Providing a satisfying ending for an otherwise dismal week for PricewaterhouseCoopers, Donald Nicolaisen, a PwC senior partner, has been picked as the Securities and Exchange Commission’s chief accountant.
Earlier this week, the SEC separately barred two former PwC audit partners, Richard Scalzo and Warren Martin, from practicing as accountants.
Landing a partner in the important SEC chief accountant slot is sure to dispel some of the glumness at the giant accounting firm. For his part, Nicolaisen will take charge of the SEC’s accounting policy programs. He’ll also lead the commission’s work with national and international standard-setters on accounting and auditing issues, the SEC said. Those efforts including international convergence and efforts to adopt principles-based accounting standards, the SEC.
Nicolaisen will also work closely with the Public Company Accounting Oversight Board (PCAOB). His counterpart at the oversight board, Douglas Carmichael, has been called a stern critic of the auditing profession.
Nicolaisen joined PwC’s predecessor, Price Waterhouse in 1967, and between 1988 and 1994 led the firm’s national office for accounting and SEC services.
During that time, he was also a member of the Emerging Issues Task Force of the Financial Accounting Standards Board. He later chaired PW’s financial services practice for broker-dealers, investment banking, mutual funds, banking, insurance, and real estate.
“Throughout his distinguished career, Don has been a powerful agent of change whose leadership has helped identify, build consensus around and accomplish strategic objectives toward high quality corporate financial reporting and disclosure,” said SEC chairman William Donaldson, in a statement.
Change Comes to the 500 Club
When Medco Health Solutions is spun off from Merck next week, the pharmacy benefits management company will not only become an independent company. It will instantly join the exclusive Standard & Poor’s 500 club.
On Wednesday, the rating agency said Medco will replace McDermott International because of the slippage of the oil-services firm’s market capitalization, which has dipped below $300 million.
S&P’s decision probably didn’t come as a shock to Nicholas Gulden and Steven Kreichman, Citigroup traders who track index changes. They recently published a report predicting that nine U.S. companies valued at less than $1 billion would be evicted from the widely-followed index, singling out McDermott as the least-valuable S&P 500 member.
Now, that’s not exactly a regular event at S&P. The rating agency has turned over its index just seven times so far this year. On average, S&P changes companies in the index 25 times per year.
In contrast, the biggest massacre took place in December 2000, when seven companies disappeared from the index in two days.
How important is it to be included in the S&P 500 index? Each time a company is added, the managers of S&P 500 mutual and institutional funds must buy the stocks of the new members and sell the shares of the dumped companies. There is currently about $900 billion in S&P 500 mutual funds.
Another $1 trillion or so is invested in mutual funds that try to track the movement of the index and are influenced by changes. But those funds are not required to buy or sell shares as a result, according to the Investment Company Institute, a trade association.
Other top candidates to join the S&P 500 include biotech company Gilead Sciences Inc., and M&T Bank Corp., the biggest members of the S&P MidCap 400 Index, a benchmark for companies less valuable than those in the S&P 500, according to Citigroup. The two companies have market values of $12.5 billion and $10.3 billion, respectively, which would place them among the top 200 of the S&P 500.
Other possibilities include software developer BEA Systems Inc. and finance company CIT Group Inc., according to Leo Guzman, president of Guzman & Co., which tracks the S&P 500 closely, in a published report. They are each valued at about $5 billion and aren’t in any of S&P’s benchmark indexes.
The other S&P 500 companies valued at less than $1 billion are Allegheny Technologies, Goodyear Tire & Rubber Co., Tupperware Corp., CMS Energy Corp., Thomas & Betts Corp., Power-One Inc., Parametric Technology Corp., and Visteon Corp.
SEC Launches Probes
The SEC is investigating Cinergy, the Cincinnati-based power company, and New York City-based insurer MetLife, according to the companies.
Cinergy said it received subpoenas from two U.S. securities regulators seeking information about trading activity with one of its counterparties.
The company said in the second quarter it received initial and follow-up subpoenas from the SEC. In July, Cinergy received a subpoena from the Commodity Futures Trading Commission (CFTC).
“The CFTC request seeks certain information regarding our trading activities, including price reporting to energy industry publications,” the company stated in its quarterly filing. “The CFTC seeks particular information concerning these matters for the period May 2000 through January 2001 as to one of Cinergy’s employees.”
Cinergy placed the employee on administrative leave, according to company officials. Cinergy is continuing its review and intends to fully cooperate with the CFTC and SEC, they said.
MetLife reported in its quarterly filing that the SEC launched a formal investigation of New England Securities Corp. (NES), a mutual fund unit and indirect subsidiary of New England Life Insurance Co.
The SEC began its probe after NES informed the SEC that certain systems and controls relating to one NES advisory program were not operating effectively.
NES is cooperating fully with the SEC and is continuing to research the possible effect of the issue on about 6,000 active and closed accounts, MetLife officials added.
The NES administrative system for this advisory program did not correctly rebalance asset allocations within certain investment manager accounts, company officials confirmed.
MetLife officials said the company intends to make affected clients whole and estimates a pre-tax cost of between $3 million and $11 million to do so. Company executives believes the company is adequately reserved for the matter.
The Metlife news comes just a few days after its representatives said it will restate second quarter after-tax earnings by $31 million. The announcement came barely a week after it reported second-quarter results. The restatement is aimed at adjusting results from certain improperly deferred expenses at its New England Financial unit.
In other SEC investigative news, the commission settled charges against the former CFO and another top executive at W.R. Grace’s Health Care Group over alleged earnings manipulation during the 1990s.
A. Miles Nogelo, the former CFO of National Medical Care, and Constantine L. Hampers, former CEO of NMC and a Grace director, agreed to a cease-and-desist order without admitting or denying the Commission’s findings.
The SEC accused the pair of using reserves to manipulate quarterly and annual earnings of W.R. Grace and NMC. Although Grace’s auditors issued unqualified opinions, the reserves didn’t comply with Generally Accepted Accounting Principles, the Commission added.
Earlier this year, two Price-Waterhouse partners involved in the audits of Grace’s financial statements consented, without admitting or denying the SEC’s findings, to the entry of cease-and-desist orders against causing any future violations.
In other regulatory news, executives of Arden Group, the parent company of Gelson’s Markets food store chain, said the group notified federal regulators it will delay the filing of its quarterly report. The executives say the company needs the extra time to complete its review of the prior and current accounting treatment of its rental expenses involving some leases with increasing base rentals.
Merrill Lynch Names New Treasurer
Russell Stein, a Merrill Lynch managing director, will become the firm’s new treasurer, according to an internal memo obtained by Reuters on Wednesday.
Stein’s appointment must be approved by Merrill’s board, according to the wire service.
Stein joined Merrill in 1994 and succeeds John Stomber, who left the firm in late July for personal reasons.
Stein’s appointment was reportedly announced in a memo to Merrill’s staff by CFO Ahmass Fakahany, who has been interim treasurer since Stomber’s departure.
Stein will oversee all treasury functions. Those include bank relations, corporate finance, funding and liquidity management, structured transactions, and foreign-exchange management, according to Reuters’ account of the memo.
Most recently, Stein led the financial institutions team within the corporate finance group at Merrill’s investment banking unit, according to the memo. Stein has had regular contact with treasurers and CFOs of multinational banks, insurance companies, and asset management firms, and worked with rating agencies and regulators, it also noted.
Resigned to Their Fate
In the past few days, at least two CFOs at other companies abruptly resigned their posts.
Ernie Thomas resigned as CFO at Tower Automotive. The company gave no reason.
Thomas joined Tower as CFO in November 2002. His resignation came two weeks after Tower named Kathleen Ligocki as its new president and chief executive. She replaced Dugald Campbell, who retired.
CFO Steve Feldman Thursday stepped down from clothing retailer Urban Outfitters to pursue other interests. The announcement was buried at the bottom of a long press release detailing the company’s quarterly results.
Officials at Footwear Vans , which sells footwear geared to surfers and skateboarders, said Scott Blechman will replace Andrew Greenebaum as CFO as of Aug. 30.
Company officials said Greenebaum has decided to leave for personal reasons. Blechman has served as vice president of finance at Vans since July 2001 and controller since September 2002.
- BearingPoint will restate its financials for the first three quarters of fiscal 2003 because of acquisition-related and other accounting adjustments. The acquisition-related adjustments mainly involve the company’s reassessment of previous allocations to identifiable intangible goodwill and later restructuring charges related to a number of acquisitions during fiscal year 2003.
- Watson Wyatt postponed reporting its fourth-quarter and fiscal 2003 results after it discovered what the company called “certain billing irregularities.” Officials of the benefits consulting firm believe the irregularities don’t exceed $2 million and affect fewer than five clients.
- Lockheed Martin raised $1 billion from issuing 30-year floating-rate convertible bonds in the private-placement market. That was $150 million more than it had planned. Officials said the company intends to use the proceeds for general corporate purposes, which may include purchases, capital expenses, or debt reduction.