WHEN THE ENRON CORPORATION scandal broke in late 2001, the mortgage banking industry braced for a problem. Enron, it seemed, had used special-purpose vehicles (SPVs) to achieve off-balance-sheet treatment. So do many mortgage companies. Would the regulators rush in to stop the use of SPVs by honest companies for legitimate purposes, or would they understand the difference between legitimate and abusive SPVs? Would the mortgage industry’s honorable participants lose this valuable tool of risk management because of what the Enron gang did?

To their credit, the Securities and Exchange Commission (SEC) and the Federal Accounting Standards Board (FASB) took the time to evaluate the SPV terrain before treading in with revised rules. And the revisions that have been promulgated and proposed to date do not run roughshod over this terrain. FASB Interpretation No. 46R (dealing with which entities must be consolidated for financial reporting) and the proposed revisions to FASB Statement 140 (tinkering with the requirements for treatment as a qualified special-purpose entity), both issued in 2003, reflect a nuanced understanding that there are legitimate transactions that use SPVs and that that should be accounted for as sales, moving assets off-balance-sheet. If FASB Interpretation No. 46R and the FAS 140 proposal move the goal posts, it is as much a response to changes in market practice as it is to changed sensibilities post-Enron.


Yet there are now two other phenomena–also accounting-related, and also an outgrowth of the Enron after-math–that have the potential to be more insidious for financial managers at mortgage companies.

You’re on your own

The first problem derives from the Sarbanes-Oxley Act of mid-2002, and the resulting changes in the accounting firms’ view of their own roles. That is an unwillingness, or inability, on the part of the accounting firm that audits a company to provide advisory services about structuring transactions. Where audit firms used to seek out opportunities to serve as consultants, helping to design transactions for intended accounting treatment, those firms now are wary of being too close to the company during the planning stages of a transaction.

At a Dec. 1, 2004, meeting of the FASB’s Small Business Advisory Committee, the chief executive officer of a top accounting firm himself is reported to have complained about auditors’ "inability to give answers." He blamed pressure from the SEC and the Public Accounting Oversight Board, and recognized that there’s now a sort of "Catch-22" situation, in which the fallout is the ability to conduct complicated transactions at all. Some audit firms are going so far as to say, in effect, "Please go to our competitors for …


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Alphonso Jackson says deal was scuttled after contractor admits not liking Bush

Posted by Brooke Shelby Biggs on May 17th, 2006


Secretary of Housing and Urban Development Alphonso Jackson may think he’s Steven Colbert, but his blunt brand of "humor" is a little too, er, observational for a laugh.

The secretary was at a forum in Dallas earlier this month and told this hilarious story of an advertising contractor who had just been selected to receive a contract from HUD:

    "He had made every effort to get a contract with HUD for 10 years. He made a heck of a proposal and was on the (General Services Administration) list, so we selected him. He came to see me and thank me for selecting him. Then he said something … he said, ‘I have a problem with your president.’

    "I said, ‘What do you mean?’ He said, ‘I don’t like President Bush.’ I thought to myself, ‘Brother, you have a disconnect — the president is elected, I was selected. You wouldn’t be getting the contract unless I was sitting here. If you have a problem with the president, don’t tell the secretary.’

    "He didn’t get the contract. Why should I reward someone who doesn’t like the president, so they can use funds to try to campaign against the president? Logic says they don’t get the contract. That’s the way I believe."

Jackson later said the conversation had never happened, that it was a joke, and that political leanings do not figure into the contract award system. Qualifications and competitiveness of bids are the only criteria, he insists.

He needs to work on his delivery.

At the center of a federal inquiry into Representative Alan B. Mollohan, Democrat of West Virginia, is his real estate investment with a bankrupt distant cousin who touted his connections to one of Mr. Mollohan’s nonprofit organizations to win work, including a federal contract in his district.

The relative, Joseph L. Jarvis Jr., faced $1 million debts in a personal bankruptcy case when he partnered with Mr. Mollohan in 1996, a few years after his aerospace company failed to fulfill its federal contracts and also filed for bankruptcy.

The 1995 West Virginia deal in Mr. Mollohan’s district eventually soured too, and Mr. Jarvis walked away owing Mr. Mollohan’s nonprofit group $67,681.63 in rent.

Still, Mr. Jarvis, Mr. Mollohan and their wives enjoyed a lucrative real estate partnership managing condominium rentals at the Remington, a 52-unit building that bills itself as "Washington’s best kept secret." The couples own 27 Remington condos, which have more than tripled in value, to $8 million, over the decade.

Mr. Mollohan stepped down last month as the top Democrat on the House ethics committee amid an F.B.I. investigation into his personal finances and his handling of special federal appropriations known as earmarks. The Federal Bureau of Investigation has subpoenaed papers from the Remington partnership.

The inquiry was prompted by a 500-page complaint from a conservative Washington group accusing Mr. Mollohan of failing to properly report the Remington investment and questioning whether his relationship with Mr. Jarvis — whose lengthy list of creditors included the congressman’s father and the federal government — was appropriate.

The Remington is one of three of Mr. Mollohan’s real estate deals under scrutiny. The others are $2 million in beach property in North Carolina that he bought with the director of another earmark-dependent nonprofit he created, and a $900,000 farm purchased with a friend whose company got several federal contracts based on his earmarks.

Mr. Mollohan refused repeated requests to discuss the Remington and Mr. Jarvis, with a spokesman saying he was still compiling "documents necessary to answer questions" about his real estate transactions. Among the issues are why Mr. Mollohan and his wife borrowed $2.3 million from a bank on the same day in 1999 that they and the Jarvises loaned the partnership the same amount — both using the condominiums as collateral — and why these loans were not listed on the congressman’s financial disclosure forms.

Mr. Jarvis and his wife, Rosemary, also declined to comment.

There is no evidence that Mr. Mollohan, first elected in 1982 and now a senior member of the House Appropriations Committee, intervened to help Mr. Jarvis procure the $1 million subcontract in West Virginia from the Energy Department in 1995.

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VIRGINIA BEACH, Va. — Religious broadcaster Pat Robertson said he has leg-pressed more than 900 kilograms but some said he’d be in a pretty tough spot if he tried.

The 700 Club host’s feat of strength is recounted on the website of his Christian Broadcasting Network, in a posting headlined: “How Pat Robertson Leg Pressed 2,000 Pounds.”

The CBN website said Mr. Robertson worked his way up to lifting a almost a tonne with the help of his physician, who is not named. The posting does not say when the lift occurred but a CBN spokeswoman released photos she said showed Mr. Robertson lifting 907 kilograms in 2003, when Mr. Robertson was 73. He is now 76.

The Web posting said two men loaded the leg-press machine with 907 kilograms “and then let it down on Mr. Robertson, who pushed it up one rep and let it go back down again.”

The website said several people witnessed the event and shows video of Mr. Robertson leg-pressing what appears to be 454 kilograms.

Clay Travis of CBS SportsLine.com called the 907-kilo assertion impossible in a column this week, writing the leg-press record for football players at Florida State University is 302 kilos less.

“Where in the world did Robertson even find a machine that could hold 2,000 pounds at one time?” Mr. Travis asked.

Andy Zucker, a strength-training coach at Old Dominion University in Norfolk, Va., said leg-presses of more than 450 kilos represent “a Herculean effort and 2,000 pounds is a whole other story.”

“If he was able to lift that much weight, I take my hat off to him but the numbers suggest that people who lift that much weight are few and far between,” Mr. Zucker said.

“One would have to see what type of leg-press it was on and under what parameters it was done.”

CBN spokeswoman Angell Vasko said Friday that Robertson was not available for comment because he was “out of pocket” for the weekend.

Ms. Vasko said she has not seen Mr. Robertson leg-press 907 kilos but it’s not “a huge shocker” that he could.

“Pat is so healthy,” she said.

“This is something he trained for over an extended period of time. He lives a very healthy, regimented life.”

One of the photos Ms. Vasko released had a digital date stamp of 1994, although she said Robertson performed the leg-press in 2003. Ms. Vasko said perhaps the date was not set properly on the camera.

The CBN website attributes Mr. Robertson’s energy in part to “his age-defying protein shake.” The site offers a recipe for the shake, which contains ingredients such as soy protein isolate, whey protein isolate, flaxseed oil and apple cider vinegar.