Weil on Finance, P.M.: Reverse-Merger Auditor

Jonathan Weil joined Bloomberg News as a columnist in 2007, and his columns on finance and accounting won Best in the Business awards from the Society of American Business Editors and Writers in 2009 and 2010.
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It's Thursday afternoon, View fans, so that means it's time for a dose of links to my latest reading material.

Auditor to the frauds gets whacked

The Securities and Exchange Commission barred Sherb & Co. from auditing publicly traded companies, along with four accountants who worked there. This sure did take a long time. Barron's warned its readers in early 2008 about Sherb and a bunch of other tiny accounting firms that specialized in blessing the financial statements at Chinese reverse-merger companies with laughter-inducing numbers. In Sherb's case, the SEC said the firm and its auditors "falsely represented in audit reports that they had conducted the audits in accordance with U.S. auditing standards when in fact they were riddled with failures and improper professional conduct." So basically they hadn't done real audits, even though they said they had. Another thought: Why does the Public Company Accounting Oversight Board even have an enforcement division? What's the point if the SEC is going to handle cases like this one on its own?

The New York Times Co.'s tax flub

The Times Co. made a stupendously horrible acquisition 20 years ago when it bought the Boston Globe for $1 billion. It recently sold the paper for chickenfeed. And to make matters worse, because of some really dumb tax planning way back when, it left about $60 million on the table, which is almost as much as it sold the Globe for. Even more surprising, mistakes such as this are fairly common. Allan Sloan at Fortune has the story: "The bottom line: When acquirers buy a shiny new toy, they usually fail to structure the deal with a possible future sale in mind. Which, I suppose, makes them ... double dummies."

Speaking of leaving money on the table...

That's the problem with underpricing IPOs, says Dan Primack of Fortune: "The only people who should be thrilled about this are Twitter's bankers, who climbed over the Chinese wall to get a sweet deal for their high-net-worth clients." But c'mon now, really. How is a banker or a magazine writer or anybody else supposed to know if an iconic, profitless company with 230 million users should be priced at 25 times revenue or 50 times? Once the rules of gravity stop applying, there's no telling what some retail Peter Lynch wannabes who want to "buy what they know" (no matter what the price) are willing to pay for it.

The best-case and bear-case scenarios for Twitter

For the first, see Alexis Madrigal's piece today at the Atlantic, who says "Twitter would have a durable position as the most powerful live medium in the post-broadcast TV age." And for the bear case see Derek Thompson, also at the Atlantic, who has a flow chart every retail investor should see. Bottom line: Forget it unless perhaps you have "untraceable inside information about the future of Twitter's mobile and data strategy that nobody else knows." Sidebar: NYSE defeats Nasdaq. Notice there were no disastrous trading glitches today, unlike with Facebook's IPO last year.

A day inside a Chinese mall

It also happens to be the world's biggest building, according to Christopher Beam of the New Republic, who spent a day at the New Century Global Center -- slogan: "The One of Everything" -- and discovered 1.7 million square meters of decadent weirdness: "I stopped the first person I saw, a man in a leather jacket. `Why is it so big?' I asked. He laughed, `How should I know? Chinese corruption maybe?' I wasn't expecting to hear this answer so quickly. It's true, the boss of the company that built the Center has mysteriously disappeared, apparently as part of an anti-corruption sweep."

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To contact the author on this story:
Jonathan Weil at jweil16@bloomberg.net