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| 2001 News and Press Releases |
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HEADLINE ARCHIVED:
The Private Securities Litigation Reform Act: Panacea Or Pandora's Box For Accounting Firms
By: Wayne J. Baliga
The Ohio CPA Journal. Monday, October 1, 2001
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Excerpt: In a comprehensive two-year study of the direct and indirect cost of occupational fraud, the Association of Certified Fraud Examiners estimated that the average organization loses more than $9 a day per employee to fraud and abuse.1 The report further estimated that fraud and abuse cost U.S. organizations more than $400 billion annually. This fraud and abuse combined with the increased number of mergers, takeovers, private and public offerings has created an environment in which the use of equity and debt to finance these transactions has drawn increased scrutiny from governmental regulators and private investors. Not a week goes by without the announcement of a major takeover, leveraged buy out, merger or acquisition. Not a month goes by without the discovery of a major securities fraud case. The increased sophistication of these transactions, and the propensity of fraud to occur in furtherance of these transactions, places substantial responsibility on accounting firms that participate in these engagements, to review the financial consequences of these transactions for their clients, and assist in quarterly and yearly compliance with SEC rules and regulations. Although the frequency of securities claims against small and mid-size accounting firms is relatively small, exposure to a single securities claim can lead to tremendous civil damages, punitive damages, penalties and potential criminal sanctions against the firm and its individual members. These penalties coupled with the vigor of Securities and Exchange Commission enforcement creates the potential for a claim that can exceed a firm's assets and insurance coverage. In response to the statistics listed above, Congress, in 1995, passed the Private Securities Litigation Reform Act (PSLRA). This Act has been described as "the most sweeping and comprehensive reform of the nation's securities laws in 20 years."2 Although the Act has received much notoriety for the protection the act offers to securities issuers and their representatives, and the constraints the Act imposes on class action attorneys who seek to litigate against companies for alleged false or misleading statements, the Act imposes significant "whistle blowing" obligations on auditors.
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