It’s Greek to Some Investors
The last thing frustrated investors want is evidence that corporate fraud reforms are producing accounting disclosures that fulfill the letter of the law but not the intent. Not while auditors keep uncovering additional billions of dollars in accounting irregularities at WorldCom.
But there are troubling signs that corporate doublespeak and intentionally vague language are seeping into newly required disclosure statements. These statements should be giving investors a clearer picture of what’s going on inside corporations and Wall Street investment firms.
There have been improvements. Investment houses are providing a better picture of their business dealings with publicly traded firms, filling a glaring need that surfaced when New York Atty. Gen. Eliot Spitzer used company e-mails to expose embarrassing contradictions between what Merrill Lynch stock analysts were saying publicly and privately about highflying dot-com firms.
Investment firms are detailing potential conflicts of interest at the end of stock analysts’ reports. A Salomon Smith Barney report on AOL Time Warner discloses that one of the media giant’s executives is on the board of the investment firm’s parent company. The report also tells investors that AOL Time Warner recently paid the firm banking fees. But in addition it contains more than 50 lines of small type. The danger is that truly important information will be accidentally lost--or willfully hidden--in the verbiage.
Also disconcerting are some of the initial filings generated by new requirements that corporate executives attest to the accuracy of financial statements. Attorneys are still grappling with complex requirements. But there are signs that some executives are trying to evade responsibility for their reports.
Some statements on file at the Securities and Exchange Commission’s Web site (www.sec.gov) are refreshingly straightforward; Office Depot’s chairman states that “no covered report contains an untrue statement of a material fact.” Others are frustratingly dense. An executive certified the veracity of MONY Group’s accounting “solely to the extent necessary to comply with the requirements, if any, of the Sarbanes-Oxley Act of 2002.” Clear as mud.
That language will baffle even the savviest investor. Unfortunately, that’s probably the intent. The SEC must ensure that executives take responsibility for actions occurring on their watch. Otherwise, all of these disclosure statements won’t tell investors what they truly need to know.
