Moral for CEOs Is Choose Your Fraud Carefully

As long as the SEC clings to the position that there were no errors in those companies’ financial statements, it can’t allege there was anything wrong with the firms’ audits. That helps shield the auditors from potentially crippling liability in private securities litigation.

It also limits the SEC’s ability to accuse any of the companies’ executives of fudging their numbers. And so the SEC has to resort to convoluted claims like the one against Mozilo, where Countrywide’s disclosures were false and misleading but somehow its balance sheet was pristine.

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