Playing fast and loose with integrity

Even watchdog organizations can find themselves in the middle of some nasty goings-on. Jonathan Weil and Lynn Tuner, two respected straight shooters when it comes to corporate governance, have resigned from the proxy advisory firm Glass Lewis after hearing about less-than-aboveboard behavior by parent firm Xinhua Finance - namely, that the Chinese company's CFO, Shelly Singhal, was also running a Newport Beach brokerage firm, Bedrock Securities. Xinhua Finance happens to be China's leading source for financial news and stock data, so you can understand that having a CFO who also owns a brokerage house might raise a few questions. But wait, there's more: Bedrock has been under a cease-and-desist order from the National Association of Securities Dealers for possible violation of SEC rules. Earlier this month, Barron's reported that Singhal was fighting a private civil racketeering suit.

But wait, there's still more. In its IPO prospectus, Xinhua Finance neglected to mention Singhal's NASD troubles - even though the company was aware of them (all this is from Barron's). Soon after that damning piece of information came out, Xinhua announced that Singhal was stepping down as CFO and would be replaced by David Wang, who had worked for ... guess who?... Bedrock. Also, Singhal would stay on at a related Xinhua unit! All this became a little too much for Weil. "I am uncomfortable with and deeply disturbed by the conduct, background, and activities of Glass Lewis's new parent, Xinhua Finance Ltd., its senior management, and its directors," said Weil, who came to Glass Lewis from the WSJ, where he covered accounting-related stories (including Enron). "To protect my reputation, I no longer can be associated with Glass Lewis or Xinhua Finance." Turner, who had a strong accounting background from his days at the SEC (and who became a source for countless financial journalists), also quit.

Then on Saturday, just as the you-know-what was really hitting the fan, Xinhua Finance announced that Singhal had resigned from the company. "It is a difficult decision to leave these two companies that I have helped to grow. Unfortunately, recent allegations against me in the press concerning my activities prior to joining Xinhua Finance have created a situation where my continued involvement with Xinhua Finance has become a distraction to management, so it is clearly the right thing to do now," he said in a press release. Xinhua Chairman and CEO Fredy Bush said that Singhal "has conducted himself with integrity and professionalism." The Barron's stories are available by subscription only.