oneworldOver the past several days there have been a number of items that will be of interest to readers of this blog, which I note briefly here.


First, an article in the December 20, 2014 Wall Street Journal entitled “Sony Made It Easy, But Any of Us Could Get Hacked” (here), contends that if you are aware of the current state of information-technology security, “you’re aware that this could happen to any company (though it is still amazing that Sony made it so easy).” Experts aware of hackers’ methods, the author contends, know that “against a sufficiently skilled, funded and motivated attacker, all networks are vulnerable.” The experts know that when this type of expert hacker is involved, the hacker “always gets in.” However, against the kind of lower-skilled hacker that hit Target and Home Depot, “good security may protect you completely.” To avoid winding up like Sony, the first thing to do is “for organizations to take this stuff seriously.” The second thing to do is for those of us who entrust companies with our information (that is, all of us), we have to be smart, understand the risks and “know that your data are vulnerable.”


Second, in a December 19, 2014 New York Times article entitled “Delving Into the Morass of Insider Trading” (here), James B. Stewart takes a look at the state of the law in light of the Second Circuit’s recent blockbuster ruling overturning the insider trading convictions of two Wall Street traders (about which refer here).  Stewart contends that we have reached the point where “we need an insider trading statute.” The root of the confusion over what trading is prohibited is that “insider trading is a crime entirely defined by common law.” As a result, it has been open to interpretation as prosecutors and enforcement officials come and go, which has led to “tortured attempts to fit new insider trading cases into earlier precedents.” The article quotes UCLA Law Professor Stephen Bainbridge as saying that the best way to organize some limiting principles would be for Congress to adopt an insider trading statute. A statute would also be simpler to enforce and prosecute. The article quotes one commentator as suggesting that the uproar following the recent Second Circuit decision may “finally spur Congress to act.”


Third,  an article in the December 13, 2014 issue of The Economist entitled “Accounting Scandals: The Dozy Watchdogs” (here) reviews the long list of accounting scandals starting with Enron and WorldCom, going through the later scandals at Olympus,  Autonomy, and Satyam, and running up to the recent Tesco scandal,  in which the scandals emerged after auditors had given each of the companies a clean bill of heath. The article suggests that “such frequent scandals call into question whether this is the best the Big Four can do – and if so, whether their efforts are worth the $50 billion a year they collect in audit fees.” In recent years, the “expectations gap” between what investors expect and the standards auditors set for themselves has led to a pattern in which “investors disregard auditors and make little effort to learn about their work, value securities as if audited financial statements were the gospel truth, and then erupt in righteous fury when the inevitable downward revisions cost them their shirts.” The stakes are high, the article note, and “only substantial reforms of the auditors’ perverse business model can end the cycle of disappointment.” The article urges a number of remedies, including an expansion of the audit report to include, for example, a more detailed summary of the auditors’ activities and areas of focus and greater competition. A more challenging remedy might include taking the selection of auditors away from the client companies.


One final note about the Economist article. Readers of this blog would be hard pressed to distinguish what the article calls the “most elegant solution”  to the accounting scandal conundrum — which involves a proposal for companies to adopt  “financial statements insurance” — from the entity liability coverage now available under most public companies D&O Insurance policies.


And Finally: In the Playlist column in the Saturday Wall Street Journal (here), actor Cary Elwes describes his lifetime love for the 1965 song by The Who entitled “I Can’t Explain.” He explains that over time she “had a deeper feeling for the song because I finally understood the lyrics and connected with their point: ‘I’m gettin’ funny dreams again and again / I know what it means, but / Can’t explain / I think it’s love / Try to say it to you / When I feel blue.’ The song is one of the most brilliant expressions of not being able to express yourself.”


This video includes an impossibly youthful version of The Who performing the song on the old Shindig! television show. Roger Daltrey is up front and singing, but the late lamented drummer Keith Moon is the one to watch in this video.