60 Minutes ran an interesting story tonight, focused on the alleged abuse of funds for rebuilding Iraq by a company named Custer Battles. The story indicated that the company was paid tens of millions of dollars to provide services it was not qualified to provide, and in fact did not provide.
One example: A contract that called for Custer Battles to deliver a certain number of trucks. Some of the trucks were towed in, as they did not run. Company officials allegedly stated that the contract did not specify that the trucks must be in working condition.
Read the transcript of the story here.
I’m having flashbacks to Enron. Enron, Enron, Enron. Well, it looks like Refco could have been 2005’s Enron, but on a smaller scale. Not too small, though. Refco raised $583 million in its public offering in August. In October, the company filed for bankruptcy protection.
Refco was the largest independent U.S. commodities broker. But it appears that the balance sheet was pumped up via hidden debt of $430 million. Prior to the IPO the balance sheet showed $50 billion of assets and $150 million of equity. Too bad the hidden debt wipes out all that equity and leaves the company with a negative net worth.
Does this say anything about Sarbanes-Oxley?
City of Milwaukee police officer Steven Wesolowski has been charged with a felony of misconduct in public office. It is alleged that Wesolowski took bribes to fill out bogus vehicle titles at the city’s impound lot. He is accused of taking $250 to certify that 5 salvage vehicles were safe, even though he never examined the vehicles.
American International Group Inc (AIG) has finalized a settlement of $1.6 billion for allegations of accounting fraud. The settlement will be split almost equally between the Securitites and Exchange Commission (SEC) and the State of New York.
Civil fraud charges were brought against AIG by New York Attorney General Eliot Spitzer and the New York State Insurance Department. The SEC hadn’t yet filed charges, but is expect to file and settle all charges soon. Continue reading
An audit of the Milwaukee County Child Welfare system was completed by state auditors at the direction of the Joint Legislative Audit Committee. The audit found almost $700,000 of questionable and unallowable costs.
The Child Welfare system had 153 full-time employees in June 2005, while outside contractors had about 500 staff members to provide the bulk of the services. From January 2001 through June 2005, the program spent a total of $493.7 million. In 2004 alone, program expenditures totaled $103 million. Continue reading
Joseph Harvey, the former CFO of Bielinskis Brothers Builders Inc. of Pewaukee was sentenced to two years of federal probation, including six months of home confinement. This sentence follows his guilty plea to charges of aiding and abetting a wire fraud.
Harvey is one of ten people indicted in a fraud scheme led by Robert Brownell, Bielinski’s former CEO. The loss to Bielinski is estimated at $10 million or more.
Harvey’s actions included forging a signature on a document for a loan of $1.43 million, and reimbursing himself with company funds for a campaign contribution.
Read Tracy’s article in the Wisconsin Law Journal, about the lessons to be learned from the Bielinski fraud.
According to the Houston Chronicle, the Free Enterprise Fund filed suit in Federal court this week against the Public Company Accounting Oversight Board (PCAOB). The lawsuit seeks to revoke the authority of the board, based upon the argument that it violates the Constitution’s mandate of separation of power between the three branches of government.
Sarbanes-Oxley established PCAOB, and the filers of the suit wish to remove power from the Board. The legal team for the Free Enterprise Fund includes Kenneth Starr (of Monica Lewinsky infamy).
According to the Wall Street Journal, General Motors is going to cut its $2 per share annual dividend in half, and cut executive salaries. The dividend cut will reduce the cash paid by about $565 million.
Cuts are also being planned for the health benefits for salaried retirees. GM will be capping its contributions to their healthcare at the 2006 amount paid. This should save GM about $900 million per year.
GM’s worldwide auto business had a loss of $11.4 billion in 2005.
In fiscal 2005, the U.S. government spent $2.47 trillion. More than half of that, or $1.3 trillion, went for Social Security, Medicare, Medicaid, farm-price supports, and government-employee pensions. Continue reading
American International Group Inc. (AIG) is close to settling their case with the SEC and the New York State Insurance Department for $1.5 billion. This settlement includes penalties as well as disgorgement of ill-gotten gains.
In May, the SEC accused two former executives of AIG of accounting fraud to enhance the company’s performance figures. This was believed to mislead both investors and regulators. The executives involved include AIG’s former chief executive officer, Maurice “Hank” Greenberg, and former chief financial officer, Howard I. Smith.
Greenberg resigned from AIG in March, after leading the company for 38 years. Both he and Smith have denied any wrongdoing.
A $1.5 billion settlement would be the largest ever by the SEC, exceeding both the $750 million settlement with WorldCom Inc. and the $850 million settlement with Marsh & McLennan Companies.