June 05, 2006

Lessons Learned from the Fannie Mae Settlement

I held off blogging about Fannie Mae's agreement to a $400 million fine - as reflected in this SEC press release and Fannie Mae press release - until I got a chance to read the 348-page OFHEO report. Here is a summary of the report - and the related OFHEO settlement agreement.

My first thought in reading the OFHEO report was to compare it with Richard Breeden's "Restoring Trust" WorldCom report - which is now three years old. The Breeden report seemed so novel at the time; the Fannie Mae report is also fascinating, but not as shocking since we have all read so many of these things by now.

To get some guidance on what boards should not do, I recommend focusing on pages 287-330 of the OFHEO report; here is a smattering of the many lessons from the report that I found worth considering:

1. Boards should question any fast-tracked settlement of whistleblower claims (pg. 281 of the PDF)

2. Any failure of the audit committee is also a failure of the Board (p. 283)

3. Boards should ensure the audit committee charter doesn't limit the ability of the audit committee to challenge management (p. 293-294)

4. Audit committees should actively oversee the internal audit department, including ensuring that the internal auditor's compensation is not tied to corporate performance (p. 296-298)

5. Compensation committees should ensure that their charter doesn't create a bias in their oversight role (nor should the charter include standard statements that they can't comply with, such as "pay-for-performance" and reliance on stock-based compensation to align management's interests with shareholders) (pg. 310-312)

6. Compensation committees shouldn't allow management to script out their meetings in advance (p. 313)

7. Compensation committees shouldn't allow the CEO to influence which independent compensation consultant they hire (p. 314)

8. Boards need to stay informed about the corporate strategy (p. 315)

9. Boards need formal policies as to how (and when) to approve large transactions and if (and when) management needs to inform directors about them (p. 319)

10. Boards need to act fast in a crisis, including launching an independent investigatons (p. 324-329)

Here are some joint remarks from SEC Chairman Cox and the head of the OFHEO - and the SEC's litigation release and complaint.

SEC Historical Society's Annual Meeting

Check out tomorrow's SEC Historical Society annual meeting, which includes this free webcast program: "Who's Counting? The Critical Role of Financial Reporting in the Capital Markets."

Growing Importance of Computer Forensics in Litigation

In this podcast, Stephanie Weiner, Director of Computer Forensics in BDO Seidmanís Litigation & Fraud Investigation practice, provides some insight into why computer forensics will begin to play an even greater role in trial preparation (ie. beginning December 1, 2006, when new Federal Rules of Civil Procedure go into effect) as new rules require parties to discuss issues pertaining to discovery of electronically stored information (ESI) at the initial rule conference, including:

- What is ESI, and what role does it play in court cases?
- What questions should you ask to determine if ESI is accessible or non-accessible?
- How can computer forensics assist in establishing a timeline to comply with electronic discovery requests?
- What is the impact of electronic discovery on budgets and what are some ways to minimize cost?

Posted by broc at 05:47 AM
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