Re: The SEC's Dirty Secret (ENS)

[ttweed@wildrockies.org (Tony Tweedale)]

  >The SEC's Dirty
  >Secret
  >
  >Posted to the web: Fri Aug 15 19:27:42 EDT 1997
  >
  >
  >
  >By Donald Sutherland
  >
  >WASHINGTON, DC, August 15, 1997 (ENS) -
  >Information on the environmental liabilities of
  >corporations is being withheld from investors
  >and from the general public, but little is being
  >done to bring light into these dark corners.
  >
  >In February of 1997, three environmental
  >groups - Friends of the Earth, Citizen Action,
  >and the Sierra Club - sent a letter to the U.S.
  >Securities and Exchange Commission (SEC)
  >asking for an investigation of the
  >entertainment giant Viacom Inc. The groups
  >want the SEC, a federal government agency, to
  >look into why Viacom failed to disclose over
  >$300 million in Superfund liabilities at more
  >than 30 sites in the firm's 1995 SEC 10-K form
  >to stakeholders.
  >
  >Susan Duffy, a spokeswoman for Viacom, told
  >the Wall Street Journal in March that the
  >environmental groups grossly exaggerated
  >Viacom's Superfund liabilities, but she
  >declined to give the actual accrued value of the
  >company's liabilities.
  >
  >Viacom assumed the superfund liabilities of
  >Gulf & Western, which changed its name to
  >Paramount Communications in 1989, and was
  >acquired by Viacom in 1994.
  >
  >To date, the SEC has yet to repond to the
  >request by the three environmental groups.
  >
  >Financial researchers in the field of
  >environmental 10-K disclosure point out that
  >the Viacom case is by no means unique in the
  >U.S. stock market.
  >
  >"Only once in the last twenty years has the SEC
  >enforced environmental GAAP in 10-K filing,"
  >said Martin Freedman, professor at the School
  >of Management at Binghamton University in
  >New York.
  >
  >GAAP stands for Generally Accepted
  >Accounting Principles. While it is the SEC's
  >responsibility to enforce the GAAP, the
  >American Institute of Certified Public
  >Accountants (AICPA) and the Financial
  >Accounting Standards Board (FASB) are the
  >not-for-profit, membership organizations
  >which write the standards for accounting
  >models in the United States.
  >
  >The GAAP arrangement is a government-private
  >partnership that is unique in the world. Most
  >governments control standards; but in the U.S.
  >the function is supposed to be covered by a
  >government-private partnership.
  >
  >Martin Freedman and A.J. Stagliano, of the
  >College of Business and Administration at
  >Saint Joseph's University in Philadelphia, Pa, in
  >a 1996 report, randomly chose 26 firms from
  >the Environmental Protection Agency's list of
  >900 publicly traded potentially responsible
  >parties (PRPs) listed on the 1993 National
  >Priority List. The report found only 12 made
  >any sort of environmental expense/liability or
  >legal matter disclosure.
  >
  >Freedman says his findings support previous
  >research studies which state that despite the
  >legal obligation to provide qualitative and
  >quantitative assessment of a firm's estimated
  >hazardous waste liabilities to stakeholders
  >many firms make "little or no disclosure
  >effort."
  >
  >The National Environmental Policy Act of 1970,
  >the Comprehensive Environmental Response,
  >Compensation and Liability Act of 1980
  >(CERCLA), and the Superfund Amendments and
  >Reauthorization Act of 1986 have had a major
  >impact on businesses identified as PRPs.
  >
  >The clean up of hazardous waste sites
  >mandated under these laws is estimated in the
  >hundreds of billions of dollars nationwide. But,
  >most potentially responsible parties have put
  >off paying the clean up costs with court
  >litigation that disputes the EPA's
  >determinations.
  >
  >But potentially responsibly parties who try to
  >defer costs by filing lawsuits are potentially
  >barking up the wrong tree. The national
  >environmental accounting requirements under
  >GAAP, and the SEC's Regulation S-K require
  >disclosure of environmental liabilities -
  >whether or not they are contingent on a final
  >agreement with the EPA.
  >
  >"The 1975 Statement of Financial Accounting
  >Standards No.5 stated you record a liability
  >when it's probable and the amount is estimable,
  >but many companies choose not to estimate,"
  >said Fred Gill, Senior Technical Manager of
  >AICPA.
  >
  >"The new environmental accounting model for
  >environmental remediation liability Statement
  >of Position 96-1 now requires corporations to
  >disclose what they can estimate," said Gill.
  >
  >The laws and regulations are in place - the
  >catch is enforcement.
  >
  >Legal experts do not expect the SEC to rule on
  >the Viacom situation anytime soon because of
  >the unwritten detente that exists between the
  >publicly traded companies and the SEC in filing
  >environmental capital and liability costs.
  >
  >"How can the SEC prove Viacom departed from
  >GAAP when they have allowed mixed practice
  >in environmental 10-K filing to exist for so
  >long?" asked Greg Newington, Chief of
  >Enforcement for the California State Board of
  >Accountancy.
  >
  >"They (the SEC authorities) don't want to end up
  >like Marcia Clarke and lose a high profile court
  >challenge to a powerfully financed company
  >like Viacom," Newington said.
  >
  >The Corporation of Finance at the SEC has
  >refused to cite previous enforcement cases of
  >environmental 10-K filings. The agency admits
  >to a policy of confidentiality for corporate
  >internal environmental audits.
  >
  >"Disclosure of internal environmental audits is
  >neither prohibited nor mandated by the
  >Commission's rules or staff policies, and the
  >staff believes that disclosures meeting the
  >requirements of the securities laws need not
  >include internal environmental audits," said
  >William E. Morley, Senior Associate Director of
  >the Corporation of Finance.
  >
  >"Without enforcement of internal
  >environmental audits to stakeholders, anything
  >goes in 10-K filing of significant
  >environmental material expenses," said
  >Freedman.
  >
  >The SEC declined to comment on whether their
  >policy of confidentiality for corporate internal
  >environmental audits is a breach of federal
  >disclosure laws and the Security Exchange Acts
  >which require full disclosure of corporate
  >assets and liabilities to stakeholders.
  >
  >The environmental groups are not giving up on
  >their pursuit of the issue of disclosure of
  >corporate environmental liabilities. "We plan to
  >follow up our charges on Viacom with the SEC
  >in September," said Michele Chan-Fishel of
  >Friends of the Earth, "and this is not the only
  >company we will be targeting for failure to
  >report environmental liabilities."
  >
  >
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