Finance Industry Accounting Shenanigans
 

I work for an agency that grants me access to the operations of much of the financial industry. I see reports (not made to the general public) of certain "holding" companies that have, say $1K in revenue and $30M in expenses. It's obvious that the entity exists only to shield the losses of its subsidiaries, so those subsidiaries can pad their annual and quarterly reports. And its not like these are isolated incidents either.

These kind of shenanigans send bad signals to investors, creating bubbles and the like. When the SEC increases regulations to create more transparency, the industry will devise new tactics. A regulation policy is like a security policy; it needs to constantly updated to fend off new viruses.

A holding company exists to own shares of outstanding stock. It does not shelter losses.

I think you are referring to "shells," which exist for structural purposes and do shelter losses.

However, all gains and losses for subs would roll up to the consolidated return, so not sure what you mean about shells bilking the investing public.

Signed,
Enron

You have really been into these Jim Rome resets lately. I am glad because you are trying to mix things up a bit.

This wasnt one of your better ones because Enron is neither a holding company nor a shell.

Your God one was really funny, though.

Another recent classic line..."Spencer, let it go." That was good stuff.

so is it normal for holding companies to have almost no revenue and billions of dollars in expenses?

I would say that it would be inefficient. I don't know if it is abnormal.

Again, are you sure you want to be using the term "holding company?" The situation you describe in your first post has nothing really to do with holding companies. Or even subsidiaries. I think you are talking about companies that use special purpose entities to shell-game losses and shelter tax.

Enron was not engaging in shady deals with subs. Enron had shady dealings with SPEs (specifically, limited partnerships in the case of Enron).

Also, in your hypo, the parent is shielding the losses of the subs so that the subs can pad their reports. That makes no sense. Do many subs file independent docs with the SEC? They are almost always part of a consolidated group.

I agree with your general sentiment.......the point you make is the reason we have Sarbox now. I am just pointing out semantics.

I spoke with their accountant and she said it was a "holding" company. We usually have an "alpha" number linking subs of one corporation, but that "holding" company didn't have one.

I just found out that as long as no one subsidiary holds controlling interest, you don't have to report consolidated.