Toronto StarIn JPMorgan review, SEC is “very focused” on accuracyWashington PostSchapiro's comments were the most extensive she has made since the biggest US bank announced a $2 billion trading loss on May 10. The remarks indicated that the SEC…
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New York TimesSEC to review Nasdaq glitches in Facebook IPOLos Angeles TimesBy Andrew Tangel NEW YORK — The US Securities and Exchange Commission will review trading glitches with Nasdaq's handling of Facebook's IPO. “As is our practice, sta…
ForbesGroupon Rallies Sharply, With Earnings Due After The CloseForbesGroupon shares have spiked 10% Monday ahead of the daily deal's company's March quarter earnings report, which is due this afternoon following the close of trading. Street co…
Is Groupon the next Enron? … No. It’s worse.
Before the company even went public, there were signs that internal financial controls weren’t up to snuff.
Now I’m hearing refrains of “three blind mice” as “defrauded” investors line up to have their day in court. You might as well say the “dog ate my homework.” It’s not like no one knew this was coming. The U.S. Securities and Exchange Commission (SEC) made management redo Groupon’s financial statements and accounting practices not once, but twice before the company’s January 2011 initial public offering (IPO).
The first time involved including the cost of marketing in operating income – duh. The second was to force the company to deduct merchant payments from revenues – double duh!
Both are basic accounting principles.
If you spent $2 to gain $1 in orders you have to report that as a $1 loss if you’re dealing with cold, hard cash. Also, if you have $1 in merchant payments, you can’t count that as $2 in revenues, unless apparently you work at Groupon and love accrual accounting.
It’s not like Groupon execs can claim they didn’t know.
It’s abundantly clear to me that the “company” has very little, if any, understanding of REG FD and securities litigation.
(REG FD, in case you are not familiar with it, is short for Regulation Fair Disclosure which the SEC adopted Aug. 15, 2000. REG FD is intended to eliminate selective disclosure of material non-public information.)
But I have a hunch they’re going to find out the hard way.
Groupon’s “Material Weakness”
When the SEC came knocking again on April 2nd the company was forced to restate its Q4 financials. That summarily reduced Groupon’s revenue by $14 million and profits – assuming there were any to begin with – by $22.6 million.
In an official statement, Ernst & Young, the company’s primary auditor, noted “material weakness” with regard to the company’s internal controls. Investors simply noted that they’d better get going while the going was good.
Groupon’s share price tumbled 16.87% Monday alone and is down 55% from its peak.
In 2008, reckless credit default swaps nearly obliterated the global economy. Now comes the next crisis – rehypothecated assets.
It’s a complicated, fancy term in the global banking complex. Yet it’s one you need to know.
And if you understand it, you will get the scope of the risks we currently face – and it’s way bigger than just Greece.
So follow with me on this one. I guarantee that you’ll be outraged and amazed – and better educated. You’ll also be in a better position to protect your assets at the end of this article, where I’ll give you three important action steps to take. So follow along…
Their Profits on Your Money
Few people know this, but there’s a process through which banks and trading houses are leveraging your money to increase their profits – just like they did in the run-up to the last financial crisis. Only this time, things may be worse, as hard as that is to imagine.
Consider: In 2007 the International Monetary Fund (IMF) estimated that this form of “leverage” accounted for more than half of the total activity in the “shadow” banking system , which equates to a potential problem that would put this insidious little practice on the order of $5 trillion to $10 trillion range. And this is in addition to the bailouts and money printing that’s happened so far.
Wall Street would have you believe this figure has gone down in recent years as regulators and customers alike expressed outrage that their assets were being used in ways beyond regulation and completely off the balance sheet. But I have a hard time believing that.
Wall Street is addicted to leverage and, when given the opportunity to self-police, has rarely, if ever, taken actions that would threaten profits.
Further, what I am about to share with you is one of main the reasons why Europe is in such deep trouble and why our banking system will get hammered if the European Union (EU) goes down.
And w hat makes this so disgusting – take a deep breath – is that it’s our money that’s at stake. Regulators like the Securities and Exchange Commission (SEC) and their overseas equivalents are not only letting big banks get away with what I am about to describe, but have made it an integral part of the present banking system.
Worse, central bankers condone it.
As you might expect, the concept behind this malfeasance is complicated. But it’s key to understanding the financial crisis and to avoiding a possible global recession in 2012 and beyond.
What we’re talking about is something called “rehypothecation.”
Most people have never heard the term, but trust me, you will shortly. Let me explain what this is, and why you need to know about it. Then, I’ll offer three ideas to trade around it.
By William K. Black The Wall Street Journal ran a story today (12/27/11) entitled “SEC Ups Its Game to Identify Rogue Firms.” “Rogue” is an interesting word with a range of definitions. When it is used as an adjective its meaning is: “…
“Can he tell the IRS that his profits aren’t really profits because there’s a reasonable chance he’ll lose the money again over the long term?”
Zerohedge poster in response to Buffet’s claim to the SEC that losses need not be written down because they…