When does sloppy financial reporting become sketchy? How many Securities and Exchange Commission deadlines can a company miss before investors (and journalists) start to ask questions?
Maybe the answer to the second question is two, at least if one of the company’s officers is Warren Buffett’s longtime business partner and the vice chairman of Berkshire Hathaway.
I’m talking about Charles Munger, chairman of public California newspaper publisher Daily Journal Corp. In a Bloomberg View post this week, columnist Jonathan Weil pointed out that “Daily Journal’s financial reporting is a mess.” The firm is two quarters late on its financial reports. It just announced that it needed more time to finish its audit and to submit its 10-Q statement for last quarter. And it received a notice Thursday (its second one in the last year) that it’s not in compliance with NASDAQ filing rules.
Weil is troubled by the missed deadlines. He thinks it could also be a “red flag” that Daily Journal CEO Gerald Salzman is the firm’s president, CFO, treasurer, assistant secretary and principal accounting officer, as well as a member of the board. “How one man can do all these jobs by himself is beyond me,” Weil wrote. “Usually the CFO reports to the CEO. Here he’s the same person.” Weil thinks Salzman’s combined roles may be the reason Daily Journal’s audit is taking so long.
Salzman’s role-hopping does have a sort of Dr. Strangelove/Austin Powers/Monty Python quality to it. And it isn’t common at public companies. But investors do sometimes see it at private companies, or at companies that trade on over-the-counter markets.
But Daily Journal trades on the NASDAQ, and it’s bigger than many of the private companies that have a CEO who also acts as CFO. In a news release, the company reported net income for fiscal year 2013 of $3.8 million, and its stock is up 60 percent year-over-year. The stock boost, however, seems to be more tied to Munger’s stock-picking abilities, according to Bloomberg. Since 2008, Munger has reallocated the company’s investments into equities.
It remains to be seen what will happen when Ernst & Young finishes Daily Journal’s audit, and whether Salzman will continue to hold every major role at the company. In a press release today, Daily Journal wrote that it has about a month to submit a plan to NASDAQ detailing how it will regain compliance with the filing rule. It says it plans to meet that deadline. “In any event,” the firm wrote, “the company intends to file the 10-K for fiscal 2013 and the 10-Q for the first quarter of fiscal 2014 with the SEC, and to regain compliance with the NASDAQ rule, as soon as possible after Ernst & Young LLP completes the audits and its review of the first-quarter results.”