"Without income or net worth verification, investors stand to lose more than they can afford," Kassan says of the new provisions.
Watch out for hot IPOs with no profits and crowd-funded investments. They are ripe for manipulation of financials.
By no means are we saying that Twitter is playing around with its numbers. Just that, as Leon LaRosa, CPA at LaRosa & Associates in Exton and a certified fraud examiner, says, bigger companies than Twitter have tried "creative accounting practices, ranging from benign tricks to outright fraud."
He gave examples of companies where regulators frowned upon the following practices:
Recording revenues too soon, for example, when services have yet to be provided (Xerox).
Recording bogus revenues such as supplier rebates (L.A. Gear and Sunrise Medical).
Boosting income with one-time gains such as the sales of undervalued assets (Boston Market).
Shifting expenses to a later period; capitalizing marketing and promotional costs (AOL).
Postscript on Puerto Rico. Alan Schankel, municipal-bond guru at Janney Montgomery Scott, says the firm's clients understand the significant risk involved with Puerto Rico bond investments.
The bonds "are not for the faint of heart. That being said, we note that the commonwealth has made significant progress towards bringing balance to their precarious financial situation through meaningful tax and fee increases for the current fiscal year."
Unlike entities such as Detroit and a few California cities, Puerto Rico and its current leadership demonstrate "willingness to undertake politically and socially difficult steps to improve the financial situation and investor confidence," Schankel said.
"Although no date or size is set, Puerto Rico has plans to issue bonds through its sales tax entity, COFINA, in the near future. This will be an important test of market access and will be closely watched."