Footnoted.org

For those of you who just don't have it in you to pour over the proxies filed by the companies you invest in, I encourage you to visit footnoted.org. It is run by Michelle Leder and is considered by most pundits to be one of the top financial blogs on the web. Michelle somehow finds time in her busy schedule to mine through public records and find the little pieces of information that companies do their best to bury with fine print and ridiculous typeface. To make matters worse, (or better depending on how you look at it) heightened disclosure requirements of perquisites in recent years mean there is much more for Michelle to find.

For example just this morning Michelle discovered that Global Industries (GLBL) CEO William Dore "rang up $83K in expenses for 'an apartment provided to him by the company during his displacement as a result of Hurricane Rita.'" Now, this in and of itself probably doesn't jump out as being that uncommon given the kind of perks many CEO's are given even when they aren't displaced. The key here, as Michelle points out, is that "Hurricane Rita took place in 2005, not 2006." Just a minor oversight you could say . . . if I was an investor I might want to know exactly what happened to that $83K . . . .

Daylight for Sarbanes-Oxley?

Yesterday the SEC went a long way towards approving new audit standards for the Sarbanes-Oxley (SOX) legislation. When SOX first passed in the summer of 2002 the country was in a state of uproar over the corporate accounting scandals at Enron and Worldcom. Congress agreed with the public and passed SOX by a vote of 423-3 in the House and a whopping 99-0 vote in the Senate. The lopsided vote should have been the first sign that the legislation had serious flaws.

In its defense Sarbox did exactly what it purported to do; it effectively established new or enhanced standards for corporate management, public company boards and public accounting firms. However, in the sticky task of striking a balance between investor protection and overregulation the pendulum swung a bit too far towards the latter.

The problems start with the costs of compliance to SOX, which at $4.36 million, represent a major hurdle for small companies. The increased regulation has also made the US less business friendly and has driven many companies abroad. Some pundits have even linked SOX with the wave of private equity activity that we are currently experiencing.

I for one don't want any more Enron's, but I do think that changes to SOX are necessary. I applaud the SEC for taking a step in the right direction by voting to ease the compliance rules for small companies.

Source: "SEC Votes to Ease Sarbanes-Oxley Rules"
Author: Marcy Gordon

Hedging My Bets

Two days ago I blogged about the proposed changes to the hedge fund industry. I wrote that I felt the SEC was overstepping its bounds with the proposed rule. Some might have wondered how this relates back to this random walk that we are on.

In the beginning of Malkiel's "A Random Walk Down Wall Street" which will henceforth be called "The Book", he gives a brief history of bubbles. One particular bubble, that of the growth stocks of the 1960's, was marked by incredibly high valuation of new issues. Many of these stocks had no current earnings but still saw a run up in their share price post-issue (does this remind anyone of the late 90's?). Some may question what exactly the SEC was doing then to protect investors? Well they were doing all they could! These IPO's were sold by prospectus, many of which -- due to SEC regulation -- contained in big bold type:

WARNING: THIS COMPANY HAS NO ASSETS OR EARNINGS AND WILL BE UNABLE TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE. THE SHARES ARE HIGHLY RISKY.

Malkiel goes on to write:

"But just as the warnings on packs of cigarettes do not prevent many people from smoking, so the warning that this investment may be dangerous to your wealth cannot block a speculator from forking over his money if he is hell-bent on doing so. The SEC can warn a fool but it cannot prevent him from parting with his money."

I couldn't have said it better myself! Speculators will always find a way to lose money in poor investments, but their actions shouldn't lead the SEC to curtail the investment options of the rest of the responsible investing public.