CFO Blog: Commentary and Opinion

Good news, investors: the SEC is now in a Ponzi-busting frenzy.

After somehow missing Bernie Madoff's decade-plus, $50-billion Ponzi scheme, the SEC today issued press releases announcing the break up of not one, but two other Ponzi schemes.

Perhaps not to look too proud, the SEC announced one of them here, and has yet to post the other, which instead arrived in my inbox from the SEC in the form of an-e-mailed press release issued jointly with U.S. Attorney Terrance P. Flynn of the Western District of New York.

Geez. Two Ponzi schemes in one day. Did the Madoff case remind someone about a forgotten filing cabinet somewhere?

If nothing else, yesterday's hearing by the House Financial Services Committee about the SEC's fledgling internal investigation into its response to Bernie Madoff's Ponzi scheme has demonstrated how far the perception of the SEC as a proud, independent enforcement agency has fallen. Or at least, how deeply Congress is willing to bury it.

Democratic Congressman Gary Ackerman lit into SEC inspector general David Kotz, calling him the "Jacques Cousteau of the Keystone Cops."

As FEI blogger Edith Orenstein points out, Ackerman later explained that he meant to refer to Inspector Jacques Clouseau, Peter Sellers' bumbling French detective from the Pink Panther movies, and not the famous French scuba diver. (Yezzz, zat eez wat I sed.)

Wonderfully bumbled insult aside, though, Ackerman's tone was remarkable, even to reporters who have seen plenty of Congressional posturing for the cameras. (Do I detect some-zing in your voice zat says I am in diz-favour wiz you?)

Never mind that Kotz's job is to investigate the SEC itself, Ackerman and his colleagues lit into Kotz as if he himself had failed to catch Madoff in the act. (Theez eez a very serious matter and everyone in theez reu-oom eez under the suspicions!)

Clearly, the SEC screwed up. Its chairman, Christopher Cox, has said as much. It is now clear that the SEC received multiple warnings about Madoff for years, and there's serious concern that it may even have deliberately ignored them.

But are we ready, as one comment posted to the article said, to "Junk the SEC"? Congress apparently is. Rep. Carolyn Maloney (D-N.Y.), said flat out "many of us have lost confidence in the SEC," and asked Kotz "for those of us who don't trust the SEC anymore, what authority should go to other regulators?"

What other regulators? The Fed, which failed to enforce basic lending standards and consistently backed bank lobbying for exceptions to inconvenient accounting rules? Madoff may have been bad, but the subprime crisis was far worse.

As I recall, it was politicians who overruled the police and demanded that Clouseau be reinstated from beat cop to inspector in order to find the Pink Panther. (Zat eez why I have failed where others have succeeded.) Perhaps it would make more sense to give Kotz time to find out what went wrong, and then ruthlessly overhaul the SEC so that it never happens again.

Good luck, David Kotz. . .until we meet again and zee case eez sol-ved.

Pull up a lawn chair and reflect on the collapses and missteps that paraded through the financial marketplace this year. Bear Stearns' Bath, Madoff's Mess, Lehman's Levee Break, an ever-changing $700 billion bailout plan, desperate automakers...the list goes on and on. It's hard to sit back and watch passively, right?

Christopher Cox, SEC chairman, apparently doesn't feel antsy about the financial turmoil, even as his legacy has fallen into the tank just before a new administration takes over. He told the Washington Post in his first interview since the Madoff scandal:

"What we have done in this current turmoil is stay calm, which has been our greatest contribution — not being impulsive, not changing the rules willy-nilly, but going through a very professional and orderly process that takes into account unintended consequences and gives ample notice to market participants."

Strange choice of words for a man who has spent the past few weeks pointing fingers at anyone but himself. In the article, he blames his Treasury and Federal Reserve Board counterparts for pressuring him to ban short selling — which for a time seemed like the only action the SEC was taking in dealing with the credit-market collapse in September. Cox is also unhappy with the progress of the bailout plan, yet offers no solutions to fix it.

Perhaps in his waning days as chairman, Cox is showing his true colors as a leader, as CorporateCounsel.net blogger and former SEC staffer Broc Romanek suggested yesterday. Romanek takes a different view in his assessment of Cox's formal statement on the Madoff fraud — which many in the press have interpreted as an acknowledgement by Cox that the SEC had failed to detect it.

Romanek writes: "In seeming to throw the Staff under the bus — on his way out of the agency's doors no less — the Chairman violates the 'tone at the top' mantra as well as the one of 'accountability' that the SEC is supposed to drum into our corporate leaders."

After three years, I'd almost accepted the idea of having a "GE Electric EZ Light" tree. It was scentless, sure, but it did send a perfectly symmetrical glow to the street beneath our A-framed hilltop house. And how nice that the $50-a-year-plus expense of a real 12-footer had stopped.

Then the inevitable — yet somehow unimaginable — happened: The hundreds of bulbs in the top three sections of my meticulously assembled, four-section EZ Light failed to work.

As Bing warbled soulfully in the background about his Christmas dreaming, and my wife patiently continued lining up the ornaments for placement once I fixed the thing, I checked and rechecked connections. No luck.With a sense of foreboding I turned to the instruction sheet's "Trouble Shooting Tips." The check for loose bulbs? Nothing obvious there. "Also, check the fused plug for a missing or burned out (open) fuse."

Yikes. Indeed, a sliding compartment in each plug did reveal two tiny glass-and-metal fuses, seemingly locked beyond reach. It didn't look good. My Christmas spirits quickly deteriorated.

"I'll Be Home for Christmas," Bing continued. Yeah, I thought, with a three-quarters-dark EZ Light monstrosity dominating the living room, telling all the world below of my lack of electrical skills.

Next step: the customer service center's 800 number. Deep breath. Where around the broad globe will GE take me for this exercise?

As it turns out, it is not Mumbai. It is the winter wonderland of Manitowoc, Wisconsin, where a Christmas angel named Margo (last names aren't given out) provided a holiday experience worthy of Ebenezer's famous "morning after."

Having found the problem plug, and a tiny screwdriver in my dad's old tool box, I'm treated to Margo gently talking me through the fuse replacement. She agrees that it is, in fact, harder to do than it should be. (Mandy, another call-center angel, contributes that she actually had suggested the inclusion of a special tool in the tree box; it was never done.)

After profuse thanks, I do a little research. GE markets EZ Lights through a license with Northfield, Ill.-based Santa's Best Craft. Its senior VP, Dennis Krize, fills me in on Santa's Best, formed by a 1990 merger of a Civil War-era company called National Tinsel and Manitowoc's National Decorations. The Taiwan-manufactured trees began being branded as GE in 2001. And the private firm's revenues are in the "hundreds of millions" — contributing to GE as part of its line of seasonal lighting products. (GE's Lighting division, combined in 2002 with the Appliance division, was set to be sold off until CEO Jeff Immelt announced last week that this wouldn't happen for a while.)

The Santa's Best call center has about 50 people, "if somebody hasn't quit because of all the stress of the holidays," Krize tells me. And employees there confirm that many non-troubleshooting calls are complaints — although workers also spend a lot of time just "keeping company with somebody who wants to talk at Christmas."

But they get at least one call of thanks. For my tree is fully lit again.

And some blessings. God bless you, Margo, for your patience. And Mandy, may your campaign for that little screwdriver take wing. (Come on, Jeffrey!)

Joyce Kilmer might be right that only God can make a tree. But Santa's Best runs a better call center.

The "bonus culture" at banks has drawn much of the blame for fuelling the current financial crisis. In response, regulators in the US and Europe are seeking to overhaul executive compensation more broadly, affecting a wide range of companies outside of the financial services industry. Those looking for retribution will be heartened by developments in Switzerland, where two of the country's largest banks recently overhauled pay policies.

Last month, UBS introduced the concept of a "malus," or negative bonus, to its compensation model. Starting in 2009, two-thirds of an executive's annual bonus will be held in escrow, to be paid out after three years if performance remains satisfactory. A malus could wipe out the bulk of previously rewarded bonuses "if regulations are grossly violated, if unnecessarily high risks are undertaken or if individual performance targets are not met."

Today, according to Bloomberg, Credit Suisse unveiled an even more draconian system. Executive bonuses will take the form of stakes in a new $5 billion pool of the bank's most toxic leveraged loans and mortgage-backed debt. The first payouts from this radioactive facility are not expected for five years (or ever, depending on the performance of the underlying securities).

Credit Suisse's scheme addresses a key concern about bank compensation schemes—that pay was based on origination and packaging, but not the subsequent performance of newfangled securities. Though not as snappy as the bonus/malus moniker, in keeping with the Latin theme Credit Suisse could dub its new pay policy vos no vestri cubile, iam recubo in is.