Friday, December 31, 2010

Cuomo vs. Ernst & Young – A Modern Day David vs. Goliath

Fun read by Sara McIntosh on the E&Y/Lehman debacle.

You see the beauty of the Martin Act (Cuomo’s superhero weapon) is that it allows an entity to be prosecuted for fraud or public harm regardless of intent. If a fraud occurred on your watch, you’re responsible, period. Most likely, if you’re found guilty, it’s jail time for you in addition to steep financial penalties. It’s the same law Elliott Spitzer so successfully used to win his famous battles against Wall Street. And, it’s Step #3 in my five-point plan for the fundamental changes needed to prevent a future financial crisis of even greater magnitude than our most recent one.

My frustration is that even if Cuomo succeeds in prosecuting E&Y for fraud related to their Lehman client’s Repo 105 transactions, (treating loans as sales in their accounting records so they looked better to naïve, innocent investors), it won’t change anything.

You see, the real goliath is not the individual firms. It’s the structure of the whole public accounting industry that’s the real goliath. As one of my loyal readers and fellow bloggers, Jonah Gibson (DaysofLivingAimlessly blog), said in response to one of my recent posts, “The federal agencies have to think, just as they did when they resorted to TARP for ‘too big to fail,’ that any criminal proceedings would eventually lead to a systemic collapse. This is like a Catch 22. The system is too corrupt to fix.”
Click Here to Read: Cuomo vs. Ernst & Young – A Modern Day David vs. Goliath

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