When firms cook books, result is unpalatable

Leckey File

Your Money

April 03, 2005|By Andrew Leckey

Nobody's perfect. Everybody makes mistakes.

Maybe we should take it easy on poor ol' gigantic insurer American International Group, whose extensive accounting errors over five years could total $3 billion.

After all, a little mistake here, another there. It all adds up. Darn those summer interns; they never get anything right.

I'm sure any individual taxpayer among us could stand bravely before an IRS auditor and explain: "OK, so I forgot to add a couple of zeroes on my income tax return. Well, excu-u-u-u-use me!"

AIG's miscues - now here's a shocker - made the company's finances look better than they were. This is part of the care and feeding of Wall Street analysts who turn petulant if companies fail to meet expectations.

Following time-tested recipes found in creative corporate cookbooks, companies sometimes shift revenues and earnings or obscure liabilities. Shareholders receive indigestion, since the resulting stew didn't state the true finances of the company.

Such creative cookery also ultimately hurt AIG's Maurice "Hank" Greenberg, ousted recently after nearly four decades as CEO, though we can assume that he won't miss any meals.

Again, nobody's perfect. People sometimes just also forget to tell people things. Maybe they're too busy and don't get around to it.

For example, Citigroup, J.P. Morgan Chase and American Express Financial Advisors Inc. apparently forgot to tell thousands of investors that their brokers might have received financial benefit from steering them into certain mutual funds. Excessive commissions were not a big discussion topic.

Must have slipped their minds. So much going on at the time, you know. Sneaked up on them.

The investment firms, without acknowledging guilt, are paying $81 million in fines to regulators for improper sales practices and must make restitution to thousands of investors. Again, individual investors were the ones hurt. They trusted their brokers for impartial advice.

Complaints by some businesses and investment firms about the high cost of increased disclosure requirements or about grandstanding by regulators ring hollow to me. Firms brought the current purge upon themselves. The extent of accounting manipulation and investment kickbacks has surprised virtually everyone.

Sure, nobody's perfect. Everybody does make mistakes. But not leveling with the investors who make company profits possible is the biggest mistake of all.

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