Kanjorski Introduces Bill To Close Madoff Loophole

Kanjorski Introduces Bill To Close Madoff Loophole - 3/2/2009

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Kanjorski Introduces Bill To Close Madoff Loophole
Ben James

Securities Law 360. March 2, 2009
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EXCERPT: Rep. Paul Kanjorski, D-Pa., has introduced a bill that would give the Public Company Accounting Oversight Board authority to inspect and discipline the auditors of all broker-dealers — not just public broker-dealers — which the congressman said would close a loophole that helped accused fraudster Bernard Madoff avoid detection. Kanjorski, chairman of the House financial services subcommittee on capital markets, insurance and government sponsored enterprises, introduced the legislation Thursday. The bill, H.R. 1212, would amend the Sarbanes Oxley-Act of 2002, broadening the PCAOB's power to cover auditors of private broker-dealers. SOX created the PCAOB and followed scandals at publicly traded companies such as Enron Corp. Currently, auditors of all broker-dealers must register with the PCAOB, as a result of a decision late last year from the U.S. Securities and Exchange Commission, Kanjorski said. But absent the provisions of H.R. 1212, only public broker-dealers are subject to PCAOB disciplinary action. The lack of oversight helped Friehling & Horowitz, a small auditing firm used by Madoff's company, avoid inspection and enforcement by the PCAOB, which could have mitigated the losses suffered by the victims of the alleged fraud, according to Kanjorski. "If this legal loophole had not existed, Bernard Madoff's storefront auditing company would have had to register with the PCAOB. Inspection and examination of Mr. Madoff's accountant by the PCAOB could have identified his Ponzi scheme much earlier," Kanjorski said. The bottom line is that H.R. 1212 would give PCAOB the same authority to regulate auditors at private and public broker-dealers, said Michael Zuppone, chair of the securities and capital markets group at Paul Hastings Janofsky & Walker LLP. It appeared that the bill would upgrade oversight and have a positive impact, according to Zuppone.

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