Where’s the paper trail?

As more and more Americans face mortgage foreclosure, banks’ crucial ownership documents for the properties are often unclear and are sometimes even bogus, a condition that’s causing lawsuits and hampering an already weak housing market. Docx, and companies like it, were recreating missing mortgage assignments for the banks and providing the “legally required signatures” of bank vice presidents and notaries, signed by minimum wage employees that knew they were signing someone’s   names other than their own.

Docx was owned by a company called LPS, a $2 billion firm that calls itself the nation’s leading provider of mortgage processing services. LPS told us that when it found out about the phony signatures in 2009 being signed in a boiler room environment, it shut Docx down. The FBI and several states are investigating.

Questions:

1.  Based on the article and video, do you think this is a case of fraud?  Discuss in terms of intent.

2. What are all of the costs you think will be litigated in this situation? What was missing in the system that allowed this to happen? Discuss.

3.  Assuming this will be litigated and you are asked to write a financial footnote disclosure regarding contingent litigation against LPS, what would you include? Discuss.

Source:

CBS video. (2011) The next housing shock, April 3(Retrievable online at http://www.cbsnews.com/video/watch/?id=7361572n&tag=related;photovideo)

Anderson, R.  and D. Ruetenik (2011) Mortgage Paperwork Mess: Next Housing Shock?, CBSNews.com, April 1 (Retreivable online at http://www.cbsnews.com/stories/2011/04/01/60minutes/main20049646.shtml?tag=contentMain;contentBody)

More BP back in the News

The U.S. Federal Energy Regulatory Commission (FERC) and the U.S. Commodity Futures Trading Commission (CFTC) are currently investigating several BP entities regarding trading in the next-day natural gas market at Houston Ship Channel during October and November 2008. The FERC’s enforcing body is now mulling whether to pursue charges against BP, which was prosecuted on propane market manipulation charges in 2006. In that event, BP paid around $300 million to settle those charges.

Questions:

1. What type of disclosure do you think BP should have made in their financial statements regarding the propane market manipulation? What accrual is needed?
2. In general terms, when should it have been disclosed?
3. In addition to the $300 million settlement charges, what expenses would you anticipate that BP incurred?

Source:

Reuters Staff. (2011) U.S. Probing BP For Gas Market Manipulation, HuffingtonPost.com, February 2 (Retrievable online at http://www.huffingtonpost.com/2011/02/02/us-probing-bp-for-gas-mar_n_817340.html)

The Avandia Disaster

GlaxoSmithKline (GSK)’s $3.4 billion legal charge on the diabetes drug Avandia probably isn’t the last of the costs the company will record against this drug. That means Avandia will probably be a lossmaker for GSK, proving that former CEO Jean-Pierre Garnier 1999 failure to follow up on worries about heart attack deaths associated with Avandia was a strategic disaster for the company, costing it billions in actual dollars and billions more in lost-opportunity dollars. Avandia had only been on the market for one month in 1999 at the time the CEO raised concerns in an email to his staff, yet the drug remained on the market until 2010.

Questions:

1.  What are some examples of opportunity costs this drug had for the company?

2.  Based on the article by Edwards, what types of contingency disclosures do you think the company should disclose for 2011?

3.  According to the 2010 article by Edwards, what settlement was made in July?  How should that be reported in the accounting records?

 Source:
Edwards, J. (2011). How GSK’s CEO Ignored His Own Worries and Wasted $16B on a Failed Diabetes Drug, BNET.com, January 18 (Retrievable online at http://www.bnet.com/blog/drug-business/how-gsk-8217s-ceo-ignored-his-own-worries-and-wasted-16b-on-a-failed-diabetes-drug/7094?tag=mantle_skin;content)

Edwards, J. (2010) Glaxo CEO Worried in Email Over Heart Attacks From Avandia — in 1999, BNET.com, July 13 (Retrievable online at http://www.bnet.com/blog/drug-business/glaxo-ceo-worried-in-email-over-heart-attacks-from-avandia-8212-in-1999/5110?tag=content;drawer-container)

Wage and Hour Violations

On December 9, 2009, Wal-Mart disclosed that it had settled a long-running wage and hour dispute in Massachusetts for $40 million. According to the Boston Globe, this was the largest wage and hour settlement in the state of Massachusetts. Interestingly, it was just a year ago at the end of 2008 that Wal-Mart reported that it had paid $640 million to settle similar wage and hour violations in 63 federal and state lawsuits.

QUESTIONS:

1. For SEC and investor purposes, what documents does Wal-Mart release that presents information about the violations?
2. What are some of the possible wage and hour violations that a company could commit?
3. How do you think that settlements are recorded in the company’s accounting records?
4. The article also mentions disclosure of a Philadelphia lawsuit, where a judge ordered Wal-Mart to pay $188 million for a wage and hour violation. Since the case is currently under appeal, should the company accrue the litigation judgment? Explain your answer.

SOURCE:

Leder, Michelle. (2009). Wal-Mart Settles Wage and Hour Claims for $40 Million. Footnoted.org (Retrievable online at http://www.footnoted.org/buried-treasure/wal-mart-settles-wage-and-hour-claims-for-40-million/)