Regulators At Work: SEC Fines BAC and GE

In an effort to appear relevant and tough, the SEC extracted fines out of two government-backed financial firms for prior transgressions. First, Bank of America settled its "I know we said we didn't know about Merrill's end-of-year bonus payouts, but we knew" dispute with the agency and forked over $33 million. The fine is for misleading investors when it issued a proxy statement for the acquisition stating that Merrill had agreed not to pay year-end performance bonuses to executives without Bank of America's consent. However, Bank of America had already agreed to allow the firm to pay up to $5.8 billion in compensation. B of A paid the fine. Problem solved. Right? If you can ignore the pesky fact that the government wrote a check for $3.3 billion to Merrill's employees after sinking the firm with a $27 billion loss, then we really can put the matter behind us. Besides, B of A hasn't paid back the TARP yet, so technically the Treasury is just giving the SEC $33 million. This is effective and efficient retroactive regulation.

Next up GE shelled out $50 million to settle civil accounting fraud charges that it used improper accounting methods on four occasions to boost earnings in 2002 and 2003. Once again, the company paid the fine, put the matter to rest. GE seems to have a long history of accounting shenanigans going all the way back to Jack Welch's days, when the company used to mysteriously beat earnings every single quarter and post smooth results quarter after quarter even if it meant under-reserving insurance reserves every once in awhile. What is interesting about this particular fine that was levied, oh approximately seven years after the accounting fraud was committed is that accounting problems occurred during the last recession. So when are we going to get the fines for 2008-2009 shenanigans? Is anyone combing through GE's notoriously complex and opaque financials TODAY? Dennis Koslowski and Bernie Ebber's ears must be steaming from their jail cells.

Meanwhile, in real time accounting fraud action, Huron Consulting, an accounting firm that sprung from the ashes of those Enron-document-shredding accountants at Arthur Andersen had to withdraw its 2009 earnings guidance, lower its outlook, and restate three years worth of financial results. The folks at Huron were experts in forensic accounting, a practice that looks to root out the type of accounting fraud that they have apparently just committed. Maybe they can hire themselves and pay themselves big fees to boost their earnings for 2010? But, how would one account for that? The Chairman and CEO resigned, along with the finance chief and chief accounting officer. While this is somewhat troubling news, rest assured the company stated that "no severance expenses were incurred by the company as a result of these management changes." No word yet on when the SEC plans to get involved in this accounting debacle. Probably 2015.