October 31, 2002
Why Are We Ruled by These Idiots?

It is hard to believe this is happening. It is really hard for me to believe this is happening.

I know that I said that I thought William Webster was unqualified to be chair of the Public Companies Accounting Oversight Board, but I never in my life believed that he was this unqualified:


New York Times | Stephen Labaton | Audit Overseer Cited Problems in Previous Post:

...While Mr. Webster headed [U.S. Technologies'] audit committee, it was delisted from trading on Nasdaq for failing to make timely filings with the S.E.C....

...the three-person audit committee, headed by Mr. Webster... voted to dismiss the outside auditors in the summer of 2001 after those auditors raised concerns about internal financial controls...

...[U.S. Technologies] reported to the S.E.C. that BDO Seidman auditors had been dismissed not because of any disagreements or qualifications .... But U.S. Technologies was forced to amend its filing a few weeks later, after BDO Seidman [explained that they]... had found serious accounting problems at the company...

"...BDO Seidman L.L.P. communicated a material weakness in internal control to the audit committee and management relating to financial and accounting infrastructure including lack of an experienced C.F.O., deficiencies in recording material transactions timely, and in the organization and retention of financial documents and accounting records." Mr. Webster said the company responded by hiring a more experienced chief financial officer. He said the auditing committee did not look into the other problems.... He said that executives at U.S. Technologies had been concerned about the auditing bills... and about the lengthy time [the audits] had taken...

...[U.S. Technologies] chief executive, C. Gregory Earls... facing suits by investors who say they were defrauded.... a Delaware judge concluded that there was significant evidence [Eals] had committed a pattern of misrepresentations "that may rise to the level of criminal conduct" in connection with USV Partners, .... The judge also found "credible evidence" that Mr. Earls "has exhibited a pattern of defrauding investors"... the judge, Vice Chancellor Jack Jacobs, said... "the ever-increasing pattern of fraud claims against Earls lends further credibility to the other evidence that does tend to establish that Earls has mismanaged USV."... an investor accused Mr. Earls and U.S. Technologies of stealing for Mr. Earls's own benefit almost $2 million last year...

...Webster... told the [S.E.C.'s] chairman, Harvey L. Pitt, that he had... headed the auditing committee of a company that was facing fraud accusations.... Mr. Pitt chose not to tell the other four commissioners who voted on Mr. Webster's nomination...

...Mr. Webster said he was assured by Mr. Pitt that the staff... had looked into the issue and that it would not pose a problem. Mr. Pitt had urged Mr. Webster to take the job. But U.S. Technologies' former outside accounting firm, other members of the audit committee, company executives, and investors and their lawyers who say they were defrauded say they were never called by anyone at the commission about Mr. Webster's candidacy for the new oversight board...

...Mr. Pitt declined to discuss the selection of Mr. Webster or U.S. Technologies...

...The accounting oversight board is the centerpiece of legislation approved this summer in response to the wave of scandals at companies like Enron, Arthur Andersen and WorldCom. It was created to supervise an array of professional issues, including disciplining accountants and inspecting the largest firms.... "Even if we find out that Webster was totally passive in this process, it is an indictment on his ability to run the accounting oversight board," said James D. Cox, a professor of securities and corporate law and author of a textbook on accounting who teaches at Duke. "To let something like this go shows really bad judgment, and I think is automatically disqualifying. At a minimum, the audit committee had an obligation to investigate. This is exactly the kind of situation that the accounting oversight board is supposed to change, and that the new law creating the oversight board is supposed to fix."...

The New York Times Sponsored by Starbucks

October 31, 2002

Audit Overseer Cited Problems in Previous Post

By STEPHEN LABATON

WASHINGTON, Oct. 30 Shortly before William H. Webster was appointed to head a new board overseeing the accounting profession by the Securities and Exchange Commission last Friday, he told the commission's chairman, Harvey L. Pitt, that he had until recently headed the auditing committee of a company that was facing fraud accusations, Mr. Webster recounted today.

Mr. Pitt chose not to tell the other four commissioners who voted on Mr. Webster's nomination that day, according to S.E.C. officials. White House officials said they, too, were not informed about the details of Mr. Webster's work for the company.

The small publicly traded company, U.S. Technologies, is now all but insolvent and it and its chief executive, C. Gregory Earls, are facing suits by investors who say they were defrauded of millions of dollars. The suits contend the misconduct occurred in late 2001 and this year. That was after the three-person audit committee, headed by Mr. Webster, had voted to dismiss the outside auditors in the summer of 2001 after those auditors raised concerns about internal financial controls.

Mr. Webster, the 78-year-old former director of the C.I.A. and F.B.I., said he told Mr. Pitt and Robert K. Herdman, the agency's chief accountant, about the investor lawsuits before he was approved last Friday.

"I told them that people are making accusations," Mr. Webster said of his conversation with Mr. Pitt before he was appointed last Friday. "I said if this is a problem, then maybe we shouldn't go forward. I raised it because I didn't want it to become an issue."

Mr. Webster said he was assured by Mr. Pitt that the staff of the commission had looked into the issue and that it would not pose a problem. Mr. Pitt had urged Mr. Webster to take the job.

But U.S. Technologies' former outside accounting firm, other members of the audit committee, company executives, and investors and their lawyers who say they were defrauded say they were never called by anyone at the commission about Mr. Webster's candidacy for the new oversight board.

Last Monday, three days after Mr. Webster was appointed, he called Mr. Pitt again to say he had heard over the weekend from another former director that a government investigation had recently begun to examine possible fraud by the chief executive of the company, Mr. Webster said. Lawyers involved in the case say the inquiry, by federal investigators in Manhattan, is actually examining whether Mr. Earls, who recruited Mr. Webster, used the company to violate criminal fraud laws. Mr. Webster is not a target of the investigation. Mr. Pitt did not tell the other commissioners about the Monday conversation either, S.E.C. officials said.

Mr. Pitt declined to discuss the selection of Mr. Webster or U.S. Technologies. Christi Harlan, a spokeswoman at the S.E.C., said that Mr. Webster informed the commission's accounting staff, headed by Mr. Herdman, about his service on the board of the company and that the staff concluded that there was nothing worthy of passing on to other commissioners or that would disqualify Mr. Webster.

"What matters is we believe Judge Webster will be a fine chairman of the Public Companies Accounting Oversight Board," Ms. Harlan said.

Claire Buchan, a White House spokeswoman, referred calls about the selection of Mr. Webster to the S.E.C.

The accounting oversight board is the centerpiece of legislation approved this summer in response to the wave of scandals at companies like Enron, Arthur Andersen and WorldCom. It was created to supervise an array of professional issues, including disciplining accountants and inspecting the largest firms.

The commissioners split bitterly over the qualifications of Mr. Webster and his selection over John H. Biggs, who was considered by some in the profession to be too aggressive. In his dissent, one S.E.C. commissioner, Harvey J. Goldschmid, said the selection process had been flawed and inept and had failed to vet the candidates properly. Mr. Goldschmid declined to comment.

Mr. Webster stepped down from the board of U.S. Technologies in July after he said he was told that it could no longer provide liability insurance for directors and officers against claims from investors.

The company invests in young Internet companies and runs a contract labor company using prison inmates. It has had a variety of legal and regulatory difficulties. While Mr. Webster headed the audit committee, it was delisted from trading on Nasdaq for failing to make timely filings with the S.E.C.

The suits filed by investors allege that fraud occurred after the company's auditor, BDO Seidman, says it notified the auditing committee in May 2001 that U.S. Technologies had several serious weaknesses in its internal financial controls.

The company initially reported to the S.E.C. that BDO Seidman auditors had been dismissed not because of any disagreements or qualifications but only because of "an explanatory paragraph that discusses factors that raise substantial doubt" that U.S. Technologies had the "ability to continue as a going concern."

But U.S. Technologies was forced to amend its filing a few weeks later, after BDO Seidman executives sent a letter explaining that their firm had found serious accounting problems at the company.

BDO Seidman accountants wrote: "In a letter dated May 9, 2001, issued on Aug. 31, 2001, and in a telephonic audit committee meeting on July 13, 2001, BDO Seidman L.L.P. communicated a material weakness in internal control to the audit committee and management relating to financial and accounting infrastructure including lack of an experienced C.F.O., deficiencies in recording material transactions timely, and in the organization and retention of financial documents and accounting records."

Mr. Webster said the company responded by hiring a more experienced chief financial officer. He said the auditing committee did not look into the other problems mentioned by BDO Seidman accountants. He said that executives at U.S. Technologies had been concerned about the auditing bills of BDO Seidman and about the lengthy time it had taken to perform the audits.

BDO Seidman, which will be regulated by the new accounting oversight board, declined through a spokesman to comment about its work for U.S. Technologies.

Lawyers involved in the criminal investigation said there was no evidence that Mr. Webster violated any laws and he was not the target of the inquiry. But critics of his selection to the oversight board said the audit committee's decision not to investigate thoroughly and make public its findings demonstrated that he lacked the qualifications to lead the board.

"Even if we find out that Webster was totally passive in this process, it is an indictment on his ability to run the accounting oversight board," said James D. Cox, a professor of securities and corporate law and author of a textbook on accounting who teaches at Duke. "To let something like this go shows really bad judgment, and I think is automatically disqualifying. At a minimum, the audit committee had an obligation to investigate. This is exactly the kind of situation that the accounting oversight board is supposed to change, and that the new law creating the oversight board is supposed to fix."

Mr. Webster said he did not think his experience at U.S. Technologies "would impair my ability to serve."

"But that is not for me to judge," he said. Speaking of the commission, he added: "I always made a point of telling them everything I knew. I'm sure they wouldn't have gone through with it if they didn't have confidence in me."

At the center of the investigation and the suits over U.S. Technologies is Mr. Earls, the company's chairman and chief executive, who recruited Mr. Webster and other prominent Washington figures to serve on its board and invest in the company. The board members included George Mitchell, the former Senate majority leader, and Beth Dozoretz, the former finance chairwoman of the Democratic National Committee.

Mr. Earls has recently suffered some court setbacks.

A decision two months ago in one of those cases by a Delaware judge concluded that there was significant evidence he had committed a pattern of misrepresentations "that may rise to the level of criminal conduct" in connection with USV Partners, which Mr. Earls controls and is a large investor in U.S. Technologies.

The judge also found "credible evidence" that Mr. Earls "has exhibited a pattern of defrauding investors" by using a variety of partnerships and other "special purpose entities" controlled by him.

After reciting a list of court cases against Mr. Earls, the judge, Vice Chancellor Jack Jacobs, said, "Although claims of wrongful conduct in unrelated cases certainly do not establish that Earls mismanaged USV, the ever-increasing pattern of fraud claims against Earls lends further credibility to the other evidence that does tend to establish that Earls has mismanaged USV."

In a separate civil case filed in July in federal court here, a few days after Mr. Webster resigned from the board, an investor accused Mr. Earls and U.S. Technologies of stealing for Mr. Earls's own benefit almost $2 million last year by diverting what were supposed to be investments. Mr. Earls's lawyers have denied the accusation.

Thomas Green, a lawyer who represents Mr. Earls, said that his client violated no laws and that the company had been a victim of the downturn in the economy.

Posted by DeLong at October 31, 2002 07:37 AM | Trackback

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Comments

why? because a bunch of damn fools voted for ralph nader...

Posted by: on October 31, 2002 09:43 AM

Wall Street has repeated "never give the investor an even break." Disgraceful.

Posted by: on October 31, 2002 09:57 AM

Wait, it gets even worse. "Pitt seeks probe of himself", says the headline - not on the Onion, but seriously, at cbsmarketwatch.com.

Posted by: Paul Krugman on October 31, 2002 09:58 AM

"SEC's Harvey Pitt (shown) asks agency's inspector general to look into his role in pick of William Webster to head new accounting oversight panel."

Posted by: brew on October 31, 2002 10:35 AM

John Bogle - October 14, 2002

"Our corporate system has been permeated by distortions of sound business practices: Virtually all corporations focus on its prices of their stocks, present unrealistically high (and unachievable) projections of earnings growth, and push generally accepted accounting principles to their limit. When our rule of conduct becomes, "I can do it because everyone else is doing it," integrity and ethics go out the window and the whole idea of capitalism is soured.

"Early in 2001, an independent study showed that while the annual return of the stock market itself averaged 16% per year during the 1984-2000 period, the return of the average mutual fund averaged 13%, about the differential one would expect, given that fund costs amounted to about 2 % to 3% per year. But, because of the market timing and adverse selection issues I've just described, the annual return of the average mutual fund investor averaged just 5%. Today, the bear market has reduced that cumulative market return to about 11%, and the return of the average mutual fund to about 8%. That relationship suggests that the return of the average fund investor, during this excellent (from point to point!) period for stocks, was 0%(!). Nothing. It is not a record of which we should be proud."

Posted by: on October 31, 2002 10:37 AM

I'm just amazed that Pitt thought he could get away with this. Didn't it occur to him that this would blow up in his face?

I think now that Bush will be obligated to fire Pitt and get rid of Webster. This will actually turn out to be a double win for investors. By trying to protect the accountants, Pitt screwed them over. Thank goodness!

Posted by: Dave on October 31, 2002 10:41 AM

Well, this is not complicated. If "W" is good, then "WW" must be better. Hmm, it looks like they were right on magnitude, but wrong on direction.

But good news! Don't think of it as "Ruled". Think of it as "Temporarily (mis)lead".

Until ,that is, the next "temporary" bout of "leadership".


Posted by: Tom Maguire on October 31, 2002 11:44 AM

As I noted in an earlier comment, audit reform was meant to keep people like Mr. Webster OFF audit committees ... but I had no idea.

Pitt -- the guy who "knows where the bones are buried" -- is revealed as the Great Pumpkin's evil twin.

Posted by: RonK, Seattle on October 31, 2002 11:44 AM

the really frustrating part is, there is NOTHING we (or anyone, except Bush / O'Neill) can do.

Feels awfully like a monarchy when obvious power rests in the hands of the stupid few (and I include most of Congress in this)

i am learning to be quietly desparate.

Posted by: Suresh Krishnamoorthy on October 31, 2002 11:58 AM

Can we stipulate that Harvey Pitt doesn't know the first thing about accounting? That is: he may know the second, third or tenth things about accounting -- but the first thing about accounting is that rational creatures make critically informed decisions when they have good information. Apparently a status he was not willing to recognize in his co-commisioners.

Miscellaneous "probe himself" jokes available on application.

Posted by: jda on October 31, 2002 12:23 PM

Yes. I am also worried. But, I think there is a significant difference between the political parties and hope a congressional counter will emerge to administration economic policies. Paul Wellstone was a true populist, we need more.

Posted by: on October 31, 2002 12:23 PM

Since I am not convinced that the accounting board will serve any constructive function regardless of who is on it, I find excessive the wailing and gnashing of teeth on display here. But the political incompetence is unbelievable. Lots of people, like the posters here, believe that this board is actually important. Surely Pitt (or his superiors) could have found someone they liked who didn't have this skeleton in the closet and who didn't appear superannuated.

Posted by: steven postrel on October 31, 2002 12:38 PM

What frustrates me is that Democrats seem unable to make any political Hay out of this. We need some firebrand not afraid to get yelled at by republicans to denounce the whole crew, in very specific terms. Honestly, Democrats need to start politicing or they'll just become irrelevant.

Posted by: Dennis O'Dea on October 31, 2002 12:45 PM

Given problems in pension fund reserves and options costs alone, I surely do think the accounting board is important. Warren Buffett has been complaining of the problems for some time, and pointing out that they are not small problems.

Heck, we investr for our retirement. We do need an equitable playing field.

Posted by: on October 31, 2002 12:50 PM

It's the incompetence, stupid!

Pitt is beyond pathetic. Does he really think calling for a probe of himself (snicker, snicker) is going to give him some newfound credibility?

I actually feel bad for Webster a bit. He seems like a decent person, used as a pawn, and now in over his head. (see Tommy Thompson and Anthrax Crisis)

The corporate board culture must change. They are there to serve shareholders, not to simply divy up options for their exec buddies. I mean, this is no trvial matter. Our whole economic system is based on honest information. They need to get this right. If fund managers and average folks can't trust the market, why have a market. Maybe I'm being Chicken Little?

Posted by: BEM on October 31, 2002 01:24 PM

I second Steve Postrel about the board, which will probably be either useless or downright counterproductive no matter who heads it. But this Webster nomination is unbelievable. And to think Pitt made sure the info from Webster's US Technologies experience was withheld? What is he smoking?

Posted by: JTreves on October 31, 2002 01:24 PM

In a nutshell, it's an MBA administration. And MBA education is more about networking than knowledge (or at least it is perceived that way.) There is even a current of anti-academism (besides the usual anti-intellectualism bias of the GOP) curring in the Administration's circle. Academists and other experts are dismissed as 'irrelevant', mostly I guess because they're not systematically supportive of ultra-conservative ideas.

Besides, people who know generally have a position on things like regulation. They're thus the primary targets of lobbyists interested in the status quo, especially in an administration made up of... fellow lobbyists.

Third, and most cynically, there is the rule that mediocre people never choose to hire people who they perceive as an intellectual threat to themselves (only genuinely brilliant people perceive the advantage of doing the opposite.)

Sorry for stating the obvious... :)

Posted by: Jean-Philippe Stijns on October 31, 2002 01:59 PM

Oops: curring => running

Posted by: Jean-Philippe Christian Stijns on October 31, 2002 02:07 PM

William Webster is nothing less than honorable, but he is an old man whom the gods have deserted. It will happen to all of us.

Re Harvey, paranoid fantasy #1 -- he planned it this way so as to assure that he would have a weakened crippled chairman.

Paranoid fantasy #2 -- he planned it this way so he will have a chance to bring back the guy from CREF. No, I don't believe either of these but hey.

Posted by: jda on October 31, 2002 02:31 PM

>>William Webster is nothing less than honorable<<

Even is that were true, that still doesn't make him accounting litterate. A fat-4 CPA had me note that the move to replace an expert with an incompetent Webster is particularly wicked from the auditing lobby given that one of their main recommendations has been the obligation for listed company to have at least one board member who is knowledgeable about accounting...

Posted by: Jean-Philippe Stijns on October 31, 2002 03:58 PM

Paranoid fantasy #3 -- Pitt is out to realize the dreams of four generations of mossbacks by imploding the SEC.

Posted by: RonK, Seattle on October 31, 2002 04:10 PM

Webster, by all accounts, ran the CIA adaquately, yet he isn't a spy. So why does he need to be a CPA to head this board? The leader of any organization needs a different set of skills than one who executes its agenda.

Posted by: on October 31, 2002 05:53 PM

>>>Since I am not convinced that the accounting board will serve any constructive function regardless of who is on it, I find excessive the wailing and gnashing of teeth on display here<<<

The voice of reason crying in the wilderness. This whole tempest about Webster's selection and supposed "taint" are about 2 things: 1) partisan politics; 2) the tort bar trying to get their people in so they can logroll to sue Big 4 firms.
Granted, Webster wouldn't be my first choice for the post (He's almost as old as Lautenburg and Mondale for Christ's sake!)

Public companies are constantly sued. If you read the financials (10ks, etc), most of them do not even separately identify litigation unless the potential liability from a single case is huge since there is, in 2002, constantly litigation by the scum, er.. plaintiff's bar. Securities litigants ALWAYS allege fraud and misrepresentation. To accuse a corporate director of being on a board that is accused of fraud would cover just about any board member of a public company. (ah, the NYT at work for the Dems!) This is simply a smear. Webster actually left the company when they could not provide D&O insurance (that anti-lawsuit insurance for you simon-pure economics types). The trial lawyers are creating a hell of an environment. Board members have to subject themselves to tremendous financial and reputational exposure, yet public companies are increasingly required to attract outside board members. Who would want to serve (as an outside director) on a board of a company that made risky investments in high tech? Since the multi-billion tril lawyer/extortion industy is becoming the largest benefactor of the Demo party, we can only be assured of more of this economic vandalism and rent seeking by trial lawyers (ex-SEC lawyers).

Posted by: Josef on October 31, 2002 07:15 PM

Josef manages to completely miss the point in his zeal to demonize lawyers. I'm not one and don't give a rat's ass about them, but that's not the issue here. Pitt's lack of ethical clarity and political tin ear allowed him to hear Webster's admitted concerns without understanding that others might want to know more before voting for Webster. I hold Webster blameless in this since he disclosed his involvement early and to the main man. The onus and blame here is all on Pitt. He's got to go.

Posted by: Dave Roberts on October 31, 2002 07:21 PM

Has the last person who posted studied accounting at all? I don't consider myself stupid and for a layman I'm very well read in economics and finance but when I recently took an accounting course I was stunned by how arcane, archaic and difficult it was. Perhaps the flaw is mine, but of all the courses I've taken in recent years it was the only one where I was thrown back on brute memorization to learn the material, rather than figuring out the first principles so I could reason from them.

Accounting is esoteric and his job is head a council rewriting accounting standards. He needs to understand what they are doing in order to "manage" them. If he doesn't understand they an do whatever they want and he won't understand the consequences. Especially because it's the sort of field where it is very easy for a rule to seem to do one thing and actually do something else. On the other hand, at its' heart spying really isn't that hard to understand (even things like cryptography - I don't need to know how you do it to judge if you are succesful. That is not true of accounting.)

Posted by: Ian Welsh on October 31, 2002 07:24 PM

Er, someone posted before me. I was not refering to Dave Roberts.

Posted by: Ian Welsh on October 31, 2002 07:29 PM

wow -- this is just weird. Up until now, I was a quiet supporter of Pitt. I thought that he was doing the job well in spite of his past. No one can doubt his skills, and I thought he would put forth double the effort to quiet his critics. Well, I was wrong, apparently about both his skills and his commitment. This was both stupid and crooked. As I said in an earlier post, before this surfaced I thought Webster was an awful pick. From personal experience, I know him to be a sell out. The "formerly great" like Webster make a great deal of money by selling their reputations to perform "independent" investigations. (Unfortunatly George Mitchell, who I otherwise admire, seems to be a member of that list too).

Posted by: pj on October 31, 2002 07:30 PM

>>>Has the last person who posted studied accounting at all? I don't consider myself stupid and for a layman I'm very well read in economics and finance but when I recently took an accounting course I was stunned by how arcane, archaic and difficult it was.<<<

>>>Accounting is esoteric and his job is head a council rewriting accounting standards.<<<

I studied accounting, though majored in economics and had further graduate study in economics and finance. Like law, acounting is a lot of brute memorization of rules, although there are underlying concepts that apply to all financial accounting standards. BTW - the Oversight Board does not "rewrite accounting standards". The FASB will continue to promulgate accounting standards. (Most of the people commenting on the various post on this subject and those I've read/heard in the press probably don't even know what the new board is supposed to do.) The Oversight Board will review the quality of accounting of public companies' auditors and will have enforcement powers over the auditors that the SEC lacks (the SEC has enforcement powers over the filers of SEC documents, the public companies.)

Not to just say I told you so, but Biggs (the Savior) was on the Audit Committee and Board of McDonald Douglass during a period when it was twice investigated by the SEC and paid $500K to settle SEC complaints. This is far more serious than accusations against Webster, whose former firm is merely being sued by privateering ambulance chasers.

Posted by: Josef on October 31, 2002 08:47 PM

In the mean time, Paul Krugman has kindly summarized this for us :)

Posted by: Jean-Philippe Stijns on October 31, 2002 10:13 PM

Josef, intentionally or not, you're lying here.

>>This is far more serious than accusations against Webster, whose former firm is merely being sued by privateering ambulance chasers.<<

No, the accusation is clearly quoted above; While he was head of the audit committee, the company consistently failed to make timely SEC filings. In other words, this man repeatedly broke one of the most important rules it would be his duty to enforce.

Posted by: Daniel Davies on October 31, 2002 11:42 PM

Furthermore, he was head of a committee that responded to audit findings of poor internal controls by sacking the auditors.

Posted by: Daniel Davies on November 1, 2002 06:15 AM

Lying? If I used such an "uncivil" word here my entry would be deleted in about an hour!
Again. Biggs' firm was ACCUSED BY THE SEC of wrong doing. Webster's firm is being sued by private lawyers in the kind of commonplace extortion that we have all become familiar with. This is lying? Ha. When you can't defend this smear campaign against Pitt and Webster you resort to the kind of blabbering, shotgun blast accusations a la Krugman's blather in this a.m.'s NYT. (If our Belgian friend thinks Krugman "summarized" anything he must have a very muddled view of the world in the first place.) No, simply put, the man the Dems and trial lawyers are trying to foist onto the Oversight Board is even less fit than Webster (this may explain why Pitt let him off with a minimum of discussion).

Posted by: Josef on November 1, 2002 07:12 AM

>>Again. Biggs' firm was ACCUSED BY THE SEC of wrong doing. <<

No. This is not a matter of an "accusation". The firm did not, as a matter of fact, file on time, and just to prove it, NASDAQ delisted them as punishment.

It is also a matter of verifiable historic fact that the auditors were fired after warning of financial control issues.

These two facts have nothing to do with the merits of any lawsuits at all, and either of them on its own would be enough to cast serious questions over the suitability of anyone to run an authority meant to ensure proper standards of audit and financial reporting.

Your use of the word "merely" above is meant to imply that there are no reasons to object to this candidate other than that he is "being sued by ambulance chasing lawyers". This is an untruth, and now that you have maintained it in the face of contrary evidence, I have no qualms in being blunt (rather than uncivil) and calling it a lie. Because it's a lie. You are stating it, so you are lying. Please note that I am not "calling you a liar"; I have no idea of whether you make a habit of it.

Posted by: Daniel Davies on November 1, 2002 07:30 AM

"The five-member Oversight Board will create an oversight regime for the process of auditing public companies. It will issue rules for auditing, quality control, and ethical standards for registered public accounting firms. Additionally, it will have the authority to inspect, investigate, and impose sanctions on registered public accounting firms. The Oversight Board will be funded by fees from registered public accounting firms and public companies."

http://www.bbl.com/newsletters/sarbanes_oxley_act2002.asp

"Standard Setting. The Board will issue standards or adopt standards set by other groups or organizations, for audit firm quality controls for the audits of public companies. These standards include: auditing and related attestation, quality control, ethics, independence and "other standards necessary to protect the public interest." The Board has the authority to set and enforce audit and quality control standards for public company audits."

http://www.aicpa.org/info/Sarbanes-Oxley2002.asp

"Auditing standards. The Board would be required to "cooperate on an on-going basis" with designated professional groups of accountants and any advisory groups convened in connection with standard-setting, and although the Board can "to the extent that it determines appropriate" adopt standards proposed by those groups, the Board will have authority to amend, modify, repeal, and reject any standards suggested by the groups. The Board must report on its standard-setting activity to the Commission on an annual basis. "

http://www.aicpa.org/info/sarbanes_oxley_summary.htm

Now that we have established that the board, as I stated previously, and was disputed by Josef, can set standards if it so chooses, perhaps it will be understood why I think that having an accountant lead it is important.

Josef further noted that he has studied accounting and that although accounting requires much brute memorization it does have first principles. I'm sure it does - however I stand by my point that it is a difficult, arcane and esoteric discipline to those who have not studied it in depth.

Posted by: Ian Welsh on November 1, 2002 07:31 AM

The Board was set up to enforce audit quality, not create accounting and auditing standards. It can override FASB decisions, but it will have to justify this to Congress.

Posted by: Josef on November 1, 2002 07:57 AM

P.S. John Biggs is not an accountant, so, in addition to his ethical problems, he would not fit Ian Welsh' requirements.

Posted by: Josef on November 1, 2002 08:02 AM

Biggs has no "ethical problems", Josef, and you are lying when you say he has. The fact that you managed to make two misspellings in the name of McDonnell-Douglas should give some idea of your credibility in repeating that particular smear.

Posted by: DD on November 2, 2002 02:47 PM

It seems the Webster witchhunt is highly overrated;by itself, but it is illuminating
on the general nature of finance, as seen
through the board of US Technologies as this
excerpt shows;
U S TECHNOLOGIES INC (USXX.OB)
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table shows as of March 31, 2002, the number of all shares of the Company's voting securities beneficially held by each director, by each named executive officer and by each person known by the Company to beneficially own 5% or more of any class of the Company's voting securities, and by all directors and executive officers as a group. Except as otherwise indicated, to our knowledge, each owner has sole voting and investment power over his shares.


SECURITY OWNERSHIP
Shares of
Common Stock
Beneficially
Owned Assuming
Conversion of
all Vested and Shares of
Unvested Series A
Options and Preferred
Warrants to Stock % of
Acquire Common % of Beneficially Series A
Name Stock (1) Class(2) Owned(1) Class
----- -------------- -------- ------------ --------
Gregory Earls(4)......... 17,011,231(5) 10.3% 52,000(6) 88.9%

Jonathan Ledecky(9)...... 26,320,923 16.0%
Northwood Ventures LLC(10) 25,426,209 15.4%

Sommerville Trust(11).... 18,759,879 11.4%


USV Partners, LLC(12).... 8,621,746 5.2%

KMF Partners(13)......... 12,056,150 7.3%

James V. Warren(15)...... 6,548,302(16) 4.0% 3,375(17) 5.8%

The Carlyle Group(14).... 857,671(18) *

Northwood Capital Partners 2.2%
LLC(10)................. 3,547,671


Microdent Ltd(19)........ 295,749(18) *

L-A & A Gift Trusts II(11) 2,844,812 1.7%

Beth Dozoretz(20)........ 550,000(21) *

China Development(22).... 184,843(18) *

Billy Prince............. 1,024,125 * 3,125 5.3%

William H. Webster(23)... 893,448(24) *

George J. Mitchell(25)... 784,893(26) *

Peter G. Schiff(27)...... 775,000(28) *

Arthur J. Maxwell(29).... 719,828(30) *

Henry T. Wilson(31)...... 500,000(32) *

Rick Legge............... 500,000(33) *

All directors and executive
Officers as a group(34).. 28,282,702 17.2% 55,375 94.7%


Shares of
Common Stock
Beneficially % of All
Owned Assuming Classes
Conversion of Combined
All and All
Outstanding Outstanding
Shares of Shares of Classes of Options
Series F Series G Preferred and
Preferred Preferred Stock and Warrants
Stock Stock Exercise of Converted
Benefi- % of Benefi- % of All Options to
Name cially Series cially Series G and Warrants Common
Owned(1) F Class Owned(1) Class Outstanding(1) Stock(3)
-------- ----- -------- ----- -------------- --------
Gregory
Earls(4) 10,119.77(7) 37.0% 1,000.5(8) 24.4% 38,061,361 18.0%
Jonathan
Ledecky(9) 26,320,923 12.4%
Northwood
Ventures
LLC(10) 25,426,209 12.0%
Sommerville
Trust(11) 18,759,879 8.9%
USV
Partners,
LLC(12) 10,119.77(7) 37.0% 18,741,516 8.8%
KMF
Partners(13) 12,056,150 5.7%
James V.
Warren(15) 6,824,816 3.2%
The Carlyle
Group(14) 825.962 8.6% 8,683,631 4.1%
Northwood
Capital
Partners
LLC(10) 3,547,085 1.7%
Microdent
Ltd(19) 2,698.61 9.9% 2,994,359 1.4%
L-A & A
Gift Trusts
II(11) 2,844,812 1.3%
Beth
Dozoretz(20) 200.0 4.9% 1,883,333 *
China
Develop-
ment(22) 1,686.63 6.2% 1,871,473 *
Billy
Prince 1,280,156 *
William H. 893,448 *
Webster(23)
George J. 784,893 *
Mitchell(25)
Peter G. 775,000 *
Schiff(27)
Arthur J. 719,828 *
Maxwell(29)
Henry T. 500,000 *
Wilson(31)
Rick Legge 500,000 *
All directors
and
executive
Officers
as a
group(34)10,120 37.0% 1,200.5 29.2% 50,942,679 24.0%

* Constitutes less than 1% of the Company's class of, or fully-diluted, stock as applicable.

(1) "Beneficial Ownership" includes shares for which an individual, directly or indirectly, has or shares, or has the right within sixty (60) days to have or share, voting or investment power or both. Beneficial ownership as reported in the above table has been determined in accordance with Rule 13d-3 of the Exchange Act, however, all options awarded through March 31, 2002 are included without regard to Rule 13d-3.

(2) The percentage of ownership reported for each person, entity or group appearing in this column is based on the 142,696,221 shares of Common Stock outstanding as of March 31, 2002, plus shares of Common Stock issuable upon the exercise or conversion of all outstanding options and warrants. Assuming such exercises and conversions, the Company would have 164,660,948


shares outstanding.

(3) The percentage of ownership reported for each person, entity or group appearing in this column is based on the 142,696,221 shares of Common Stock outstanding as of March 31, 2002, plus shares of Common Stock issuable upon the exercise or conversion of all outstanding options and warrants and the conversion of all shares of Series A, Series F and Series G Preferred Stock. Assuming such exercises and conversions, the Company would have 211,871,853 shares of Common Stock outstanding.

(4) Mr. Earls is the Chairman and Chief Executive Officer of the Company.

(5) This amount includes the following shares which may be deemed to be beneficially owned by Mr. Earls: (i) 500,000 shares issuable upon the exercise of warrants held directly by The Earls Family Limited Partnership; (ii) 86,207shares owned directly by Equitable Production Funding, Inc.; (iii) 4,700,000 shares issuable upon the exercise of stock options issued to Mr. Earls under the Company's 1999 Stock Option Plan, as amended (the "1999 Plan"); and (iv) 8,621,746 shares of Common Stock held by USV Partners, LLC ("USV"). Mr. Earls is the sole member of USV Management, LLC, the manager of USV, and an investor in USV. For purposes of Rule 13d-3 of the Securities Exchange Act of 1934, Mr. Earls may be deemed to be the beneficial owner of all shares owned by USV. Mr. Earls disclaims beneficial ownership over the shares of Common Stock held directly by USV, except for an amount of such shares held by USV represented by Mr. Earls' pecuniary interest therein.

For purposes of Rule 13d-3 of the Securities Exchange Act of 1934, Mr. Earls may be deemed to be the beneficial owner of all shares owned by The Earls Family Limited Partnership and Equitable Production Funding, Inc. because Mr. Earls owns all of the capital stock of Equitable Production Funding, Inc. and controls The Earls Family Limited Partnership.

(6) Such shares of Series A Preferred Stock are convertible into 4,260,360 shares of Common Stock.

(7) Such shares of Series F Preferred Stock are convertible into 10,119,770 shares of Common Stock. The amount shown includes 10,119,770 shares of the Company's Series F Preferred Stock, which are convertible into 10,119,770 shares of Common Stock, held directly by USV. Mr. Earls is the sole member of USV Management, LLC, the manager of USV, and an investor in USV. For purposes of Rule 13d-3 of the Securities Exchange Act of 1934, Mr. Earls may be deemed to be the beneficial owner of all shares owned by USV. Mr. Earls disclaims beneficial ownership over the shares of Common Stock held directly by USV, except for an amount of such shares held by USV represented by Mr. Earls' pecuniary interest therein.

(8) Such shares of Series G Preferred Stock are convertible into 6,670,000 shares of Common Stock.

(9) Mr. Ledecky's address is c/o U.S. Technologies Inc., 1130 Connecticut Avenue, NW, Suite 700, Washington, D.C. 20036.

(10) Northwood Ventures LLC's and Northwood Capital Partners LLC's address is 485 Underhill Boulevard #205, Syosset NY 11791-3491. These entities will be referred to herein together as "Northwood" and may be deemed to be a "group" for purposes of Rule 13d of the Exchange Act.

(11) Sommerville Trust and L-A & A Gift Trusts II address is 1919 Pennsylvania Ave. NW, #725 Washington, DC 20006. These entries may be deemed to be a "group" for purposes of Rule 13d of the Exchange Act.

(12) USV's address is 3421 Prospect St., Washington, D.C. 20007.

(13) KMF Partners address is 1270 Avenue of the Americas, New York, NY 10020.

(14) The Carlyle Group holds these shares through CIPE Investment I, L.P. and its address is 57 Berkeley Square, London, W1X5DA, United Kingdom.

(15) Mr. Warren is a director of the Company.

(16) This amount includes: (i) 4,698,302 shares of Common Stock that are owned directly by Mr. Warren, and (ii) 1,850,000 shares of Common Stock issuable upon the exercise of stock options issued to Mr. Warren under the 1999 Plan.

(17) Such shares of Series A Preferred Stock are convertible into 276,514 shares of Common Stock.

(18) This amount represents warrants to purchase shares of Common Stock.


(19) Microdent Ltd.'s address is Technology Park, Manhat, 91487, Jerusalem, Israel.

(20) Ms. Dozoretz is a former director of the Company who resigned in April 2002.

(21) This amount includes: (i) 116,666 shares of Common Stock issuable upon the exercise of presently exercisiable vested options (ii) an additional 233,334 shares of Common Stock issuable pursuant to options which have not vested, and (iii) 200,000 shares of Common Stock owned by her husband. The options were received as compensation for service on the Company's board of directors.

(22) China Development Industrial Bank Inc.'s address is 9 F 125 Nanking East Road, Section 5, Taipei 105, Taiwan.

(23) Judge Webster is a director of the Company.

(24) This amount includes: (i) 130,000 shares of Common Stock issuable upon the exercise of presently exercisable vested options; (ii) 656,667 shares of Common Stock issuable upon the exercise of options which have not vested; and (iii) 103,448 shares of Common Stock. The options were received as compensation for service on the Company's board of directors.

(25) Senator Mitchell is a former director of the Company who resigned in April 2002.

(26) This amount includes: (i) 125,000 shares of Common Stock issuable upon the exercise of presently exercisable vested options; (ii) 625,000 shares of Common Stock issuable upon the exercise of options which have not vested, and (iii) 34,893 shares of Common Stock. The options were received as compensation for service on the Company's board of directors.

(27) Mr. Schiff is a former director of the Company who resigned in April 2002. Mr. Schiff is the president of both Northwood Ventures LLC and Northwood Capital Partners LLC. For purposes of Rule 13d-3 of the Securities Exchange Act of 1934, Mr. Schiff may be deemed to be the beneficial owner of these shares.

(28) This amount includes: (i) 133,333 shares of Common Stock issuable upon the exercise of presently exercisable vested options and (ii) 641,667 shares of Common Stock issuable upon the exercise of options which have not vested. Such options were received as compensation for service on the Company's board of directors.

(29) Mr. Maxwell is a director of the Company.

(30) This amount includes: (i) 125,000 shares of Common Stock issuable upon the exercise of presently exercisable vested options; (ii) 250,000 Shares of Common Stock issuable upon the exercise of options which have not vested, and (iii) 344,828 shares of Common Stock. The options were received as compensation for service on the Company's board of directors. The shares are held directly by Affordable Interior Systems. Mr. Maxwell is the President and Chief Executive Officer of Affordable Interior Systems. For purposes of Rule 13d-3 of the Securities Exchange Act of 1934, Mr. Maxwell may be deemed to be the beneficial owner of these shares. However, Mr. Maxwell disclaims beneficial ownership of any of the shares owned by Affordable Interior Systems.

(31) Mr. Wilson is a former director of the Company who resigned in April 2002. Mr. Wilson is a managing director of both Northwood Ventures LLC and Northwood Capital Partners LLC. For purposes of Rule 13d-3 of the Securities Exchange Act of 1934, Mr. Wilson may be deemed to be the beneficial owner of shares held by Northwood.

(32) This amount includes: (i) 125,000 shares of Common Stock issuable upon the exercise of presently exercisable vested options and (ii) 375,000 shares of Common Stock issuable upon the exercise of options which have not vested. Such options were received as compensation for service on the Company's board of directors.

(33) This amount includes 500,000 shares of Common Stock issuable upon exercise of options which have not vested.

(34) Includes the shares described in all footnotes above relating to directors and executive officers. There were no other executive officers of the Company as of December 31, 2001.

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Recent filings: Aug 07, 2001 (Annual Rpt) | Aug 07, 2001 (Qtrly Rpt) | Aug 20, 2001 (Qtrly Rpt) | Aug 22, 2001 (form8-K) | Nov 14, 2001 (Qtrly Rpt) | Nov 20, 2001 (form8-K) | Apr 15, 2002 (form8-K) | Apr 16, 2002 (Annual Rpt) | May 01, 2002 (form10KSB/A) | May 21, 2002 (Qtrly Rpt) | Jul 23, 2002 (form8-K) | Aug 05, 2002 (form8-K)
More filings for USXX.OB available from EDGAR Online | Get a Free Trial to EDGAR Online Premium
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Apparently George Mitchell, (the Verner, Lipfert
Tobacco man; Beth Dozoretz, one of those innocent
victims in the pardon's investigation; Alexander
Haig, and the Carlyle Group, and the Mysterious
Northwood Partners are all tied together

Posted by: narciso on November 3, 2002 11:04 AM
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