delivered.

Professor Frankel Testifies In Congress

Boston University School of Law professor Tamar Frankel testified before the Committee on Financial Services of the U.S. House of Representatives discussing Ponzi schemes, the importance of trust in the securities markets and the need for regulatory reform in light of the Madoff scandal.

See also:

The 2008 Year in Review from Securities Docket

This panel joined Securities Docket’s Bruce Carton to look back at the most important and interesting developments in 2008, and offer their predictions for 2009.

Kevin started off noting that the number of securities class action lawsuits in 2008 is a 33% increase over last year and the highest since 2004. He sees the increase as a result of the credit crisis, starting with the sub-prime loan programs and them spreading.

Kevin predicted that 2009 will see even more securities class action lawsuits.

Tom focused on SEC enforcement actions. He started with the Siemens FCPA case. He then mentioned the Faro Technologies case involving payments in China (Admin File No. 3-13059, June 5, 2008). Last he mentioned the UnitedHealth Group option back-dating case. Of course the big case is the Madoff scandal.

Tom expects to see a big re-shaping of the SEC and its enforcement division.

Francine looked at auditor litigation. Either the public accountants fell down while acting as the watchdogs against fraud on the public or that it is that they were also duped by management. The Big 4 has escaped sub-prime exposure so far but will likely get hit in Madoff. She sees BDO Seidman as having significant exposure from the Banco Espiritu Santo judgment. All of the Big 4 are subject to wage/overtime suits. Deloitte has sued their former vice chairman for insider trading.

Francine predicts that a Big 4 firm will take a significant hit for failing to make a “going concern” opinion prior to a big failure.

Walter sees the federal government’s bailout amplifying the effect of the financial markets meltdown. This was not just a Wall Street problem; it is now a taxpayer problem. Walter also expects to see more criminal prosecutions against individuals. He points out that the cutting edge risk methods blew up. CDSs and CDOs caused explosive damage. Also low-tech methods failed. The personal relationships of Madoff still failed investors. peopel are looking for lessons as to whether more regulations would have prevented the financial meltdown.

Walter predicts another AAA rated firm will have its executives indicted or be revealed as insolvent.

Bruce sees the Madoff case as the biggest development in 2008. He also sees the SEC getting worked over by Congress. The SEC admitted that they ignored credible evidence about Madoff.

Bruce predicts 90% of big law firms will begin to use Twitter for public relations.

A public vote found that Tom’s prediction was most likely to happen (41%) with Kevin following close behind (40%).

Cornerstone Research 2008 Review of Securities Class Action Filings

Cornerstone Research released their Cornerstone Press Release: 2008 Activity Is at Its Highest Level Since 2004 (.pdf)

  • D&O Diary commentary by Kevin M. LaCroix
  • WSJ Law Blog: Securities Suits Up in 2008, But Might They be Uphill Battles?

    • Financial Crimes Enforcement Network 2008 Annual Report

    The Financial Crimes Enforcement Network 2008 Annual Report (.pdf) has been released.

    Outcome Goal 1: Financial systems resistant to abuse by money launderers, terrorists and their financial supporters, and other perpetrators of financial crime

    Outcome Goal 2: Detection and deterrence of money laundering, terrorism financing, and other illicit activity.

    Outcome Goal 3: Efficient management, safeguarding, and use of BSA information.

    Management Goal: FinCEN’s mission is accomplished by high-performing employees and managers operating in a stimulating and responsible work environement.

    SEC Inspector General Testifies In Congress

    SEC Inspector General H. David Kotz In the first Congressional hearing since the Madoff scandal broke in December, Mr. Kotz said his agency’s handling of the Madoff case may be a symptom of more widespread problems with how the agency handles its examinations and investigations.

    Kotz testified on the subject of “Assessing the Madoff Ponzi Scheme.”

    Frankly it sounds like the SEC will spend as much time and energy investigating themselves on the Madoff matter as they will actually investigating the Madoff matter itself.

    See also:

    Risk Mismanagement

    I really enjoyed the story by Joe Nocera in the New York Times: Risk Mismanagement. The author focuses on the failures of risk management during the most recent financial crisis.

    The author starts with the failure of the VaR (Value at Risk) model used by many companies. He then moves on to the theories of Taleb captured in his book Black Swan (next on my reading list).

    Taleb says that Wall Street risk models, no matter how mathematically sophisticated, are bogus; . . . . And the essential reason for this is that the greatest risks are never the ones you can see and measure, but the ones you can’t see and therefore can never measure. . . . Because we don’t know what a black swan might look like or when it might appear and therefore don’t plan for it, it will always get us in the end.

    The key for a compliance professional is do handle the current know risks to your company, while at the same time keeping an eye out for unknown risks.

    Knowledge Management Sites Search

    I have update my KM Sites search tool.

    The search below is built from a custom Google Search

    Google Custom Search

    It searches the following sites:

    Some of these sites are not active any more, but still offer a great repository of thoughts on knowledge management.

    Originally posted on my KM Space Blog: KM Sites Search.