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Archive for September, 2017

Equifax SOX

Equifax  suffered one of the most significant data breaches ever, exposing confidential information stored within its network.  What’s more, three executives sold a fair slice of their personal shares in the company after the event was discovered and before it was communicated to authorities and the public.  Oh, and the sales were not part of a 10b5-1 arrangement through the SEC.  The purpose of this arrangement is to minimize the risk of insider training by scheduling sales in advance.

The company claims none of its executives knew anything about the breach when they sold.

Section 302 of the Sarbanes-Oxley Act (SOX) states that the CEO and CFO are directly responsible for the accuracy, documentation and submission of all financial reports as well as the internal control structure.

Every quarter, the CEO, CFO and others certify the effectiveness of the internal controls to the SEC.

One of the executives who sold his stock was the CFO.

Chief Financial Officer John Gamble sold shares worth $946,374 on August 1, two days after the hack was discovered. It is inconceivable that the breach was not escalated to his level within 48 hours, given the responsibility he has under the law. I have seen less significant internal control failures reported internally in that amount of time.

There will be investigations; if there was any cover-up, someone will talk, e-mail trails will exist.

But will anyone be convicted?  After all, no head of a major lending institution was sentenced criminally as a result of the mortgage meltdown.

There is yet a bigger question: how many credit rating services do we need?

Would the nation suffer if Equifax ceased to exist?

Think back to earlier scandals such as Enron and WorldCom.   Unlike Equifax’s, their’s were of a financial nature, but poor internal controls set the stage for the fraud. SOX was passed by Congress in response.

Both of those companies are gone. Are we worse off today without them?

 

 

 

 

 

 

 

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As I wrote in an earlier article, State Senator Bob Hertzberg is a master of the English language.

According to his bio, as an undergraduate English major, he wrote a 400-page handbook titled A Commonsense Approach to English.

Unfortunately,  the senator has embarked on a course of language manipulation as his strategy to significantly raise taxes for all Californians. The people who can least afford it will bear the brunt of Hertzberg’s money-grabbing obsession.

After he was elected to the State Senate in 2014, he did not waste any time in rolling out a new way to relieve residents of their hard-earned cash.  His first crack at it was SB8, which would have taxed most services – from the labor on repairs to haircuts. SB8 died quietly; it’s replacement, SB1445, isn’t going anywhere at the moment.

He had the hutzpah to refer to the bill as “tax modernization,” as blatant a euphemism as, say, calling a mass layoff a “workforce imbalance correction.”  It would “modernize” an additional $10B  per year from the people and businesses in the state, but disproportionately from low- and middle-income earners.

Hertzberg, the serial hugger, perhaps feeling the pain of unrequited love from that attempt, employed his wordsmithing skills again, this time to win passage of SB231. By redefining sewer to include stormwater,  the bill opened the door to flood property owners with expensive parcel taxes.  Since it is already legal to raise taxes to pay for sewer service improvements without a vote, taxes for stormwater mitigation projects will not require voter approval either.

Words have meaning, as Hertzberg knows very well.

They have even more meaning when they are embedded in the constitution. Any new interpretation or redefinition of language affecting state or local governments’ ability to raise taxes should require a formal amendment. The process of changing the state constitution should not be conducted like a game of Scrabble. To do so is disrespectful to the people of California.

Responsible leaders will do their best to mitigate tax increases with spending restraint.

You will not see Hertzberg deal with cost containment, including reining in excessive employee post-retirement benefits.

Neither he nor his colleagues will ever attempt to prioritize capital spending. We cannot afford to pay for every high-end project.

There was a time when Senator Hertzberg was a reasonable politician.  He probably would have made a good mayor, certainly a better one than Antonio Villaraigosa.  But somewhere along the line, his ego probably got the better of him.  He has ceased to be a responsible leader and now resembles the essence of what Thomas Nast depicted in his caricatures lampooning Boss Tweed.

State Sen. Bob Hertzberg, D-Van Nuys, pumps his fist in celebration after his storm water bill was approved by the Assembly, Thursday, Aug. 31, 2017, in Sacramento, Calif. If signed by the governor, Hertzberg's SB231 would let local governments charge residents for storm water management systems without voter approval. Photo: Rich Pedroncelli, AP / Copyright 2017 The Associated Press. All rights reserved.     Thomas Nast (1840-1902). The Power Behind the Throne "He Cannot Call His Soul His Own." 1870. Museum of the City of New York. 99.124.7.

 

 

 

 

 

 

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