The plaintiffs in the case are not bringing SOX before the court for the reasons many accountants might think: to challenge Section 404, a short section which places considerable burden on accountants and their clients.  Instead, the plaintiffs, a small accounting firm along with the Free Enterprise Institute, state that the PCAOB created by SOX is unconstitutional based on the separation-of-powers principles.  The issue is whether the Board is consistent with separation-of-powers principles because the SEC oversees the PCAOB, as well as appoints its board members.  The President has no power to intervene in anything the PCAOB does, contrary to the Appointments Clause of the Constitution.

There is an underlying issue in the case though.  According to CFO.com, if the Supreme Court does find the PCAOB unconstitutional, many people are wondering if the courts will revisit the entire SOX Act.  Many free-market economists have blamed the undue burden caused by SOX as the reason why the United States is losing its position as the dominant global capital market.  Particularly, these burdens are the additional fees imposed by the PCAOB as well as its interpretation of internal controls outlined by Section 404 of SOX.

As a former auditor spending summers billing clients to conduct SOX internal control testing, I personally can attest to the cost and amount of burden SOX imposes on public companies.  If the Court decides that the PCAOB is unconstitutional, and the lower courts revisit Sarbanes Oxley, there could be broad implications for the accounting profession and business world in general.  The Court is scheduled to hear arguments on December 7.

Fox New’s Marketwatch

It’s interesting because you always hear people musing that it was the Las Vegas housing market that was hit the hardest or that it was Michigan that took the toughest  blow.  How can all these places be hit the hardest, be suffering the most? Clearly, it’s comparing the lesser of evils.  Doing a quick Google search of “Michigan Housing Market” a majority of the hits have the theme of despair. For example, some hits were entitled: “When will Michigan Housing Recover, are we near bottom yet”?” “Why Michigan House Values keep falling (and falling).” The same type of theme comes up when the same search is done for Las Vegas.

So it is a scary thing to hear that a winner has been declared as having the worst mortgage problems, because if there is a state that has a higher foreclosure rate than those states that immediately come to mind in terms of high foreclosure rates, the bottom may be lower than we thought.

However, maybe we shouldn’t be so quick to blame the developer.  This could be just another loan gone wrong.  Another time the banks and other lenders overextended themselves to debtors, a mirror of the imploded housing market.  We will have to wait and see if banks begin to foreclose on other development projects to know if this is a fluke or if it’s the begining of a trend towards a burst in the commerical real estate bubble.

As most Americans continue to grimace at the mere mention of the words ‘economic crisis’ and ‘current job market’, looking abroad may provide solace for some.  Eighteen years ago the Soviet Union fell, transforming Eastern Europe into a playground for the world’s most daring capitalists.  The recent global economic crisis, however, has intensified an already tumultuous situation by highlighting glaring weaknesses in the policies of many of Eastern Europe’s most powerful governments.

At the forefront of challenges for many Eastern European countries has been the development of small and medium sized enterprise (SME).  In Russia, with the exception of its financial crisis in 1998, the 1990’s and early 2000’s proved to be a relatively successful transitional period from Communism.  The prosperity in Russia, however, was not fueled by exceptional leadership or insightful policies, but rather piggy-backed on a surging global economy thoroughly dependant on oil and natural gas.  Russia’s government, rather than fully developing its SMEs, benefited from the incredible success of Russian companies like Gazprom, the world’s largest extractor of natural gas.  The Russian government also happens to be the majority shareholder in Gazprom.

By year’s end, the European Bank for Reconstruction and Development estimates that the GDPs of Latvia, Ukraine, and Russia will have shrunk by 16%, 14%, and 8.5% respectively.  According to the United Nations’ World Economic Situation and Prospects 2009, the United States GDP is expected to contrast by 3.5% in 2009.  This decline of 3.5% will occur in a country that has proven itself financially resilient, thriving on capitalistic policies since its inception.  By contrast, Eastern European countries, which have had less than two decades to develop sound, market oriented policies, are experiencing double digit declines in GDP.

While economists and laymen alike generally agree that the market in the United States is set to rebound sometime in the near future, such cannot be said with certainty in Russia and many other Eastern European countries.  Even during the years of relative economic prosperity and growth, these countries relied on massive natural resource reserves and dated economic policies.  If drastic changes are not made soon, including the promotion and support of SMEs, this economic crisis could prove to be more than just a hiccup for many of Eastern Europe’s most powerful players.

Exhibit A is the decision by Jed Rakoff, a federal judge in New York, to reject the $33 million settlement Bank of America had reached with the Securities and Exchange Commission over disclosures, or lack thereof, surrounding the Merrill deal, including potential bonus payments to the firm’s bankers. Simply put, he wanted names to be named. He also wanted to know more about the legal advice the bank had received.

Exhibit B is Andrew M. Cuomo, the New York attorney general. His opportunistic strikes, including threats to charge bank bosses including Mr. Lewis, have helped persuade the bank to make an about-face, the publication argues. For months, the bank insisted it wouldn’t release the legal advice it had relied on. This week, it decided it would.

Law firm Wachtell, Lipton, Rosen & Katz was the main advisor for the Merrill Lynch deal.

While there it is not clear whether Wachtell’s advice “departed from the norms of previous financial sector mergers” or that the bank’s in-house counsel acted outside of the scope of Wachtell’s advice, it would be a disaster if either of these scenarios turned out to be true.

CNN reports that two victims’ of Madoff filed suit in the New York District Court against the SEC for negligence in failing to protect investors like themselves. The lawsuit in relevant part read “Through its negligent actions and inactions … the SEC caused Madoff’s scheme to continue, perpetuate and expand, eventually in billions in losses by investors, and directly caused [the two] plaintiffs to lose more than $2.4 million.”  The suit also claims that the SEC had many opportunities to stop the Ponzi scheme, citing at least eight times where the SEC received complaints or submissions indicating the existence of a ponzi scheme.  Due to this negligence, the victims claim the SEC should compensate the victims.

The victims are justified in their pursuit.  Although it was ultimately the investors decisions  to invest, they were falsely led to believe that Madoff’s business was in compliance with SEC rules.  Who knows if they would have chosen not to invest if Madoff was not in compliance.  Who knows if the victims even checked.  Whatever the case may be, they lost a lot of money and it could have been prevented by the very agency that is being sued.  If the SEC was really warned on eight separate occasions about the potential for a ponzi scheme, the expression “burn me once shame on you, burn me twice shame on me” should be updated to “warn me once with  no reaction-shame on me, warn me SEVEN other additional times and no reaction, sue me for negligence.”

Howard Tullman is the immediate past President of Kendall College, which he recently sold to Laureate Education. Now, Mr. Tullman serves as CEO of Flashpoint, digital media arts college. After practicing law for ten years,  Mr. Tullman changed routes and has founded or served as CEO or Board Chairman of nine companies and as a director and/or adviser to many other early-stage companies. In addition to teaching at Northwestern’s Kellogg Graduate School of Management, Mr. Tullman is the General Managing Partner of Chicago’s High Tech Investors, LLC, Director of the Cobalt Group and Passage Events, both located in Seattle. Mr. Tullman graduated, with honors, from both Northwestern University and Northwestern University School of Law.

Victoria Noonan is the Managing Director of Leasing for Tishman Speyer Properties, responsible for supervising and coordinating the company’s leasing efforts for the Chicago portfolio. Tishman Speyer is one of the leading owners, developers and managers of first-class real estate in the world. In Chicago, Ms. Noonan manages leasing efforts for eleven high-rise buildings in the area, including the Civic Opera Building. Ms. Noonan graduated from DePaul University in 1980 and received her J.D. from Chicago-Kent in 1984.

After practicing as a commercial real estate attorney at Katten Muchin Rosenman LLP and, thereafter, at Greenberg Taurig LLP, Dustin Cahan left his practice to become the Chief Operating Officer of Evaporcool Solutions, LLC, a “green” technology venture. Mr. Cahan, who is 29, oversees the development and manufacturing of a sophisticated cooling solution, which reduces energy and maintenance costs of air conditioning equipment. Mr. Cahan obtained his B.A. in economics from Northwestern University, and thereafter his J.D. from Northwestern University School of Law.

The event will convene at 12:00 p.m. in Room 270. Pizza and refreshments will be served.

If you’re unhappy with overdraft charges or upset with the fact that you had to buy all new checks when your bank went under, you’re suprisingly in the minority.  An online survey by Digital Insight reported by Pacific Business News revealed that people are happy or very happy with their current bank.  The results were reached by polling both individuals and small businesses.  On a whole, people and businesses felt secure in their current bank’s stability.  Maybe people feel secure and content is because they have no choice in where they can bank.  With a lot of community banks closing and large banks like Wamu going under, people have little choice in where to bank.  In Chicago you have to trek halfway across the city to find a non-Chase ATM.  Just last week, the local bank on my corner was taken over by the feds leaving my community with even less options in banking than they had the week before.  It seems that the banks that have survived know that customers have little choice and take advantage of the situation.  Overdraft fees have gone up and free checking seems a thing of the past.

The company who performed the survey felt differently saying that during this economic strain, ““Financial institutions have an unprecedented opportunity to seize this moment and provide the tools and services that their customers and members want and need.”  Clearly, the surveyor’s opinion has not been heard by the banks yet, and when they do get the poll results, I think the banks will do nothing to improve service.  After all, if people are already so content  why should the banks even try?

Good morning Chicago, it’s Monday October 5^th and in the retail business world this means that holiday shopping is upon us. The Wall Street Journal reported today that retailers and analysts are anxiously awaiting the September sales reports due this Thursday from “key store chains” to see if they need to adjust their already gloomy holiday sales forecasts. Large chains, such as Wal-Mart are already advertising big savings for the early birds – including 100 toys priced at $10. And, we can all bet that Best Buy will be promoting similar deals on all sorts of electronics. So, get ready all you bargain shoppers and recessionistas, this is another great year for you! Be sure to put your wish lists together early because it’ll be another mad dash to the registers this year for everything is “while supplies last.”

We are only a day away from the long awaited International Olympic Committee’s selection of a host city for the 2016 Summer Games. As the city wide excitement continues to grow, reality also seems to be setting in. Up to date there have been a lot of mixed emotions about bringing the games to Chicago.  Chicago residents have been torn between the feelings of pride and honor associated with hosting the Games, yet tension is running high as to how exactly the city will afford such a feat. Mayor Daley has confidently stated, “Tax money isn’t paying for it. There’s no tax money whatsoever…We are very strong in that position … in the regard to having that be sponsored by the private sector and others.” And, the 2016 Olympic bid committee has repeatedly assured that the $4.8 billion estimated cost would be paid for with contributions from wealthy donors, corporate sponsorships, television rights and ticket sales to ceremonies and sporting events. But, can the local government be trusted not to use the public taxpayer’s money to put on the Games?  I, for one, would be proud to have the Olympics in Chicago, but at what cost?  These questions will be answered in the coming weeks and months, but for now we hold our breaths praying for a good tomorrow…