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Former Federal Reserve Chairman Alan Greenspan Speaks Out about Sarbanes Oxley and I Answer Him Back

Dear Alan Greenspan:

I have read recent accounts in the press about your views on Sarbanes-Oxley. According to an article in the Boston Herald in an article entitled, “Greenspan Unleashed” written by Brett Arends and published on September 26, 2006:

The only part he praised was the rule that chief executives had to certify their companies’ accounts personally.

‘‘The rest we could do without,’’ he said.

As an ex-felon, former CPA, and former Chief Financial Officer of Crazy Eddie who helped mastermind one of the largest securities uncovered in the 1980’s I believe, respectfully, that I am uniquely qualified to address this specific issue.

Criminals have no problem signing false certification documents in furtherance of their crimes. It is simply a natural extension of the deceit and lies we use to successfully execute our crimes.

If you also mean that regulations under Sarbanes Oxley which prevent public accounting firms from offering consulting services to the client’s they audit should be scrapped (as implied in your remarks and the article quoted above) than I feel I must share my specific experiences as a criminal with you to understand why I respectfully disagree with your views.

White collar criminals use your humanity against you. One of our tools is the use of your gratitude towards us as a means of reducing your objectivity and weakening your skepticism of us. We believe that our victims become so intoxicated with our generosity and largess that they become resistant, scared, and embarrassed to ask critical questions as “red flags” are raised.

For over 15 years Crazy Eddie had certified financial statements. In the early years audited by a small accounting firm and in later years as a public company were audited by a firm which is part of the “big four” accounting firms.

With regards to the smaller firm (by the way I got my CPA experience working for them) Crazy Eddie was the largest client and awarded them consulting agreements whose monetary value was way in excess of their auditing fees. When the larger accounting firm succeeded the smaller firm of auditors we continued to award that firm consulting agreements as much as six times the value of the audits.

Both firms knew that we as “customers” could go else where for such consulting agreements. As a result we as criminals used their gratitude against them.

Whenever “red flags” came up they always accepted management’s version of the truth where any reasonable person would not. As a result they surrendered their “professional skepticism” and required healthy dose of cynicism to conduct their audits in a professional and effective manner.

An additional strength of Sarbanes Oxley is the requirement that companies have strong external controls which are reviewed by independent external auditors. Strong internal controls are the most effective means of preventing white collar crime.

Strong punishment while necessary is not by itself an effective deterrent to crime. Most white collar criminals think in terms of whether they can successfully execute their frauds. We require barriers such as strong internal controls to frustrate such plans.

Audits cannot be effectively conducted in the absence of strong internal controls. Even if the auditors could count even asset and liability to the penny issues remain about how such assets and liabilities were generated.

For example with the absence of effective internal controls the auditor cannot determine if all cash came from sales rather than laundered funds or other means.

Above I have used only a few examples to respectfully criticize your remarks. Please read my submission of comments to the Securities and Exchange Commission and the Public Accounting Oversight Board for in my web site for additional details.

I am willing to approach your remarks with an open mind. However, as a criminal who admits that my crimes were committed “just because I could” with “no rationalization I caution you that the public would not be swayed by my endorsing your position on Sarbanes Oxley.

Rather as a person who has no qualms telling people about the brutal nature of my criminality (from the collective harm it has caused many victims) I believe the public understands that my position carries more credibility than yours by my opposition to any weakening of Sarbanes Oxley.

We both have common ground in understanding that the reliability of financial information is the main pillar that supports of great free market capitalist economic system. I hope that you realize that white collar criminals subvert confidence in our financial markets and economy and as a result we inflict collective harm well beyond our defrauded companies.

I am also unhappy with Sarbanes Oxley as it should include effective competency mandates for an accounting profession that is not adequately educated, lacks necessary skills, and training to effectively implement this legislation.

You are surely a decent person and intelligent person who has lived a far more greater and productive life than a disgraced ex-felon like me. Therefore, when you hear my caution about the dangers of gutting Sarbanes Oxley and its reforms from a criminal it is designed to protect you from, you should carefully heed my warnings.


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