An independent report commissioned by the Justice Department concluded that the "improper and imprudent practices" of now-bankrupt subprime lender New Century Financial were condoned and enabled by the company's independent auditor, KPMG.

The accounting firm allowed New Century to change its accounting to report strong profits during the housing boom, when a more conservative treatment would have shown losses. The company lowered its reserves for bad loans that investors were forcing it to buy back, even as the number of bad loans increased.

The New York Times reports that this may pave the way for New Century to sue KPMG. Seven years after the collapse of Enron, conflicts of interest involving "independent" auditors and their clients who pay them are still costing shareholders billions. Back in October, I posed 2 ideas for ways that issues of auditor independence might be fixed:

• Shouldn't companies be required to change accounting firms (rather than just employees within the same firm) every few years to avoid entrenchment and cozy relationships. When accountants see colleagues leaving for lucrative gigs at the company they once audited, can that lead to a conflict of interest?

• Should companies be allowed to choose their own auditors, or should the SEC consider implementing a system where auditors are appointed by a third-party? Allowing companies to hire and fire their own independent auditing firms raises questions about whether they are really independent.

With a recent -- and idiotic, I would say -- Supreme Court decision making it tougher for defrauded investors to sue investment banks and auditors who aided and abetted in fraud, auditor independence may be more important than ever.

My first reaction to the news today that Citigroup (NYSE:C) has settled claims by Enron creditors to the tune of $1.66 billion due to their responsibility in Enron's downfall, was that the two firms were meant for each other.

According to the Reuters report: " The largest U.S. bank is also giving up $4.25 billion of claims against Enron, while Enron is releasing all claims against Citi. The bank said in a statement that it denies wrongdoing, and agreed to the settlements solely to avoid the expense and uncertainty of litigation."

Uh huh. No wrongdoing. Just like it bears no responsibility in the whole subprime mess? Why is it that shareholders are the ones always left holding the bag? Investors in Citi have lost over 60% of their money over the last year. That hasn't stopped the board from paying huge bonuses to senior executives, and sending off former CEO Chuck Prince with a huge parting gift.

Enron didn't take any responsibility, Citigroup won't take any responsibility. Who are the ones who end up taking responsibility? Once again it's the little guy who is left holding the bag.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 3/26/08

Given our society these days, should we really be surprised by crusading Governor Eliot Spitzer's prostitution scandal? These days it seems like all our heroes let us down, whether they be superstar athletes like Roger Clemens (steroids) and Michael Vick (animal cruelty), widely held technology stocks like Google (NASDAQ: GOOG) (less clicking, 40% drop in stock price) and Apple (NASDAQ: AAPL) (imperfect, 40% drop in stock price) and once-pillars of the finance industry Merrill Lynch (NYSE: MER), Citigroup (NYSE: C) and Bear Sterns (NYSE: BSC) (all had too much exposure to subprime mortgages and municipal bonds).

Mind you, in no way do I condone Spitzer's behavior -- the night before Valentine's Day no less -- but in the grand scheme of things, he's done a whole lot more good than he's done bad. You might even say it takes a criminal to know one! He'll probably be forced to resign and while sad, it should motivate him like never before to gain back the respect he once had.

For all the value and integrity we place on sports, it's really nothing more than entertainment. In no way can I defend Vick, but Clemens clearly loves his sport and simply could not let anything stop him from being the best. While it's sad that his career will be forever marred, it's a great lesson to teach kids to never cheat -- no matter what.

Thanks to the blog of the brilliant Floyd Norris over at the New York Times for this fascinating tidbit.

The FBI set up a fake hedge fund to invest in crappy penny stocks with the intent of losing a ton of money. It also cut a deal with a shady stock promoter to receive a kickback for buying the shares -- a pretty clear case of market manipulation.

The investment declined in value from $91,580 to $12,800 -- and the promised kickback never came. Great work guys! As Norris writes, "taxpayer dollars at work."

I'm all for cracking down on stock fraud, but you really have to wonder about this -- did the FBI really need to blow nearly $80 thousand of our money to prove that microcap fraud is alive and well? And if the promoters involved are like a lot of other promoters I've read about, the money probably went right up his nose or offshore somewhere -- and no matter what any order to "disgorge ill-gotten gains" says, that money is probably gone.

But still: Another good reason to avoid heavily promoted penny stocks. If the FBI invests in them for the sole purpose of losing money, that's probably a bad sign.

Maybe that was the reason all those state pension funds bought subprime debt. If not, it should have been.

Rocky Mountain News finance editor David Milstead recently blogged about Maximum Dynamics, a Colorado Springs company that has come under the scrutiny of regulators. The SEC has filed a lawsuit against two former officers charging that they operated a scheme.

But not so long ago, Maximum Dynamics had some penny-stock players convinced that the company was a victim of naked short sellers and other miscreants intent on bringing the company down. In an 8-K released in July of 2005, the company wrote that:

Until the anonymous internet attackers are brought to justice, management is providing a warning to investors to rely on the company itself as the sole source of information regarding the company. (emphasis added)

The idea of relying on a company as the sole source of information is probably the worst investment methodology I have ever heard -- it's actually slightly worse than examining goat feces to try to predict the future.

As ex-con turned white-collar crime fighter Sam Antar writes, " Do not trust, just verify. Verify, verify, and verify." Relying on the company as the sole source of information was exactly what cost investors billions in losses at companies like Enron and Worldcom. Since the analysts were just parroting the companies' claims, listening to them would have done no good either. Only strong independent research by journalists like Bethany McLean and short sellers like Jim Chanos was able to penetrate the elaborate fiction concocted by scheming executives.

Moral of the story: When a company says "Believe us, not your lying eyes," don't buy the stock. If you own it, sell it. If you don't own it, it may be worth shorting.

Shortly after the market closed today, I got one of my familiar MarketWatch.com bulletins in my in-box. But it wasn't concerning after-hours earnings or the Dow's (latest) triple-digit drop. Rather, it simply stated: "Home-run king Barry Bonds indicted on perjury, obstruction of justice charges."

Yowsa. While everyone always just assumed Bonds used the juice at some point in his career, I think this comes as a surprise to many sports fans. A federal grand jury has accused Bonds of lying under oath when he said he was unaware that substances handed out by personal trainer Greg Anderson were steroids. Bonds has also maintained that he did not use steroids in 2001, as he chased the single-season home-run record, then held by Mark McGwire.

According to MarketWatch, John Burris, "one of" Bonds' lawyers, told San Francisco radio station KCBS the Bonds would plead "not guilty." Burris also asserted that Bonds "will be found not guilty." Burris says the indictment was a shock, as the government doesn't have proper evidence to bring such a claim.

Barry Bonds was indicted Thursday for perjury and obstruction of justice. It may very well be that the all-time home run record holder will be spending a lot more time in court rooms and with attorneys than playing baseball next season.

• "A federal grand jury slaps the San Francisco Giants' slugger with perjury and obstruction of justice charges. The charges come after a four-year investigation into whether the home run king lied under oath to authorities investigating the abuse of performance enhancing drugs in professional sports."

Late in the season the Giants let it be known that they were not interested in having him in the line-up next year. As a free agent Bonds certainly would have plenty of value to an American League team looking for a Designated Hitter (DH) and he would like to put the record far out of reach, I'm sure. This saga looks likely to continue for years. However, this indictment alone may cost him the opportunity to build on his record and may very well put the proverbial asterisk next to it.

I'm sure there will be those that will say his record is not legitimate; that has already been the case. I say the record is the record. The rest of the story is, and will continue to be well documented.

It is no surprise that we at BloggingStocks are no less prone to grab a headline with sexual provocation to increase our hit rate. That we did when we posted a story on Southwest Airlines (NYSE: LUV) and their unhappiness with a young women's attire, our most popular story of the week. Having such success, like every other tabloid in the country, we could not resist a story (or two or three) about a young Disney (NYSE: DIS) starlet having some obscure personal photos, including a nude, pandered on the web.

News is news and there is no hiding from the headlines. However, I write this story almost in a self-referential manner with self conscious feelings, as well because I can't write it without being accused of the same malady, so I feel some confusion about the issue. For this reason I decided not to refer to any of the other stories and not to link to any photos, sorry to disappoint some of you -- search elsewhere.

The controversial O.J. Simpson tell-all If I Did It has gone onto the presses. Its publisher, Beaufort Books, has ordered a first run of 125,000 copies, and claims to have sold almost the entire run already.

The idea of this book sickens me. I understand that, by court order, the proceeds will be awarded to the family of one of Simpson's victims, Ron Goldman. His family apparently believes that readers will see through the ruse of presenting the work as fiction, and take it as Simpson's confession.

Even if the profits are appropriately distributed, I don't think that justifies buying the work. I'm aghast to think anyone would spend a penny on this book. The mere existence of such a confession rubs our collective noses in the failure of our legal system, and the publicity surrounding its publishing is bound to benefit the author in some way. We all know what he did, and how he did it, and that he hasn't, and won't pay the price for his crime.

The best we can do now is turn our backs on him. Completely. Here's hoping Beaufort Books ends up with 125,000 remainders.

During the Red Sox game Saturday, Skechers U.S.A Inc. (NYSE: SKX) ran an ad (several times) that began with a shot of the sneakers of several men sitting at a table. One of the men says something to the effect of, "I love the shoes so I figured why not buy the stock?" Then, the symbol for Skechers appears on the screen.

What is the point of this ad? Warren Buffett, one of the world's greatest executives, talks about the importance of focusing on the operations of a business rather than the stock price. And yet, Skechers appears to be promoting their stock through an advertisement that has almost nothing to do with selling sneakers.

But hey, maybe this is a bullish sign. To advertise their stock that prominently during a a baseball game, the management must have a lot of faith in it, right?

Well no. If you take a look at the recent insider trading, you can see there is perhaps an argument for why management might be focusing now on the stock price:

CNBC offered a list of some must-read exposés on the inner workings of Corporate America. Among the picks: Conspiracy of Fools, about Enron (and my second favorite book of all time behind A Separate Peace), Barbarians at the Gate, Liar's Poker and The Predator's Ball. These are all excellent books, and I'm embarrassed to say I've read every book on CNBC's list, which is probably part of the reason I don't have a girlfriend. However, I have some additional favorite Wall Street exposés. Oftentimes, you can learn as much about investing reading these books as you can reading the more expository books; and these ones are about 20 times more interesting:

Andy Kessler's Running Money and Wall Street Meat: These two cover the author's exploits as an analyst working alongside the likes of Jack Grubman, and his later career as a hedge fund manager focused on Silicon Valley stocks. They read crisply, and are great for the beach.

Once in Golconda and The Go-Go Years, both by John Brooks: These two, along with anything else published under the Wiley Investment Classics label are great. The first covers Wall Street from the Roaring Twenties through the Great Depression, and the second covers the Go-Go 1960s, when momo-managers like General Tsai rose rapidly, and then crashed just as quickly. Order the Wiley edition so you get Michael Lewis's foreword.

Each Monday, I'll be bringing you my list of the top four stories from TheStreet.com for the past week. Did I miss a great story? Leave a comment and let everyone know!

So, here's my list for the past week:

1. Get Even More Bullish on the Dow. A four-part series on why Jim Cramer is bullish on the Dow. When Jim Cramer talks about markets, you have to listen, since so many other people do.
2. Funny Money: Golden Hits. Funnyman Jeff Kreisler highlights the business scandals of the second half of 2006.
3. Mutual Funds That Act Like Hedge Funds. This an interesting list of the mutual funds that have the lowest correlations to the S&P 500. For investors interested in diversification, these may be be worthy of a look.
4. The Five Smartest Things on Wall Street This Year. After a year of giving us a weekly list of the dumbest things on Wall Street (one of my favorite TheStreet.com features by the way), Colin Barr turns positive -- but only for one column, I hope!