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.
What type of disclosure do you think BP should have made in their financial statements regarding the propane market manipulation? What accrual is needed?
In general terms, when should it have been disclosed?
In addition to the $300 million settlement charges, what expenses would you anticipate that BP incurred?
BP’s decision to issue $1.25 billion in dividend payments rankled Gulf Coast residents Tuesday who saw it as another sign the company wants to move on even though many are still suffering from last year’s massive oil spill in the Gulf of Mexico. At issue is the fact that none of the 91,000 claims funneled to the claims fund Trustee, Ken Feinberg, have been finalized from the $20 billion claims fund.
1. What journal entry do you think BP should make for the dividend issue on Tuesday, February 1, 2011?
2.Â Could the Trustee handling BP claims intervene and get a court order barring any distributiÂons until all claims are fully settled? Do you think he should?Â Why or why not?
3.Â Discuss both the strategic management perspective of making this dividend. Include both qualitative and quantitative issues related to BPâ€™s decision to begin dividend payments again.
CNN Video. (2011). Reaction to BP dividend payment, February 2. (Retrievable online at www.cnn.com/video/)
Walgreens (WAG), the countryâ€™s largest drugstore chain, is poised to expand even further into healthcare. At Walgreensâ€™ annual shareholder conference, company officials talked about a new educational program for patients with chronic and complex diseases, and even mentioned the possibility of a Walgreens role in the emerging accountable care organizations. Until recently, most retail clinics have confined themselves to minor acute care. Now, however, Walgreens and some other outlets are beginning to branch into chronic disease care, as well.
1.Â According to Terry, what will Walgreenâ€™s lower operating expenses translate into?Â In other words, what limitations of this expansion are at issue?
2.Â Who is Walgreenâ€™s competition in this field?Â What trends in healthcare policies do you think have prompted their latest moves and acquisitions?
3. Look at Walgreenâ€™s Annual meeting press release.Â What is the companyâ€™s free cash flow and what has that allowed them to do?
GlaxoSmithKline (GSK)â€™s $3.4 billion legal charge on the diabetes drug Avandia probably isnâ€™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.
1.Â What are some examples of opportunity costs this drug had for the company?
2.Â Based on the article by Edwards, what types of contingency disclosures do you think the company should disclose for 2011?
3. Â According to the 2010 article by Edwards, what settlement was made in July?Â How should that be reported in the accounting records?
Borders (BGP), the second largest bookstore chain in the country, may soon be nothing more than a memory. But the big question is: whoâ€™s going to pick up the business?Â Borders had five rounds of layoffs in 2010 and began 2011 with the departure of five top executives, including the CIO and general counsel. It closed 200 shops in the U.S. and also plans to close its Tennessee distribution center which employs more than 300 people. The company is heavily in debt to the tune of over $445 million as of October 30, 2010.Â Some publishers have stopped shipping books to them altogether and in-store appearances have ended. While some insiders want to strike a deal, others hope for the company to declare bankruptcy, so at least they will have legal protection for recent shipments. Without a top down overhaul of everything from its management to merchandising the remaining stores and a digital plan, itâ€™s not likely that Borders can survive in the long term.
1.Â What is the difference between Chapter 11 and Chapter 7?
2. Do the Borders brothers still own the chain?
3. According to Rosenwald, what led to the downturn in Bordersâ€™ success?
The business of lending to plaintiffs in court cases arose over the last decade as part of a trend in which banks, hedge funds and private investors are putting money into other peopleâ€™s lawsuits. But the industry, which now lends plaintiffs more than $100 million a year, remains unregulated in most states, free to ignore laws that protect people who borrow from most other kinds of lenders. The interest rates charged by lawsuit lenders often exceed 100 percent a year, according to a review by The New York Times and the Center for Public Integrity.
While a growing number of lawyers, judges and regulators say that the regulatory vacuum is allowing lawsuit lenders to siphon away too much of the money won by plaintiffs, the lending companies justify their practices saying that they are not lenders because plaintiffs are not required to repay the money if they lose their cases.
1. Explain why, as the article says, that lawsuit lenders are much better than venture firms at picking winners.
2.Â How much did the article say that lawsuit lending companies typically lose on their clients?
3. Do you think that lawsuit lenders should be subject to state consumer protection laws?Â Why or why not?
A 43-year-old CPA who volunteered to do the books for the Libertyville Boys Club turned himself in after $66,700 of the not-for profit groupâ€™s youth football program funds were missing. Jacobsen had been volunteering his services to the club since February 2009 as the treasurer of the club based at Butler Lake Park, Illinois. Libertyville police said Jacobsen had exclusive power to collect monies and pay bills related to the programs. In March, board members became suspicious after Jacobsen refused to bring the financial records to monthly meetings. He finally did so in October.
1. What basic premise of internal controls was violated?
2. Why do you think that not-for-profit organizations are so susceptible to frauds like this one?
3. Suggest two or three ways that the Club could have prevented this event.
A new pilot program for low-income Americans could allow individuals to get their tax refunds on prepaid debit cards. The government said it will offer 600,000 low- and medium-income taxpayers the chance to put their tax refunds on prepaid debit cards.Â Half the 600,000 offers from Treasury will carry a $4.95 monthly fee, while the rest will be free. Consumer advocates say the goal is to get more people who lack bank accounts to receive their money in direct-deposit-like style, which costs the IRS less. It is also an attempt to discourage people from seeking costly refund anticipation loans, also known as RALs.
1. Do you think that cardholders should foot these card fees or should the IRS?
2. Research RALs.Â What is the average interest rate on these loans?
3. What is the difference between a RAL and a RAC?
Source: CNN Video. (2011). Tax Refunds on Debit Cards, January 14. (Retrievable online at www.cnn.com/video/)
Hunsberger, B. (2011). Tax refunds via debit cardsâ€¦.with fees. The Oregonian, January 17 (Retrievable online at http://blog.oregonlive.com/finance/2011/01/post_10.html)
According to William K Black,Â the FBI and the DOJ will not be likely to prosecute the elite bank officers that ran the enormousÂ “accounting control fraudssÂ that drove the financial crisis. While over 1,000 elites were convicted of felonies arising from the savings and loan crisis from the 1980’s and 1990’s , there are no convictions of controlling officers of the large nonprime lenders. The only indictment of controlling officers of a far smaller nonprime lender arose not from an investigation of the nonprime loans but rather from the lender’s alleged efforts to defraud the federal government’s TARP bailout program.
Black proposes thatÂ the U.S. needs to take three major steps to be effective against the epidemic of accounting control fraud. First, DOJ needs to realize that it is dealing with accounting control fraud. That task is not terribly difficult. The criminology, economics, and regulatory literature — as well as the data on fraud and analytics are all readily available. The FBI must end its “partnership” with the MBA. Second, the regulators need new leadership picked for a track record of success as vigorous regulators and a willingness to hold elites accountable regardless of their political allies. Third, the regulators and the DOJ need to partner with the SEC and the state AGs to share data (where appropriate under Grand Jury rule 6e). The federal regulators need to end their unholy war against state regulatory efforts and the SEC needs to end its disdain for the state AGs.
1. According to the author, what is the four-part recipe for maximizing fraudulent accounting income in the short-term?
2. According to the author, what is the downfall of the FBI in the role of successful investigationÂ and prosecution of accounting control fraud?
3. What are liar’s loans and what is their role in the financial crisis?Â
4.Â How do you see this lack of criminal prosecution affecting the accounting and finance profession? Do you agree with Black’s proposals?
N.Y. Attorney General Cuomo filed charges against Ernst & Young on December 21, 2010, alleging that the firm helped Wall Street Investment bank Lehman Brothers conceal its deteriorating financial condition before the bank’s historic collapse in the fall of 2008.Â Â The civil lawsuit, which seeks more than $150 million, is the first law enforcement action to stem from Lehman’s failure. The bankruptcy of the firm, which was an important cog in the machinery of the capital markets, caused immense collateral damage.Â The allegations center on sham trades that allowed Lehman to window-dress its balance sheet before filing quarterly financial reports, making it seem like it had more cash than it actually did.Â Cuomo’s lawsuit aims to hold accountable one of the less-mentioned players in the saga – Ernst & Young, Lehman’s auditor, which allegedly turned a blind eye to the accounting machinations. The case does not resolve the fate of senior Lehman executives, such as former chief executive Richard Fuld, who have been under investigation by the Securities and Exchange Commission.
1.Â Explain the boomerang trade referred to as “Repo 105” that is at the heart of the allegations.
2.Â Explain leverage and what impact it played in the scenario.
3. Based on what you know about the Lehman situation, do you think they should have been included in the government bailout?Â Why or why not?
4.Â Read Matthew Lee’s letterÂ and critique it. Do you agree with the way he handled the situation as a whistleblower?Â Based on what you know, would you have handled it any differently?Â