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Standard Chartered did a lousy job of picking a monitor on behalf of regulators who'd flag its compliance lapses in the past. Now New York's Department of Financial Services must pick an independent monitor to oversee the British bank's activities for the next two years.
August 20 -
The special inspector general for Tarp worked in the subbasement of the Treasury Department. Watchdogs given an inconvenient, dank, dark, dirty and desolate office maybe won't stay long.
August 10 -
Big banks' boards keep missing increased risk and poor internal controls. Their auditors, supposedly shareholders' first line of defense against poor financial disclosure, material misstatements and fraud, have been silent.
July 16
The media gossip site Gawker jumped into the deep end of the pool Aug. 23rd when it cannonballed
Gawker's goal is to find out whether Romney, a presidential candidate who has made zillions in private equity, has avoided or evaded paying taxes. The documents, which include several annual reports that included an auditor's opinion signed by the Boston office of PricewaterhouseCoopers LLP, point to a significant relationship between Bain and PwC.
Auditor-client relationships, particularly how independent the auditors really are, have been flashing bright red on the industry's radar screen since the Madoff Ponzi scheme. Regulatory lapses uncovered in the Madoff case forced the Securities and Exchange Commission to tighten oversight of broker-dealers and investment advisors. Madoff's firm had played all roles – broker-dealer, discretionary investment advisor and custodian – and that allowed investors to be cheated. Bain is also an investment advisor to its own private funds.
The SEC requires registration of investment advisors and broker-dealers and works with regulatory organizations like Finra and the Commodity Futures Trading Commission to monitor them. Auditors of broker-dealers must register with the Public Company Accounting Oversight Board, the public company auditing regulator, and must be inspected. The PCAOB recently issued its first inspection report on broker-dealer auditors, 10 of them, and found material discrepancies in all 23 of the audits reviewed. In particular, the PCAOB found violations of auditor independence requirements. Broker-dealer auditors must be independent of their clients per SEC rules and are not allowed to prepare the broker-dealer's financial statements.
As of March of 2010, investment advisors like Bain Capital Partners that have custody of customer funds and securities must
Private-equity firms are by definition private, but it's a tenuous kind of privacy. Even though the Bain private funds are exempt from reporting to the SEC, reports are sent to investors. They can easily end up in the public domain. A detailed analysis of the documents and their investments has
The fund documents may lead you to believe PwC also audits Bain Capital Partners and the rest of the Bain investment advisors. PwC does prepare the personal tax returns of all Bain partners,
PwC audits the Bain funds in line with private company American Institute of Certified Public Accountants standards. AICPA independence rules prohibit auditors from having a financial relationship with clients but are more generous than are the SEC independence rules about the kinds of services an auditor can provide. PwC stays away from the audit activities that would require SEC level independence because PwC probably prefers to be Bain's full-service provider.
After the publication of the Gawker documents, Bain's spokesperson issued this statement: "Our fund financials are routinely prepared by auditors and demonstrate a commitment to transparency with our investors and regulators, and compliance with all laws."
Bain selected a small Boston audit firm, Edelstein & Co., to do the first
Investment advisors are still too casually audited and loosely monitored by regulators. I say "caveat emptor" to the Bain investors and other private equity and venture capital fund investors who depend on these investment advisors.
Bain spokesman Alex Stanton declined to comment. A PwC spokesperson did not respond to my request for comment by the time of publication.
Francine McKenna writes the blog