Dear Senator Charles E. Schumer and Mayor Michael R. Bloomberg:
I read with great interest you commentary entitled
“To Save New York, Learn from London” published in the Wall Street Journal on November 1, 2006.
While your commentary raises many valid issues, there are some issues I respectfully ask you to consider before you decide on any “reform” of the Sarbanes-Oxley Act.
In your commentary you wrote:
Since its passage, auditing expenses for companies doing business in the U.S. have grown far beyond anything Congress had anticipated.
Prior to Sarbanes Oxley accounting firms used to offer consulting services to the client’s they audited. I ask you to consider that prior to Sarbanes Oxley accounting firms would keep audit fees artificially low (as a loss leader) so they could attract higher margin consulting business from their current and future clients.
In addition I would caution against “turning back the clock” and having the inherent “conflict of interest” of having such accounting firms offer consulting services to the client’s they audit.
I agree with your commentary that:
…we must not in any way diminish our ability to detect corporate fraud and protect investors.
However, any “reform” of Sarbanes Oxley must include higher educational standards for the accounting profession.
Today a significant majority of accounting students prior to obtaining their CPA license never take a single specific college level course in white collar crime, fraud, securities law, internal controls, criminology and other crucial subject areas they require to be effective auditors. Even as licensed certified public accountants they are only recommended (and not even required) by the American Institute of Certified Public Accountants (AICPA) to take 10% of their continuing education requirement courses in fraud (at most 4 hours a year). We must require as a minimum more a more educated, trained, skilled, and experienced accounting profession as part of any “reforms.”
Legislation like Sarbanes-Oxley can only be as good as the profession who is called on to police it – our accounting profession.
Senator Schumer, you may seek the advice of your brother Robert B. Schumer now a partner at Paul, Weiss, Rifkind, Wharton, and Garrison. Before, becoming a partner he handled Crazy Eddie’s securities issues on behalf of his law firm.
Robert Schumer and the other attorneys at Paul, Weiss, Rifkind and Garrison asked many important questions to Crazy Eddie management and its auditors. Such questions made my co-conspirators and I fear the consequences of their determined efforts to obtain the truthful answers.
However, at almost every turn we found our auditors unwittingly aiding us because the corrosive affects their lack of independence (from consulting work which impeded their objectivity and professional skepticism) and their lack of enough education, skills, training, and knowledge which caused them to give inaccurate answers to the attorney’s very good questions.
While the law firm of Paul, Weiss, Rifkind, Wharton, and Garrison was rightfully never held in any way responsible or negligent regarding the Crazy Eddie fraud, as innocent victims of our lies, they paid a heavy price in legal fees defending their competence.
Senator Schumer and Mayor Bloomberg, I am quite sure you agree that the main pillar of great free market capitalist economic system is the integrity and reliability of financial information.
As an ex-felon I caution you to be very careful that any steps taken to “reform” Sarbanes Oxley do not have the unintended result of later causing our financial markets to lose faith in the reliability and effectiveness of external audits performed by competent independent external auditors. Any loss in the faith of our financial markets in the integrity of financial information will cost much more than the compliance costs of Sarbanes-Oxley that certain people are trying to reduce.
Respectfully,
Sam E. Antar (former Crazy Eddie CFO and ex-felon)
