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Carl E. Person
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Don't Cry for Arthur Andersen - Millions of Americans Lost Their Savings and/or Jobs during AA's Auditing Watch
First Published on 03/28/02; Last Update: 03/29/02 08:50
Subject to the foregoing notice that everything in this website is alleged, this website analyzes the damage done to the economy by Arthur Andersen (AA) and its accounting professionals, officers and directors (collectively the "AA Professional Staff"), and concludes that
- AA and the AA Professional Staff deserve no pity
- the AA Professional Staff was paid more than it deserved for the professional work undertaken and performed; and
- the AA Professional Staff members are not innocent bystanders who should continue in their efforts at siphoning off American savings and the U.S. economy into the pockets of themselves and other financial wrongdoers.
- Introduction and Author's Background
- The Basic Alleged Facts Which I Believe to and Assume Do Exist to Enable Me to Arrive at My Conclusions Below
- The Role of Arthur Andersen
- Cheating Has Become the Occupation of this Country, along with Non-Enforcement and Relaxation of the Rules Designed to Create a Level Playing Field
- Back to Arthur Andersen
- Robinson-Patman Act Violations Were Known but Overlooked for 20 Years or More
- Arthur Andersen Was There from 1981 to the Present and Never Reported a Single RPA Violation While the Related Theft of Business Was Taking Place
- Don't Cry for Arthur Andersen or Its Professional Staff
It might be useful to know that I am a former securities attorney, Wall Street lawyer, inventor, antitrust litigator, author, and creator of this family of websites collectively referred to as www.lawmall.com, and I have an extended business background (having founded, financed and run a business for 18 years, and a law practice since 1968). For the c.v. (resume) of Attorney Carl E. Person, click on Carl Person C.V.
With this background, I see things which no insider has been heard to say. I'm not the only one who sees what is going on, but my clients and I are the only persons I know who are revealing to the public what is taking place. [See list of websites below and their contents.]
Before saying what is happening, I want to set forth some basic alleged facts which I believe are incontrovertible, and are an essential foundation for the discussion to follow these basic facts.
The Basic Alleged Facts Which I Believe to and Assume Do Exist to Enable Me to Arrive at My Conclusions Below
Discovery of something new does not take place in a vacuum. In fact, there is often nothing new. What is new, in many instances, is something which has existed for a long time but has not been recognized for what it is, because of the absence of necessary facts which would lead one to recognize what it really is.
For 30 plus years I have been working with the Robinson-Patman Act and other federal statutes regulating business, such as the Sherman Act, the Clayton Act, and the trademark, copyright and patent statutes.
Also, since 1968 I have been in business either as a self-employed lawyer and/or as the owner and C.E.O. of a business.
My lengthy experience in business as well as the regulation of business makes me fairly well qualified to draw conclusions, and I will admit that some of my conclusions below have been drawn in the year 2002, months of February and March.
The alleged facts needed to draw my conclusions are:
- The economy in the United States is becoming increasingly more concentrated, with the nation's wealth being drawn into the hands of fewer and fewer corporations, and fewer and fewer individuals in charge of such corporations.
- Hundreds of thousands of independent businesses have been and are being put out of business by their inability to compete with large retail chain superstores which have developed as "category killer" superstores since the mid 1980's or so. See my RPAMall website, and especially the Shils Report therein Shils Report - Full Text - The Most Prominent Study of the Devastating Effect of Superstores in the U.S.
- The superstores made demands upon the nation's manufacturers to make rebates to the superstores in 50 to 100 different ways which collectively I refer to as a "DNA Code" for the amount of the rebate, as a reduction from the invoiced price of goods to the superstore. Kuralt/Intimate's RPA Action against Barnes & Noble and Borders, in which discovery disclosed how demands are continually being made, and the Publishers gave Barnes & Noble more than $500,000,000 in 1997 (for in-store display allowances), while B&N's taxable income for the year was only $117 million or so, leading one to the conclusion that superstores are running at huge losses but for the receipt of payments from manufacturers which are in violation of the RPA. Where have you been, AA? Don't you represent any book publishers and want to help them avoid going out of business?
- The independent competitors have no power to obtain such rebates (and most don't even know they are being given to the competing superstores) and wind up paying about 125% to 200% of the superstores' per-unit price for the same goods.
- RPA Action by 143 Auto-Parts Wholesalers/Jobbers against Wal-Mart, Sam's Club division, AutoZone and other auto-parts superstores.
- These rebates to the superstores are in violation of the Robinson-Patman Act and do not have a defense because the existence of the secret DNA Code even makes it impossible for the manufacturers to know the per-unit price at which they are selling goods to the superstores, and the superstores are unable to determine the per-unit price at which they are buying goods from the manufacturers, and therefore cannot prove cost justification or meeting competition in price, or even the costs relating to a functional discount. See DNA Code material in Kuralt/Intimate's RPA Action against Barnes & Noble and Borders.
- Costco is the largest warehouse business in the world, exceeding the business of Wal-Mart's Sam's Club, and since 1984 Arthur Andersen has been the independent auditor for Costo (through fiscal year ending 9/1/02), and is (or should be) aware of the specific per-unit prices at which Costco has been purchasing its products for the past 18 years or more, and that such per-unit prices are lower than the prices for the same goods being paid by smaller clients of Arthur Andersen. See Costco Notice of Annual Meeting of Shareholders for 2002 at Notice of Annual Meeting 2002
- Arthur Andersen's largest publicly-held client is Merck & Company, the world's largest pharmaceutical company (and obviously a company which during the past 20 years has been giving lower per-unit prices to the large chain drug stores than it has been giving to competing independent drug stores), causing thousands of the independents to go out of business. AA said nothing about this price discrimination in its auditor's reports for Merck.
- Arthur Andersen, from 1965 through March 15, 2002, Arthur Andersen has been the auditors for Sara Lee Corporation (a Chicago-based manufacturer and marketer of brand-name products for consumers) which has been sued by various persons for alleged price discrimination favoring large retail food chains at the expense of smaller competing food stores. Through these legal actions, AA has undoubtedly seen the different per-unit prices at which Sara Lee has been selling its consumer products, but has done nothing to report these facts in its report on Sara Lee's financial statements, or to prevent the alleged price discrimination.
- Arthur Andersen in its website puts a question to its clients "Can you price discriminate among customers?" and then advises clients to "Trust our certified public accountants ... PhD. economists to help with antitrust issues".
- Arthur Andersen's help has been to permit price discrimination to take place, without even notifying anyone by footnote in Costco's financial statements that all of Costco's taxable earnings (and more) resulted from the discriminatory per-unit amounts paid to Costco by manufacturers and not paid to Costco's smaller competitors.
- AA also describes its activities as "Providing effective legal advice ... identifying and understanding a client's expectations and having the skills to predict the economic consequences of any solution." I wasn't aware that AA has been licensed to practice law anywhere in the United States.
- Medium-size professional firms have been required to merge with other firms to get to a size large enough to keep the clients which are merging with larger companies and taking their work to larger law firms.
- Price is king, and persons in the United States will shop where the stated or perceived price is lowest, irrespective of the consequences for themselves and others by reason of their propensity, and disregarding such things as the value of their time and the cost of travel to and from the superstores to obtain their "bargains".
- The stock issued by the corporate owners of the nation's leading superstores, all of which are or were publicly-owned, goes up in price in direct proportion to the independent businesses which they put out of business.
- There is no stock market equivalent to watch non-public companies going out of business or selling out to the superstores for 25% of the cost of their inventory, so that the public does not see the cost to these failed businesses, their owners and families, and to the communities providing employees and expecting taxes.
- The public is told that everything is great while the superstore stocks go up, and nothing is said about the offset of loss of America's business, which is losing jobs offshore, and small business, which previously provided about 100% of all new jobs in the United States; some of these losses are noted in passing, as when a famous old company is forced into bankruptcy [by the "more efficient Wal-mart"], but little real analysis is done to see what really happened . One would hope that journalistic integrity would not be compromised by the fact that the press is, itself, in the hands of wealthy corporations. Still, how can any inquisitive reporter fail to see that Wal-mart sells goods to the public at prices which are below the cost of such goods of its competitors when purchasing these same items for resale? Doesn't anyone ever think to ask, or is asking simply discouraged by senior editors and the publishers?.
- The owners of the publicly-traded superstore stock include persons who increasingly have less hope for financial success in a business, profession or employment while watching the comparatively few dollars they have invested in superstore stocks provide their only financial success. Thus, increasingly, the small shareholders of superstore companies are less willing to speak out against their oppressors in the marketplace.
- The superstores, after putting the independent businesses out of business, become the only place where many persons are able to find employment, at salaries which hover at about $6.25 per hour (slightly above the minimum rate of $5.15 per hour, starting 9/1/97), with no overtime, no benefits (because of high, planned turnovers), short work weeks (of about 28 hours, to prevent full-time benefits), and added duties to be met without pay which increases the work week without formal recognition or compensation; and a high rate of welfare payments for such employees because they cannot earn a living wage when working for superstores in their race to the bottom for the U.S. economy and U.S. citizens and residents.
The national chains are given huge benefits by the various governments. The local government gives incentive payments to the developer and chains, including special tax breaks; they provide free upgrading of roads and utilities needed for the new retailing area, and happily rezone old neighborhoods out of existence; the state and federal governments provide badly needed assistance to many who work for the chains (at minimum wage with short work-weeks for no overtime pay or benefits) in the form of food stamps, Medicaid and other social benefits. See my website on how these big-business subsidies are doled out as fraudulent "job development" programs, which do not create jobs, but instead steal jobs from deserving communities through payments directly to the employer, at Job-Theft Website including Complaint [case withdrawn in 9/01 without prejudice].
- The superstores, in exacting discriminatory benefits, force the manufacturers to raise the "suggested list price" of the goods. The competitors must pay a higher per-unit cost, while the chains' per-unit costs remain the same. The chain can then discount heavily from the higher suggested retail price and still make as much as or more per unit than the independent competitor on the same goods. Of course, the price to the public is much higher at the independent competitors' stores, and these competitors must invest more cash to buy the goods at all (while the chains obtain their goods without paying for them until long after they have been resold and the cash collected at the register). When all serious competition disappears in a marketing area, the chains are free to raise prices at will and enjoy enormous profits. Low prices are a temporary condition designed to purchase market share and force legitimate competitors out of business.
- Opportunity and the standard of living for most persons in the United States is declining and has been doing so for many years.
- Persons in America work longer hours, and increasingly so, without any significant improvement of their standard of living; and in fact the longer hours are coincident with a lowering of their standard of living.
- AA's 1,700 partners worldwide earn an average of $514,000 per year (2001 figure) for helping their clients avoid compliance with the Robinson-Patman Act and (presumably) other statutes regulating competition. [Average earnings reported in Atlanta Business Chronicle, 1/25/02, print edition, in article entitled "Andersen's day of reckoning".
- In its website, AA states "There are more than 125 private supermarket chains [in the United States] with sales between $100 million and $500 million," "They're in a tough environment, being up against these huge retailers. They're going to need to combine their operations with another chain to compete. Some may close. If you're a small player, you need to be thinking about long-range plans." [Ed. Note: these plans undoubtedly were to be acquired by AA's major clients and further concentrate the industry and the accounting profession.]
- Politics is not responsive to the plight of most Americans, voters or otherwise, because the rank and file American (i) does not know what is happening; and (ii) doesn't have the money or time to spend or the organization to lobby for better political treatment.
- The press is becoming increasingly more concentrated and powerful, with the blessing of regulatory agencies and the Congress -- and with obvious conflicts of interest between the press and the politician. Successful campaign reform legislation even heightens this conflict -- free newspaper, TV and radio publicity might be the new currency if cash payments are cut out by the new campaign reform act of 2002.
- The press does not tell Americans what they need to know to arrive at the conclusions I reach below, and instead concentrates on matters which are divisive of our electorate, to prevent the public from focussing on the several issues which count most of all (in addition to the obvious issue of campaign reform).
- Some issues simply don't lend themselves to sound bites or small blocks of type between color pictures. The press seems to concentrate on the easy "quickie" or sex scandals or bombings -- all legitimate stories -- to the exclusion of matters basic to the well-being of all, thus directing attention away from the tough story involving economic, social and political conflict between the rich and the poor, and toward a more benign and photogenic controversy.
I might want to add a few things to the above list of facts known to me as well as anything can be known, but I think I've made my point, and I'm going to move on.
Arthur Andersen has been entrusted by the nation to use its professional knowledge and duty to peek behind closed doors, locked safes and Swiss bank accounts to find and report violations of law, in order to ensure that the companies whose financial statements are being "audited" (i.e., professionally approved as in conformity with generally accepted accounting principles or "GAAP") have complied with all laws, and to change unlawful practices before they go far, or to report material deviations from GAAP in their reports to enable creditors, lenders, investors, banks, the IRS, shareholders, bondholders, employees, unions, competitors, suppliers, prospective employees and suppliers and others to evaluate the company's performance against competitors, with the auditor's assurance that the companies are playing on a level playing field (i.e., abiding by all relevant laws and GAAP), so that one company's apparent superior performance, one would conclude, was justified by sharp business acumen, not cheating and stealing.
The stakes are so high for client insiders that cheating may be the only way to win, for a period of time until the cheating is detected and punished. But cheaters know that they get to keep the money, usually, and seldom spend any time in prison, because prison is increasingly where comparatively innocent persons are parked, with the obvious effect of preventing them (while in jail) from competing with the real crooks for business or employment opportunities.
Cheating Has Become the Occupation of this Country, along with Non-Enforcement and Relaxation of the Rules Designed to Create a Level Playing Field
The great fortunes of the world we know (or think we know) have been based on continual violation of law, with the fortunes being amassed before persons having any authority found out about the violations or found it in their best interests to ignore what they knew about the violations.
During the past 20 years or so, there has been a great concentration on meeting numbers (i.e., with public corporations being under enormous pressure by financial analysts and the financial press to predict sales and profits, and to do better than their predictions, to enable the stock prices to rise faster than would otherwise occur, and to enable sophisticated gambling to take place for the profit of everyone but the public investors.
A corporate president who is hired to lead a public company has no significant investment in the company. The original founder cashed out and is doing something else, such as running for office or buying a baseball team or television network or movie studio.
The C.E.O./Chairman ("CEO") is in a position to dole out money to his/her friends, and surrounds himself/herself with highly-paid people who are supportive of the CEO's wishes to be paid $10 million to perhaps $100 million per year or more, and facilitate this by voting in favor of liberal compensation packages for all of the top officials (the new insiders). Few officers in major public companies have any of their own money invested for the long term in their own enterprises, having been given stock options at low rices and free "incentive" bonuses of stock. Thus, the CEO has to take what he can get for as long as he/she can get it, which means take it now because tomorrow may be another Enron Day, especially when the competitor has a known advantage which cannot be overcome (such as Wal-Mart's advantage over Kmart, Venture, Target and every other company selling in competition with Wal-Mart).
The way the CEO (and coterie of insiders) take it now, as we have seen with Enron, is to pump up the stock by transactions which in yesteryear would be obvious jail-time transactions, but with today's permissiveness and cozy relationship with their friendly consultants (who are getting insider benefits as consultants), the consultants when donning their auditor caps find no fault with the system by which they are getting excessive compensation showing the client how to hide the facts and break the law through their consulting role.
Even if everyone knows (as in some major corporations) that the corporation can't compete against the market leader in the long run, and that the investors are going to lose their money, the company insiders take pains to disquise those facts and secure for themselves as much benefit as possible while there is still time, and hope to become employed by one of the surviving companies in the industry for another round of "riding a company down its predictable path of succumbing to Wal-Mart. Thus, these insiders of all categories (consultant, accountant and other professionals, CEO, other top officers) have to get as much as they can now, because the company (if it isn't Wal-Mart) is going to die anyway. Enron is a similar situation. The insiders knew that with the way it was structured to do business it never had a chance to survive.
Perhaps compensation to an executive should be based on the amount of U.S. taxes paid. As an aside, I have written in my lawmall website that Congressmen/women should be paid a percentage of the real growth in the economy (if we can figure out a way to make appropriate measurements, without political skewing). It would be cheaper to divide up a $5 billion bonus in one year among 535 Congresspersons (which would mean about $9,350,000 per person) than to encourage these Congressmen to sell out the country (at a cost of a trillion dollars or so) for the price of running for office every two or six years. The $9,350,000 is more than enough for these persons to finance their own relection without depending on contributions in exchange for voting services and theft of tax money, usually.
It seems astonishingly clear to any outsider that the once-revered accounting industry has fallen fictim to greedy insiders who seem only too willing to protect their own interests while sacrificing those of the small investors of the company they are paid to audit. An "audit" is an "official examination of accounts with verification by reference to witness and vouchers" -- and was originally a judicial hearing of complaints. One can hardly serve as both defendant and judge, yet the arrangement of having the same auditor as a paid business advisor (on how to violate the law and get away with it) -- heavily dependent upon the income from the consulting and violation of law -- is so obviously flawed ethically as to be an industry-wide joke often coming to mind while the AA partners are depositing their weekly paycheck of an average of $10,000.
Arthur Andersen was privy to everything which went on in each of the corporations it audited. It had the right and duty to investigate matters, and it even had information from other clients which would enable AA to determine that its clients were violating various laws.
The overpaid relationship with its clients (with each of 1,700 AA partners earning an average of more than $500,000 per year, or $10,000 per week, or $323 per hour) ensured that AA would not blow the whistle on its clients, and made AA work hard at hiding the truth from the public, and so that it would be difficult to prove what AA actually knew.
We do know, however, that AA was paid to know everything, and (now claims) that it failed to learn what it was paid to learn.
I'm not going to focus on all laws which were broken by AA's clients because there is no need to go that far. In fact, let's assume that no laws at all were broken by AA's clients except the Robinson-Patman Act, which prohibits price discrimination, where a manufacturer or other supplier charges two competing businesses different per-unit prices for the same goods, of the same quality, in the same quantity, at the same time, in interstate commerce, for a substantial period of time, where there is competitive injury, and where the difference in price is not cost justified, or to meet competition, or a justified functional discount (paid to perform a service for the manufacturer or supplier).
The truth has finally come out. Starting in 1981 (the year of Ronald Reagan's inauguration), and by 1985 (while Reagan was still reigning with his philosophy that business should not be regulated), some chains started demanding and getting rebates from manufacturers which were not given to competitors, and the chains getting these unawful rebates grew, and grew, and grew in size, whereas the chains which abided by the law and did not demand or receive these unlawful rebates started losing ground.
Major U.S. retail institutions went out of business or in bankruptcy, such as Montgomery Ward, J.C. Penney, Jamesway, Ames, Lechters, Woolworth, Kmart, and others are teetering right now, afraid to admit that they can't compete in price with Wal-Mart.
If you can't compete in price in America, you can't compete. Oh, yes, you can set up a free movie and free coffee/soda/beer and attract a few freeloaders, who will no longer patronize your store as soon as you stop giving them freebies.
I have described the effect of one retailer getting a 10% compound return on its $10,000,000 starting investment, in comparison with a competitor getting a 20% compound return on its $10,000,000 starting investment, over a 30-year period. The 20% competitor has a company 13.5 times the size of the 10% company. See text under heading "The Probable Origin of the DNA Code - Wal-Mart - in 1981" at BookCase Website - Compounding Effect of 10% Advantage
This is the simple fact of what is happening in the U.S. today. The companies which are violating the RPA are growing exceedingly fast, and taking market share and investment value (at least what is not being stolen by the insiders) from the disadvantaged competitors.
Arthur Andersen Was There from 1981 to the Present and Never Reported a Single RPA Violation While the Related Theft of Business Was Taking Place
Arthur Andersen was there for this whole period (not necessarily as auditor for Wal-Mart, but having various clients either supplying Wal-Mart (which is something most major manufacturers seem to be doing) or competing with Wal-Mart and engaging in similar RPA-related practices.
AA has been in a position since 1981 to see that there have been ongoing violations of the RPA, but has not done anything to stop them, or at least to report them in footnotes to the financial statements, or to indicate the size of the violations and the liability which these companies had at the time of the financial statements for violation of the RPA, including treble damages and attorneys' fees.
Arthur Andersen did an excellent job in hiding the truth from investors and smaller competitors for more than 20 years, and was well paid in the process. AA's performance enabled it to get more than it was worth (if doing an honest job), and AA took this money and paid more to its Professional Staff than they were worth to do the job and keep quiet about what they were doing.
Now the Professional Staff is complaining that the gravy train is unfairly coming to an end, and that somehow somebody should continue to pay them and permit them to do what has caused Enron and others, including AA, to go under (or threaten to go under).
My feeling is that they should go out and get a job in a mid-size accounting firm which lost business to AA (because of the unjustified expansion of AA's clients through violations of the RPA and related acquisitions of companies which were financially weakened as a result, which cost the mid-tier accounting firms a loss of business, forcing them to pay a lower rate for accounting professionals than AA was able to pay with its special arrangements.
I invite you to look at these related websites:
- Enron Website
- Website on How to Stop Wal-Mart and Globalization
- RPAMall Website on the Robinson-Patman Act
- Website on Kuralt/Intimate's RPA Lawsuit against Superstores Barnes & Noble and Borders
- Website for RPA Lawsuit by 143 Auto-Parts Wholesalers and Jobbers against Wal-Mart, Sam's Club, AutoZone and other Auto-Parts Superstores.
- Website on How to Cope with Prosecutorial Abuse by an Equally "Concentrated" Government
- Enron Website
What is needed in this country is a return to enforcement of law, particularly the Robinson-Patman Act. This is so especially because there is no significant enforcement of the Sherman Act and Clayton Act, and the RPA will have to be a surrogate statute to accomplish some of the objectives of the other, non-enforced antitrust statutes.
For the c.v. (resume) of Attorney Carl E. Person, click on Carl Person C.V.
Copyright © 2002 by Carl E. Person