Is this Sarbanes-Oxley redux? A replay of Enron, perhaps? New Century Financial, the nation’s largest subprime lender, has been charged with fudging the books to show higher profits…all of which justified higher salaries and bonuses for those at the top. A five-month investigation said that
investigators “did not find sufficient evidence to conclude that New Century engaged in earnings management or manipulation, although its accounting irregularities almost always resulted in increased earnings.”
Even so, the profits were the basis for significant executive bonuses and helped persuade Wall Street that the company was in fine health when in fact its business was coming apart, the report contends.
The lead investigator, Mr. Missel,
drew an analogy to Enron and said there was evidence that KPMG auditors had deferred excessively to New Century.
Creative finance certainly has been a hallmark this decade.
As I noted earlier piece, expect complaints about onerous Sarbanes-Oxley because of an increase in foreign companies delisting from the New York Stock Exchange.
And keep a weather eye skyward for multi-million dollar parachutes.