Wheel, Deal, and Steal: Deceptive Accounting, Deceitful CEOs, and Ineffective Reforms

By D. Quinn Mills

Published by Financial Times Prentice Hall; ISBN: 0131408046
320 pages (hardcover)

Reviewed by Thomas A. Buckhoff

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NOVEMBER 2005 - In the aftermath of seemingly unending corporate scandals involving grossly misrepresented financial statements that have resulted in over a trillion dollars in market losses, investors are left wondering:

  • Who took our money? Did some people get very rich off this?
  • I thought the system was supposed to protect investors—why didn’t it?
  • I thought CEOs of companies were supposed to make money only if their shareholders did, but it didn’t work that way. Why not?
  • What has been going on in the market? Will it continue? Do I want to be in the market? If not, what else can I do to build a retirement nest egg? Is there a safe way to do it? Whom can I trust?
  • Is there any way I can get any of my money back?

The above questions provide the framework for this book, which is recommended for anyone who wants to be fully informed about the risks inherent to investing in the stock market. Mills’ position on the above issues is captured in the following excerpt:

To mislead investors, executives in large firms had to develop compliant boards of directors and accountants, and banks prepared to support their efforts; then they had to do deals that would look good in their financials and get approval from auditors and boards for misleading financial reports. Finally, they had to cash in their options before the frauds and other misrepresentations were discovered. Hence, the title of this book: Wheel, Deal, and Steal.

To support the above proposition, Mills sprinkles the book with quotes from prominent players in the market, such as former SEC chairman Arthur Levitt, who declared: “America’s investors have been ripped off as massively as a bank being held up by a guy with a gun and a mask.” Mills includes 295 footnote references, for readers who wish to verify the evidence presented.

The fraud begins with CEO pay packages that include stock options, which mean that if the market price of a share increases, so does the CEO’s compensation. Thus, there is enormous incentive to move the share price up by any means possible. To move the share price up, CEOs exploited their enormous power and influence to compromise the independence and integrity of the entities that had oversight responsibilities over them:

  • The securities industry. In order to obtain lucrative investment banking business from CEOs, stock analysts at investment banks recommended companies’ shares knowing that they were of little or no value.
  • Boards of directors. Board members curried favor with CEOs by approving exorbitant pay packages in order to retain their positions as directors. Moreover, most publicly traded companies’ boards are chaired by either the current or former CEO—a convenient arrangement!
  • Accountants. The major accounting firms now generate more revenues from providing consulting services than from auditing services.

Many firms, such as Arthur Andersen, compromised the quality and integrity of their audits in order to obtain consulting fees from audit clients—or simply to retain the audit fees, which can total tens of millions of dollars.

Mills’ proposed solution: weaken the power of the “imperial” CEO and strengthen the independence of the securities industry, boards of directors, and accountants.

Overall, the book provides valuable insight into the inner workings of our financial markets, along with recommendations for fixing some of its flaws. Personally, after reading this book, I changed my retirement portfolio to be less dependent on the stock market.


Thomas A. Buckhoff, PhD, CPA, CFE, is an associate professor of forensic accounting at Georgia Southern University.

This review is adapted with permission from The Business Report & Journal of Savannah, Ga., June 13–19, 2005.

 

 

 

 

 

 

 

 

 

 

 

 


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