[Plura-list] The long sleep of capitalism's watchdogs

Cory Doctorow doctorow at craphound.com
Fri Jan 26 13:17:15 EST 2024


Read today's issue online at: https://pluralistic.net/2024/01/26/noclar-war/

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This is your last week to back the Kickstarter for the audiobook for *The Bezzle*, the sequel to *Red Team Blues*, narrated by Wil Wheaton! You can pre-order the audiobook and ebook, DRM free, as well as the hardcover, signed or unsigned. There's also bundles with *Red Team Blues* in ebook, audio or paperback:

http://thebezzle.org

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Today's links

* The long sleep of capitalism's watchdogs: "Self-regulation is to regulation as self-importance is to importance."

* Hey look at this: Delights to delectate.

* This day in history: 2004, 2009, 2014, 2019, 2023

* Colophon: Recent publications, upcoming/recent appearances, current writing projects, current reading

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Berliners: Otherland has added a second date (Jan 28) (THIS SUNDAY!) for my book-talk after the first one sold out - book now!

https://www.otherland-berlin.de/de/event-details/zusaetzlicher-autor-innenabend-mit-cory-doctorow.html?day=20240128&times=1706466600,1706466600

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🦘 The long sleep of capitalism's watchdogs

One of the weirdest aspect of end-stage capitalism is the collapse of auditing, the lynchpin of investing. Auditors - independent professionals who sign off on a company's finances - are the only way that investors can be sure they're not handing their money over to failing businesses run by crooks.

It's just not feasible for investors to talk to supply-chain partners and retailers and verify that a company's orders and costs are real. Investors can't walk into a company's bank and demand to see their account histories. Auditors - who are paid by companies, but work for themselves - are how investors avoid shoveling money into Ponzi-pits.

Attentive readers will have noticed that there is an intrinsic tension in an arrangement where someone is paid by a company to certify its honesty. The company gets to decide who its auditors are, and those auditors are dependent on the company for future business. To manage this conflict of interest, auditors swear fealty to a professional code of ethics, and are themselves overseen by professional boards with the power to issue fines and ban cheaters.

Enter monopolization. Over the past 40 years, the US government conducted a failed experiment in allowing companies to form monopolies on the theory that these would be "efficient." From Boeing to Facebook, Cigna to InBev, Warner to Microsoft, it has been a catastrophe. The American corporate landscape is dominated by vast, crumbling, ghastly companies whose bad products and worse corporate conduct are locked in a race to see who can attain the most depraved enshittification quickest.

The accounting profession is no exception. An decades-long incestuous orgy of mergers and acquisitions yielded up an accounting sector dominated by just four firms: EY, KPMG, PWC and Deloitte (the last holdout from the alphabetsoupification of corporate identity). Virtually every major company relies on one of these companies for auditing, but that's only a small part of corporate America's relationship with these tottering behemoths. The *real* action comes from "consulting."

Each of the Big Four accounting firms is *also* a corporate consultancy. Some of those consulting services are the normal work of corporate consultants - cookie cutter advice to fire workers and reduce product quality, as well as supplying dangerously defecting enterprise software. But you can get that from the overpaid enablers at McKinsey or BCG. The advantage of contracting with a Big Four accounting firm for consulting is that they can help you commit finance fraud.

Remember: if you're an executive greenlighting fraud, you mostly just want to be sure it's not discovered until after you've pocketed your bonus and moved on. After all, the pro-monopoly experiment was also an experiment in tolerating corporate crime. Executives who cheat their investors, workers and suppliers typically generate fines for their companies, while escaping any personal liability.

By buying your cheating advice from the same company that is paid to certify that you're not cheating, you greatly improve your chances of avoiding detection until you've blown town.

Which brings me to the idea of the "bezzle." This is John Kenneth Galbraith's term for "the weeks, months, or years that elapse between the commission of the crime and its discovery." This is the period in which both the criminal and the victim feel like they're better off. The crook has the victim's money, and the victim doesn't know it. The Bezzle is that interval when you're still assuming that FTX isn't lying to you about the crazy returns they're generating for your crypto. It's the period between you getting the shrinkwrapped box with a 90% discounted PS5 in it from a guy in an alley, and getting home and discovering that it's full of bricks and styrofoam.

Big Accounting is a factory for producing bezzles at scale. The game is rigged, and they are the riggers. When banks fail and need a public bailout, chances are those banks were recently certified as healthy by one of the Big Four, whose audited bank financials failed *800* re-audits between 2009-17:

https://pluralistic.net/2020/09/28/cyberwar-tactics/#aligned-incentives

The Big Four dispute this, of course. They claim to be models of probity, adhering to the strictest possible ethical standards. This would be a lot easier to believe if KPMG hadn't been caught bribing its regulators to help its staff *cheat on ethics exams*:

https://www.nysscpa.org/news/publications/the-trusted-professional/article/sec-probe-finds-kpmg-auditors-cheating-on-training-exams-061819

Likewise, it would be easier to believe if their consulting arms didn't keep getting caught advising their clients on how to cheat their auditing arms:

https://pluralistic.net/2023/05/09/dingo-babysitter/#maybe-the-dingos-ate-your-nan

Big Accounting is a very weird phenomenon, even by the standards of End-Stage Capitalism. It's an organized system of millionaire-on-billionaire violence, a rare instance of the very richest people getting scammed the hardest:

https://pluralistic.net/2021/06/04/aaronsw/#crooked-ref

The collapse of accounting is such an ominous and fractally weird phenomenon, it inspired me to write a series of hard-boiled forensic accountancy novels about a two-fisted auditor named Martin Hench, starting with last year's *Red Team Blues* (out in paperback next week!):

https://us.macmillan.com/books/9781250865854/redteamblues

The sequel to *Red Team Blues* is called (what else?) *The Bezzle*, and part of its ice-cold revenge plot involves a disillusioned EY auditor who can't bear to be part of the scam any longer:

https://www.kickstarter.com/projects/doctorow/the-bezzle-a-martin-hench-audiobook-amazon-wont-sell

The Hench stories span a 40-year period, and are a chronicle of decades of corporate decay. Accountancy is the perfect lens for understanding our modern fraud economy. After all, it was crooked accountants who gave us the S&L crisis:

https://scholarworks.umt.edu/cgi/viewcontent.cgi?article=10130&context=etd

Crooked auditors were at the center of the Great Financial Crisis, too:

https://francinemckenna.com/2009/12/07/they-werent-there-auditors-and-the-financial-crisis/

And of course, crooked auditors were behind the Enron fraud, a rare instance in which a fraud triggered a serious attempt to prevent future crimes, including the destruction of accounting giant Arthur Andersen. After Enron, Congress passed Sarbanes-Oxley (SOX), which created a new oversight board called the Public Company Accounting Oversight Board (PCAOB).

The PCAOB is a watchdog for watchdogs, charged with auditing the auditors and punishing the incompetent and corrupt among them. Writing for *The American Prospect* and the Revolving Door Project, Timi Iwayemi describes the long-running failure of the PCAOB to do its job:

https://prospect.org/power/2024-01-26-corporate-self-oversight/

For example: from 2003-2019, the PCAOB undertook only *18* enforcement cases - even though the PCAOB also detected more than *800* "seriously defective audits" by the Big Four. And those 18 cases were purely ornamental: the PCAOB issued a mere $6.5m in fines for all 18, even though they *could have* fined the accounting companies $1.6 *billion*:

https://www.pogo.org/investigations/how-an-agency-youve-never-heard-of-is-leaving-the-economy-at-risk

Few people are better on this subject than the investigative journalist Francine McKenna, who has just co-authored a major paper on the PCAOB:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4227295

The paper uses a new data set - documents disclosed in a 2019 criminal trial - to identify the structural forces that cause the PCAOB to be such a weak watchdog whose employees didn't merely fail to do their jobs, but actually criminally abetted the misdeeds of the companies they were supposed to be keeping honest.

They put the blame - indirectly - on the SEC. The PCAOB has three missions: protecting investors, keeping markets running smoothly, and ensuring that businesses can raise capital. These missions come into conflict. For example, declaring one of the Big Four auditors ineligible would throw markets into chaos, removing a quarter of the auditing capacity that all public firms rely on. The Big Four are the auditors for 99.7% of the S&P 500, and certify the books for the majority of all listed companies:

https://blog.auditanalytics.com/audit-fee-trends-of-sp-500/

For the first two decades of the PCAOB's existence, the SEC insisted that conflicts be resolved in ways that let the auditing firms commit fraud, because the alternative would be bad for the market.

So: rather than cultivating an adversarial relationship to the Big Four, the PCAOB effectively *merged* with them. Two of its board seats are reserved for accountants, and those two seats have been occupied by Big Four veterans almost without exception:

https://www.pogo.org/investigations/captured-financial-regulator-at-risk

It was no better on the SEC side. The Office of the Chief Accountant is the SEC's overseer for the PCAOB, and it, too, has operated with a revolving door between the Big Four and their watchdog (indeed, the Chief Accountant is the watchdog for the watchdog for the watchdogs!). Meanwhile, staffers from the Office of the Chief Accountant routinely rotated out of government service and into the Big Four.

This corrupt arrangement reached a crescendo in 2019, with the appointment of William Duhnke - formerly of Senator Richard Shelby's [R-AL] staff - took over as Chief Accountant. Under Duhnke's leadership, the already-toothless watchdog was first neutered, then euthanized. Duhnke fired all four heads of the PCAOB's main division and then left their seats vacant for 18 months. He slashed the agency's budget, "weakened inspection requirements and auditor independence policies, and disregarded obligations to hold Board meetings and publicize its agenda."

All that ended in 2021, when SEC chair Gary Gensler fired Duhnke and replaced him with Erica Williams, at the insistence of Bernie Sanders and Elizabeth Warren. Within a year, Williams had issued 42 enforcement actions, the largest number since 2017, levying over $11m in sanctions:

https://www.dlapiper.com/en/insights/publications/2023/01/pcaob-sets-aggressive-agenda-for-2023-what-to-expect-as-agency-enforcement-expands

She was just getting warmed up: last year, PCAOB collected $20m in fines, with five cases seeing fines in excess of $2m each, a record:

https://www.dlapiper.com/en/insights/publications/2024/01/pcaobs-enforcement-and-standard-setting-rev-up-what-to-expect-in-2024

Williams isn't shy about condemning the Big Four, publicly sounding the alarm that 40% of the 2022 audits the PCAOB reviewed were deficient, up from 34% in 2021 and 29% in 2020:

https://www.wsj.com/articles/we-audit-the-auditors-and-we-found-trouble-accountability-capital-markets-c5587f05

Under Williams, the PCAOB has enacted new, muscular rules on lead auditors' duties, and they're now consulting on a rule that will make audit inspections *much* faster, shortening the documentation period from 45 days to 14:

https://tax.thomsonreuters.com/news/pcaob-rulemaking-could-lead-to-more-timely-issuance-of-audit-inspection-reports/

Williams is no fire-breathing leftist. She's an alum of the SEC and a BigLaw firm, creating modest, obvious technical improvements to a key system that capitalism requires for its orderly functioning. Moreover, she is *competent*, able to craft regulations that are effective and enforceable. This has been a motif within the Biden administration:

https://pluralistic.net/2022/10/18/administrative-competence/#i-know-stuff

But though these improvements are decidedly moderate, they are grounded in a truly radical break from business-as-usual in the age of monopoly auditors. It's a transition from self-regulation to *regulation*. As @40_Years on Twitter so aptly put it: "Self regulation is to regulation as self-importance is to importance":

https://twitter.com/40_Years/status/1750025605465178260


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🦘 Hey look at this

* The Story of Hacking My Air Purifier https://unethical.info/2024/01/24/hacking-my-air-purifier/ (h/t @cybervegan at mastodonapp.uk)

* Compound pejoratives on Reddit – from buttface to wankpuffin https://colinmorris.github.io/blog/compound-curse-words (h/t Nelson Minar)

* IRS Free File is now available for the 2024 filing season https://www.irs.gov/newsroom/irs-free-file-is-now-available-for-the-2024-filing-season (h/t Hacker News)

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🦘 This day in history

#20yrsago Protect your investment: buy open https://memex.craphound.com/2004/01/27/protect-your-investment-buy-open/

#20yrsago True confessions from the DeCSS Haiku author http://www.loyalty.org/~schoen/haiku.html

#15yrsago What’s going on in Bush’s mind here? https://archive.nytimes.com/opinionator.blogs.nytimes.com/2009/01/25/mirror-mirror-on-the-wall/

#10yrsago Bad for You: Exposing the War on Fun! https://memex.craphound.com/2014/01/27/bad-for-you-exposing-the-war-on-fun/

#10yrsago HSBC settlement approved: no criminal charges, 5 weeks’ profit in fines, deferred bonuses for laundering billions for narco-terrorists https://www.reuters.com/article/us-hsbc-moneylaundering-exclusive-idUSBREA0G1KQ20140117/

#10yrsago Candy Quest: a text-adventure in defiance of the stupid Candy Crush trademark https://smestorp.itch.io/candy-quest-3-edge-of-sweetness

#10yrsago Bletchley Park’s new management chucks out long-term volunteers https://memex.craphound.com/2014/01/27/bletchley-parks-new-management-chucks-out-long-term-volunteers/

#10yrsago Lovecraftian rant about the horrors of Blackboard https://www.lawyersgunsmoneyblog.com/2014/01/christ-i-hate-blackboard

#5yrsago The rent is too damned high because money-laundering oligarchs bought all the real-estate to clean their oil money https://twitter.com/CZEdwards/status/1089340995731304450

#1yrago Podcasts are hearteningly enshittification resistant https://pluralistic.net/2023/01/27/enshittification-resistance/#ummauerter-garten-nein

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🦘 Colophon

Today's top sources:

Currently writing:

* A Little Brother short story about DIY insulin PLANNING

* Picks and Shovels, a Martin Hench noir thriller about the heroic era of the PC. FORTHCOMING TOR BOOKS JAN 2025

* The Bezzle, a Martin Hench noir thriller novel about the prison-tech industry. FORTHCOMING TOR BOOKS FEB 2024

* Vigilant, Little Brother short story about remote invigilation. FORTHCOMING ON TOR.COM

* Spill, a Little Brother short story about pipeline protests. FORTHCOMING ON TOR.COM

Latest podcast: What kind of bubble is AI? https://craphound.com/news/2024/01/21/what-kind-of-bubble-is-ai/

Upcoming appearances:

* The Lost Cause at Otherland (Berlin), Jan 28
https://www.otherland-berlin.de/de/event-details/zusaetzlicher-autor-innenabend-mit-cory-doctorow.html?day=20240128&times=1706466600,1706466600

* Marshall McLuhan Lecture 2024 (Berlin), Jan 29
https://transmediale.de/en/2024/event/mcluhan-2024

* The Lost Cause at Otherland (Berlin), Jan 30
https://www.otherland-berlin.de/de/event-details/autor-innenabend-mit-cory-doctorow.html

* The Bezzle at Third Place Books (Seattle), Feb 26
https://www.thirdplacebooks.com/event/cory-doctorow

* Tuscon Festival of Books, Mar 9/10
https://tucsonfestivalofbooks.org/?id=676

Recent appearances:

* Enshittification: The Rise and Fall of Big Tech (Crash Course Economics)
https://www.youtube.com/watch?v=E7AxrFQ7jIM

* Generation of Lost Causes with Vass Bednar (Toronto Public Library)
https://www.youtube.com/watch?v=-rGj5VaJSDQ

* Low-Key Clippy (This Week In Tech)
https://twit.tv/shows/this-week-in-tech/episodes/963

Latest books:

* "The Lost Cause:" a solarpunk novel of hope in the climate emergency, Tor Books (US), Head of Zeus (UK), November 2023 (http://lost-cause.org). Signed, personalized copies at Dark Delicacies (https://www.darkdel.com/store/p3007/Pre-Order_Signed_Copies%3A_The_Lost_Cause_HB.html#/)

* "The Internet Con": A nonfiction book about interoperability and Big Tech (Verso) September 2023 (http://seizethemeansofcomputation.org). Signed copies at Book Soup (https://www.booksoup.com/book/9781804291245).

* "Red Team Blues": "A grabby, compulsive thriller that will leave you knowing more about how the world works than you did before." Tor Books http://redteamblues.com. Signed copies at Dark Delicacies (US): and Forbidden Planet (UK): https://forbiddenplanet.com/385004-red-team-blues-signed-edition-hardcover/.

* "Chokepoint Capitalism: How to Beat Big Tech, Tame Big Content, and Get Artists Paid, with Rebecca Giblin", on how to unrig the markets for creative labor, Beacon Press/Scribe 2022 https://chokepointcapitalism.com

* "Attack Surface": The third Little Brother novel, a standalone technothriller for adults. The *Washington Post* called it "a political cyberthriller, vigorous, bold and savvy about the limits of revolution and resistance." Order signed, personalized copies from Dark Delicacies https://www.darkdel.com/store/p1840/Available_Now%3A_Attack_Surface.html

* "How to Destroy Surveillance Capitalism": an anti-monopoly pamphlet analyzing the true harms of surveillance capitalism and proposing a solution. https://onezero.medium.com/how-to-destroy-surveillance-capitalism-8135e6744d59?sk=f6cd10e54e20a07d4c6d0f3ac011af6b) (signed copies: https://www.darkdel.com/store/p2024/Available_Now%3A__How_to_Destroy_Surveillance_Capitalism.html)

* "Little Brother/Homeland": A reissue omnibus edition with a new introduction by Edward Snowden: https://us.macmillan.com/books/9781250774583; personalized/signed copies here: https://www.darkdel.com/store/p1750/July%3A__Little_Brother_%26_Homeland.html

* "Poesy the Monster Slayer" a picture book about monsters, bedtime, gender, and kicking ass. Order here: https://us.macmillan.com/books/9781626723627. Get a personalized, signed copy here: https://www.darkdel.com/store/p2682/Corey_Doctorow%3A_Poesy_the_Monster_Slayer_HB.html#/.

Upcoming books:

* The Bezzle: a sequel to "Red Team Blues," about prison-tech and other grifts, Tor Books, February 2024

* Picks and Shovels: a sequel to "Red Team Blues," about the heroic era of the PC, Tor Books, February 2025

* Unauthorized Bread: a graphic novel adapted from my novella about refugees, toasters and DRM, FirstSecond, 2025

This work - excluding any serialized fiction - is licensed under a Creative Commons Attribution 4.0 license. That means you can use it any way you like, including commercially, provided that you attribute it to me, Cory Doctorow, and include a link to pluralistic.net.

https://creativecommons.org/licenses/by/4.0/

Quotations and images are not included in this license; they are included either under a limitation or exception to copyright, or on the basis of a separate license. Please exercise caution.

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🦘 How to get Pluralistic:Read today's issue online at: https://pluralistic.net/2024/01/26/noclar-war/

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This is your last week to back the Kickstarter for the audiobook for *The Bezzle*, the sequel to *Red Team Blues*, narrated by Wil Wheaton! You can pre-order the audiobook and ebook, DRM free, as well as the hardcover, signed or unsigned. There's also bundles with *Red Team Blues* in ebook, audio or paperback:

http://thebezzle.org

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Today's links

* The long sleep of capitalism's watchdogs: "Self-regulation is to regulation as self-importance is to importance."

* Hey look at this: Delights to delectate.

* This day in history: 2004, 2009, 2014, 2019, 2023

* Colophon: Recent publications, upcoming/recent appearances, current writing projects, current reading

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Berliners: Otherland has added a second date (Jan 28) (THIS SUNDAY!) for my book-talk after the first one sold out - book now!

https://www.otherland-berlin.de/de/event-details/zusaetzlicher-autor-innenabend-mit-cory-doctorow.html?day=20240128&times=1706466600,1706466600

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🦘 The long sleep of capitalism's watchdogs

One of the weirdest aspect of end-stage capitalism is the collapse of auditing, the lynchpin of investing. Auditors - independent professionals who sign off on a company's finances - are the only way that investors can be sure they're not handing their money over to failing businesses run by crooks.

It's just not feasible for investors to talk to supply-chain partners and retailers and verify that a company's orders and costs are real. Investors can't walk into a company's bank and demand to see their account histories. Auditors - who are paid by companies, but work for themselves - are how investors avoid shoveling money into Ponzi-pits.

Attentive readers will have noticed that there is an intrinsic tension in an arrangement where someone is paid by a company to certify its honesty. The company gets to decide who its auditors are, and those auditors are dependent on the company for future business. To manage this conflict of interest, auditors swear fealty to a professional code of ethics, and are themselves overseen by professional boards with the power to issue fines and ban cheaters.

Enter monopolization. Over the past 40 years, the US government conducted a failed experiment in allowing companies to form monopolies on the theory that these would be "efficient." From Boeing to Facebook, Cigna to InBev, Warner to Microsoft, it has been a catastrophe. The American corporate landscape is dominated by vast, crumbling, ghastly companies whose bad products and worse corporate conduct are locked in a race to see who can attain the most depraved enshittification quickest.

The accounting profession is no exception. An decades-long incestuous orgy of mergers and acquisitions yielded up an accounting sector dominated by just four firms: EY, KPMG, PWC and Deloitte (the last holdout from the alphabetsoupification of corporate identity). Virtually every major company relies on one of these companies for auditing, but that's only a small part of corporate America's relationship with these tottering behemoths. The *real* action comes from "consulting."

Each of the Big Four accounting firms is *also* a corporate consultancy. Some of those consulting services are the normal work of corporate consultants - cookie cutter advice to fire workers and reduce product quality, as well as supplying dangerously defecting enterprise software. But you can get that from the overpaid enablers at McKinsey or BCG. The advantage of contracting with a Big Four accounting firm for consulting is that they can help you commit finance fraud.

Remember: if you're an executive greenlighting fraud, you mostly just want to be sure it's not discovered until after you've pocketed your bonus and moved on. After all, the pro-monopoly experiment was also an experiment in tolerating corporate crime. Executives who cheat their investors, workers and suppliers typically generate fines for their companies, while escaping any personal liability.

By buying your cheating advice from the same company that is paid to certify that you're not cheating, you greatly improve your chances of avoiding detection until you've blown town.

Which brings me to the idea of the "bezzle." This is John Kenneth Galbraith's term for "the weeks, months, or years that elapse between the commission of the crime and its discovery." This is the period in which both the criminal and the victim feel like they're better off. The crook has the victim's money, and the victim doesn't know it. The Bezzle is that interval when you're still assuming that FTX isn't lying to you about the crazy returns they're generating for your crypto. It's the period between you getting the shrinkwrapped box with a 90% discounted PS5 in it from a guy in an alley, and getting home and discovering that it's full of bricks and styrofoam.

Big Accounting is a factory for producing bezzles at scale. The game is rigged, and they are the riggers. When banks fail and need a public bailout, chances are those banks were recently certified as healthy by one of the Big Four, whose audited bank financials failed *800* re-audits between 2009-17:

https://pluralistic.net/2020/09/28/cyberwar-tactics/#aligned-incentives

The Big Four dispute this, of course. They claim to be models of probity, adhering to the strictest possible ethical standards. This would be a lot easier to believe if KPMG hadn't been caught bribing its regulators to help its staff *cheat on ethics exams*:

https://www.nysscpa.org/news/publications/the-trusted-professional/article/sec-probe-finds-kpmg-auditors-cheating-on-training-exams-061819

Likewise, it would be easier to believe if their consulting arms didn't keep getting caught advising their clients on how to cheat their auditing arms:

https://pluralistic.net/2023/05/09/dingo-babysitter/#maybe-the-dingos-ate-your-nan

Big Accounting is a very weird phenomenon, even by the standards of End-Stage Capitalism. It's an organized system of millionaire-on-billionaire violence, a rare instance of the very richest people getting scammed the hardest:

https://pluralistic.net/2021/06/04/aaronsw/#crooked-ref

The collapse of accounting is such an ominous and fractally weird phenomenon, it inspired me to write a series of hard-boiled forensic accountancy novels about a two-fisted auditor named Martin Hench, starting with last year's *Red Team Blues* (out in paperback next week!):

https://us.macmillan.com/books/9781250865854/redteamblues

The sequel to *Red Team Blues* is called (what else?) *The Bezzle*, and part of its ice-cold revenge plot involves a disillusioned EY auditor who can't bear to be part of the scam any longer:

https://www.kickstarter.com/projects/doctorow/the-bezzle-a-martin-hench-audiobook-amazon-wont-sell

The Hench stories span a 40-year period, and are a chronicle of decades of corporate decay. Accountancy is the perfect lens for understanding our modern fraud economy. After all, it was crooked accountants who gave us the S&L crisis:

https://scholarworks.umt.edu/cgi/viewcontent.cgi?article=10130&context=etd

Crooked auditors were at the center of the Great Financial Crisis, too:

https://francinemckenna.com/2009/12/07/they-werent-there-auditors-and-the-financial-crisis/

And of course, crooked auditors were behind the Enron fraud, a rare instance in which a fraud triggered a serious attempt to prevent future crimes, including the destruction of accounting giant Arthur Andersen. After Enron, Congress passed Sarbanes-Oxley (SOX), which created a new oversight board called the Public Company Accounting Oversight Board (PCAOB).

The PCAOB is a watchdog for watchdogs, charged with auditing the auditors and punishing the incompetent and corrupt among them. Writing for *The American Prospect* and the Revolving Door Project, Timi Iwayemi describes the long-running failure of the PCAOB to do its job:

https://prospect.org/power/2024-01-26-corporate-self-oversight/

For example: from 2003-2019, the PCAOB undertook only *18* enforcement cases - even though the PCAOB also detected more than *800* "seriously defective audits" by the Big Four. And those 18 cases were purely ornamental: the PCAOB issued a mere $6.5m in fines for all 18, even though they *could have* fined the accounting companies $1.6 *billion*:

https://www.pogo.org/investigations/how-an-agency-youve-never-heard-of-is-leaving-the-economy-at-risk

Few people are better on this subject than the investigative journalist Francine McKenna, who has just co-authored a major paper on the PCAOB:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4227295

The paper uses a new data set - documents disclosed in a 2019 criminal trial - to identify the structural forces that cause the PCAOB to be such a weak watchdog whose employees didn't merely fail to do their jobs, but actually criminally abetted the misdeeds of the companies they were supposed to be keeping honest.

They put the blame - indirectly - on the SEC. The PCAOB has three missions: protecting investors, keeping markets running smoothly, and ensuring that businesses can raise capital. These missions come into conflict. For example, declaring one of the Big Four auditors ineligible would throw markets into chaos, removing a quarter of the auditing capacity that all public firms rely on. The Big Four are the auditors for 99.7% of the S&P 500, and certify the books for the majority of all listed companies:

https://blog.auditanalytics.com/audit-fee-trends-of-sp-500/

For the first two decades of the PCAOB's existence, the SEC insisted that conflicts be resolved in ways that let the auditing firms commit fraud, because the alternative would be bad for the market.

So: rather than cultivating an adversarial relationship to the Big Four, the PCAOB effectively *merged* with them. Two of its board seats are reserved for accountants, and those two seats have been occupied by Big Four veterans almost without exception:

https://www.pogo.org/investigations/captured-financial-regulator-at-risk

It was no better on the SEC side. The Office of the Chief Accountant is the SEC's overseer for the PCAOB, and it, too, has operated with a revolving door between the Big Four and their watchdog (indeed, the Chief Accountant is the watchdog for the watchdog for the watchdogs!). Meanwhile, staffers from the Office of the Chief Accountant routinely rotated out of government service and into the Big Four.

This corrupt arrangement reached a crescendo in 2019, with the appointment of William Duhnke - formerly of Senator Richard Shelby's [R-AL] staff - took over as Chief Accountant. Under Duhnke's leadership, the already-toothless watchdog was first neutered, then euthanized. Duhnke fired all four heads of the PCAOB's main division and then left their seats vacant for 18 months. He slashed the agency's budget, "weakened inspection requirements and auditor independence policies, and disregarded obligations to hold Board meetings and publicize its agenda."

All that ended in 2021, when SEC chair Gary Gensler fired Duhnke and replaced him with Erica Williams, at the insistence of Bernie Sanders and Elizabeth Warren. Within a year, Williams had issued 42 enforcement actions, the largest number since 2017, levying over $11m in sanctions:

https://www.dlapiper.com/en/insights/publications/2023/01/pcaob-sets-aggressive-agenda-for-2023-what-to-expect-as-agency-enforcement-expands

She was just getting warmed up: last year, PCAOB collected $20m in fines, with five cases seeing fines in excess of $2m each, a record:

https://www.dlapiper.com/en/insights/publications/2024/01/pcaobs-enforcement-and-standard-setting-rev-up-what-to-expect-in-2024

Williams isn't shy about condemning the Big Four, publicly sounding the alarm that 40% of the 2022 audits the PCAOB reviewed were deficient, up from 34% in 2021 and 29% in 2020:

https://www.wsj.com/articles/we-audit-the-auditors-and-we-found-trouble-accountability-capital-markets-c5587f05

Under Williams, the PCAOB has enacted new, muscular rules on lead auditors' duties, and they're now consulting on a rule that will make audit inspections *much* faster, shortening the documentation period from 45 days to 14:

https://tax.thomsonreuters.com/news/pcaob-rulemaking-could-lead-to-more-timely-issuance-of-audit-inspection-reports/

Williams is no fire-breathing leftist. She's an alum of the SEC and a BigLaw firm, creating modest, obvious technical improvements to a key system that capitalism requires for its orderly functioning. Moreover, she is *competent*, able to craft regulations that are effective and enforceable. This has been a motif within the Biden administration:

https://pluralistic.net/2022/10/18/administrative-competence/#i-know-stuff

But though these improvements are decidedly moderate, they are grounded in a truly radical break from business-as-usual in the age of monopoly auditors. It's a transition from self-regulation to *regulation*. As @40_Years on Twitter so aptly put it: "Self regulation is to regulation as self-importance is to importance":

https://twitter.com/40_Years/status/1750025605465178260


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🦘 Hey look at this

* The Story of Hacking My Air Purifier https://unethical.info/2024/01/24/hacking-my-air-purifier/ (h/t @cybervegan at mastodonapp.uk)

* Compound pejoratives on Reddit – from buttface to wankpuffin https://colinmorris.github.io/blog/compound-curse-words (h/t Nelson Minar)

* IRS Free File is now available for the 2024 filing season https://www.irs.gov/newsroom/irs-free-file-is-now-available-for-the-2024-filing-season (h/t Hacker News)

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🦘 This day in history

#20yrsago Protect your investment: buy open https://memex.craphound.com/2004/01/27/protect-your-investment-buy-open/

#20yrsago True confessions from the DeCSS Haiku author http://www.loyalty.org/~schoen/haiku.html

#15yrsago What’s going on in Bush’s mind here? https://archive.nytimes.com/opinionator.blogs.nytimes.com/2009/01/25/mirror-mirror-on-the-wall/

#10yrsago Bad for You: Exposing the War on Fun! https://memex.craphound.com/2014/01/27/bad-for-you-exposing-the-war-on-fun/

#10yrsago HSBC settlement approved: no criminal charges, 5 weeks’ profit in fines, deferred bonuses for laundering billions for narco-terrorists https://www.reuters.com/article/us-hsbc-moneylaundering-exclusive-idUSBREA0G1KQ20140117/

#10yrsago Candy Quest: a text-adventure in defiance of the stupid Candy Crush trademark https://smestorp.itch.io/candy-quest-3-edge-of-sweetness

#10yrsago Bletchley Park’s new management chucks out long-term volunteers https://memex.craphound.com/2014/01/27/bletchley-parks-new-management-chucks-out-long-term-volunteers/

#10yrsago Lovecraftian rant about the horrors of Blackboard https://www.lawyersgunsmoneyblog.com/2014/01/christ-i-hate-blackboard

#5yrsago The rent is too damned high because money-laundering oligarchs bought all the real-estate to clean their oil money https://twitter.com/CZEdwards/status/1089340995731304450

#1yrago Podcasts are hearteningly enshittification resistant https://pluralistic.net/2023/01/27/enshittification-resistance/#ummauerter-garten-nein

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🦘 Colophon

Today's top sources:

Currently writing:

* A Little Brother short story about DIY insulin PLANNING

* Picks and Shovels, a Martin Hench noir thriller about the heroic era of the PC. FORTHCOMING TOR BOOKS JAN 2025

* The Bezzle, a Martin Hench noir thriller novel about the prison-tech industry. FORTHCOMING TOR BOOKS FEB 2024

* Vigilant, Little Brother short story about remote invigilation. FORTHCOMING ON TOR.COM

* Spill, a Little Brother short story about pipeline protests. FORTHCOMING ON TOR.COM

Latest podcast: What kind of bubble is AI? https://craphound.com/news/2024/01/21/what-kind-of-bubble-is-ai/

Upcoming appearances:

* The Lost Cause at Otherland (Berlin), Jan 28
https://www.otherland-berlin.de/de/event-details/zusaetzlicher-autor-innenabend-mit-cory-doctorow.html?day=20240128&times=1706466600,1706466600

* Marshall McLuhan Lecture 2024 (Berlin), Jan 29
https://transmediale.de/en/2024/event/mcluhan-2024

* The Lost Cause at Otherland (Berlin), Jan 30
https://www.otherland-berlin.de/de/event-details/autor-innenabend-mit-cory-doctorow.html

* The Bezzle at Third Place Books (Seattle), Feb 26
https://www.thirdplacebooks.com/event/cory-doctorow

* Tuscon Festival of Books, Mar 9/10
https://tucsonfestivalofbooks.org/?id=676

Recent appearances:

* Enshittification: The Rise and Fall of Big Tech (Crash Course Economics)
https://www.youtube.com/watch?v=E7AxrFQ7jIM

* Generation of Lost Causes with Vass Bednar (Toronto Public Library)
https://www.youtube.com/watch?v=-rGj5VaJSDQ

* Low-Key Clippy (This Week In Tech)
https://twit.tv/shows/this-week-in-tech/episodes/963

Latest books:

* "The Lost Cause:" a solarpunk novel of hope in the climate emergency, Tor Books (US), Head of Zeus (UK), November 2023 (http://lost-cause.org). Signed, personalized copies at Dark Delicacies (https://www.darkdel.com/store/p3007/Pre-Order_Signed_Copies%3A_The_Lost_Cause_HB.html#/)

* "The Internet Con": A nonfiction book about interoperability and Big Tech (Verso) September 2023 (http://seizethemeansofcomputation.org). Signed copies at Book Soup (https://www.booksoup.com/book/9781804291245).

* "Red Team Blues": "A grabby, compulsive thriller that will leave you knowing more about how the world works than you did before." Tor Books http://redteamblues.com. Signed copies at Dark Delicacies (US): and Forbidden Planet (UK): https://forbiddenplanet.com/385004-red-team-blues-signed-edition-hardcover/.

* "Chokepoint Capitalism: How to Beat Big Tech, Tame Big Content, and Get Artists Paid, with Rebecca Giblin", on how to unrig the markets for creative labor, Beacon Press/Scribe 2022 https://chokepointcapitalism.com

* "Attack Surface": The third Little Brother novel, a standalone technothriller for adults. The *Washington Post* called it "a political cyberthriller, vigorous, bold and savvy about the limits of revolution and resistance." Order signed, personalized copies from Dark Delicacies https://www.darkdel.com/store/p1840/Available_Now%3A_Attack_Surface.html

* "How to Destroy Surveillance Capitalism": an anti-monopoly pamphlet analyzing the true harms of surveillance capitalism and proposing a solution. https://onezero.medium.com/how-to-destroy-surveillance-capitalism-8135e6744d59?sk=f6cd10e54e20a07d4c6d0f3ac011af6b) (signed copies: https://www.darkdel.com/store/p2024/Available_Now%3A__How_to_Destroy_Surveillance_Capitalism.html)

* "Little Brother/Homeland": A reissue omnibus edition with a new introduction by Edward Snowden: https://us.macmillan.com/books/9781250774583; personalized/signed copies here: https://www.darkdel.com/store/p1750/July%3A__Little_Brother_%26_Homeland.html

* "Poesy the Monster Slayer" a picture book about monsters, bedtime, gender, and kicking ass. Order here: https://us.macmillan.com/books/9781626723627. Get a personalized, signed copy here: https://www.darkdel.com/store/p2682/Corey_Doctorow%3A_Poesy_the_Monster_Slayer_HB.html#/.

Upcoming books:

* The Bezzle: a sequel to "Red Team Blues," about prison-tech and other grifts, Tor Books, February 2024

* Picks and Shovels: a sequel to "Red Team Blues," about the heroic era of the PC, Tor Books, February 2025

* Unauthorized Bread: a graphic novel adapted from my novella about refugees, toasters and DRM, FirstSecond, 2025

This work - excluding any serialized fiction - is licensed under a Creative Commons Attribution 4.0 license. That means you can use it any way you like, including commercially, provided that you attribute it to me, Cory Doctorow, and include a link to pluralistic.net.

https://creativecommons.org/licenses/by/4.0/

Quotations and images are not included in this license; they are included either under a limitation or exception to copyright, or on the basis of a separate license. Please exercise caution.

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🦘 How to get Pluralistic:

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"*When life gives you SARS, you make sarsaparilla*" -Joey "Accordion Guy" DeVilla


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https://pluralistic.net/plura-list

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"*When life gives you SARS, you make sarsaparilla*" -Joey "Accordion Guy" DeVilla
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