• Greed was the common factor in all the recent accounting scandals, and also in Orange County's bankruptcy...Major blunders in adapting to rapidly changing technology also cost over 200 billion.
• Politics obscured the real facts. We weren't being allowed to understand & fairly lay the blame where it belongs as follows:
• Global Crossing is a far larger scandal than Enron. Global Crossing chairman Gary Winnick donated more than $1 million to the Clinton presidential library. Yet we only hear about the $100,000 that Enron Chairman Kenneth Lay personally donated to President Bush's inaugural fund. Worldcom, AT&T and Qwest complained that the Clinton administration rigged bidding on a $400 million defense contract to favor Global Crossing. The Democratic National Committee's current chairman got rich from parlaying a $100,000 investment in Global Crossing into $18 million in just over 1 year.
• And Martha Stewart served jail time over selling a mere 4,000 shares of stock? Unfortunately it cost shareholders in her corporation hundreds of millions. She actually went to jail for perjury.
• Many Pension and other trust funds have lost billions from fraud and criminal negligence!
• Were the major accounting firms and the AICPA involved?..Arthur Andersen had too many bright CPA's involved to be able to plead ignorance. Other "Big 5" firms blatantly ignored specific AICPA guidelines. However, the AICPA's "independent" FASB accounting and auditing rule making board has been operating under much pressure from the large corporations. These large corporations and their "Big 5" (Now Final Four) accounting firms have constantly lobbied for less stringent, but impressive sounding rules. Unfortunately most of the rules enacted really only impacted smaller CPA firms and their clients and raised audit fees that the smaller businesses and their consumers had to pay. Most of the "Big 5" firms made some really stupid mistakes. The State CPA organization California Society of CPA's has worked closely with the California Board of Accountancy and the State legislature to protect California in the future. California already has more conservative laws than the SEC.
• How does the Orange County Bankruptcy fit in with all this?
• The Orange County cities, school districts and utility districts were pushed hard by the taxpayers (you and I) to furnish more services without increasing income taxes. Property tax increases were limited to 2% each year. So, County treasurer Citron figured out how to make more than was available elsewhere. Many of the cities and districts insisted on investing millions with Citron. Greed was the main factor in this fiasco. NOTE: Losses would have been minimal if we would have waited a year or two for scheduled payoffs from the investments. And, very little has actually been lost after recoveries from various lawsuits and settlements. Even Federal Government agencies were involved in the mess.
• What about major management blunders and failure to adjust to changing technology and customer needs?
• Nortel and Lucent wiped out about 1/2 trillion dollars of stockholder's stock value.
• CGMI erased about $500 billion from their stockholder's portfolios!
• Kodak evaporated $20 billion of stockholder's investments.
• Xerox dropped $40 billion in market value.
• Cenant and Mckesson dealt with crooks on the outside
• Halliburton...(formerly run by Vice President Dick Cheney)...lost $20 billion of stock value.
• Tyco, Conseco - the list goes on and on. What goes up usually comes down. Volatile stocks that rise the fastest can fall the fastest too.
Material Copyright © 2002 James E Reynolds CPA