SEC’s Taub Warns On Structured Transactions

The SEC continues to cast a jaundiced eye on structured transactions. If there's no economic purpose, then "don't be involved," acting SEC chief accountant Scott Taub told companies yesterday.

Acting SEC chief accountant Scott Taub was as tough on issues involving off-balance-sheet financing and other types of “structured” transactions as he was on internal controls at yesterday’s financial reporting conference at Baruch College. Taub said the SEC continued to take a hard line on “accounting-driven transactions,” which he defined as those intended primarily to produce an accounting or reporting result instead of an economic one.

While admitting that such a distinction might be legally hard to draw, he borrowed former Supreme Court justice Potter Stewart’s characterization of pornography in observing, “You know it when you see it.”

Taub went on to note, “If you get a pitch book (from a third party) that says on the cover that the deal is designed to get equity treatment under FAS 150, then that’s a pretty good clue.” Added Taub: “That’s an actual pitch book I’ve seen.”

In fact, he complained that the issue of accounting-motivated transactions “continues to be a problem,” and advised companies that take part such activity to “get out — don’t be involved in it,” warning that, like former chief account Don Nicolaisen before him, if he sees “a deal that is not based on economics, I’ll tell you to restate.”

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