Legal News for Thurs 6/20 - Accounting Firms Push Back on Reporting, Big Tech Shifts to On-Device AI, Families Urge $24b Fine Against Boeing and Moore Decision

Minimum Competence

This Day in Legal History: Lizzie Borden Acquitted

On June 20, 1893, in New Bedford, Massachusetts, Lizzie Borden was acquitted of the notorious axe murders of her father, Andrew Borden, and stepmother, Abby Borden. The trial had gripped the nation, with its sensational details and the prominent social standing of the Borden family. On the morning of August 4, 1892, Andrew and Abby were found brutally slain in their Fall River home, each having suffered multiple axe wounds. Lizzie, the prime suspect, was arrested and charged with their murders.

The prosecution presented circumstantial evidence, including Lizzie's alleged attempts to purchase prussic acid, her burning of a dress similar to the one she was seen wearing on the day of the murders, and conflicting statements about her whereabouts. Despite this, the defense argued there was no physical evidence directly linking Lizzie to the crime, and her reputation as a church-going, unmarried woman was emphasized to cast doubt on her guilt. The jury deliberated for less than two hours before returning a verdict of not guilty.

Lizzie Borden's acquittal remains one of the most controversial and debated decisions in American legal history. The case has inspired numerous books, films, and even a popular rhyme, embedding Lizzie Borden in American folklore. The legal proceedings highlighted the limitations of forensic science at the time and underscored the significant role of societal perceptions in the courtroom.

U.S. accounting firms are pushing back against proposals for stricter reporting rules on their finances, operations, and audit performance, labeling them as overly rigid and costly. They prefer to keep reporting major business changes and financial results as part of routine inspections to protect sensitive information. Firms advocate for voluntary transparency reports over standardized forms for discussing audit management and staffing.

The Public Company Accounting Oversight Board (PCAOB) introduced draft rules in April requiring firms to submit formal financial statements, details on ownership and governance, and business changes. These rules aim to meet investor demands for more auditor insights and codify existing practices, as firms already provide significant details during PCAOB inspections.

Firms, structured as private partnerships, oppose adhering to U.S. GAAP or international standards for compiling their financial statements, arguing it would divert resources for an unnecessary set of records. They also question the PCAOB's authority under the Sarbanes-Oxley Act to demand such detailed disclosures.

While the PCAOB's Investor Advisory Group supports making these financial statements public and audited, audit firms argue this could compromise audit quality and mislead investors due to varying client portfolios. Progressive organizations and labor unions back the proposal, emphasizing that detailed reporting would enhance competition and audit quality.

Auditors Pan Bid to Report Their Own Financials as Too Rigid

Big Tech is shifting artificial intelligence (AI) from the cloud to users’ personal devices, aiming to enhance privacy and performance. Apple introduced "Apple Intelligence," a generative AI assistant that operates directly on devices, claiming it sets a new privacy standard. Microsoft followed with Copilot+ PCs, which include locally running AI models. This move, supported by Qualcomm, highlights the trend of on-device processing, which reduces latency, cost, and privacy concerns associated with cloud-based solutions.

On-device AI aims to protect user data by keeping it on personal devices, thus eliminating risks associated with transmitting data to and from the cloud. However, challenges remain, such as ensuring these local models do not expose sensitive data or produce inaccurate outputs. Experts caution that while on-device AI enhances privacy, it does not eliminate all risks.

The approach is particularly appealing to organizations handling confidential information. Running AI locally means data stays on the device, reducing the risk of exposure during transmission. Despite these benefits, core privacy challenges persist, especially in automated decision-making scenarios like HR processes. Companies must address the cybersecurity implications of hosting substantial data locally.

Tech providers, including Apple and Nvidia, note that running AI on devices involves trade-offs, primarily related to the size and capability of models. Large models like OpenAI’s GPT-4 are too big for individual devices, requiring compression techniques that might limit their functionality. Consequently, some complex tasks may still need cloud support.

The shift to on-device AI represents a significant change from the cloud-centric trend of recent years. Organizations adopting this hybrid approach must adapt their AI governance, ensuring they understand and manage the new dynamics of data processing and security on personal devices.

Big Tech Pushing On-Device AI as Privacy, Performance Booster

On June 19, relatives of victims from two fatal Boeing 737 MAX crashes urged the U.S. Justice Department to impose a fine of up to $24.78 billion on Boeing and pursue criminal prosecution. The crashes in 2018 and 2019 resulted in 346 deaths, making it one of the deadliest corporate crimes in U.S. history, according to lawyer Paul Cassel. The families suggested suspending $14 billion to $22 billion of the fine if Boeing allocates those funds to an independent corporate monitor and compliance improvements.

The Justice Department had previously determined that Boeing violated a 2021 deferred prosecution agreement, which shielded the company from a conspiracy to commit fraud charge related to the crashes. Despite Boeing's claim that it did not violate the agreement, federal prosecutors must decide by July 7 whether to proceed with a criminal case or negotiate a plea deal. An extension of the deferred prosecution agreement is also an option.

The violation was confirmed after an incident involving an Alaska Airlines Boeing 737 MAX 9 on January 5, exposing ongoing safety and quality issues at Boeing. The families also called for Boeing's board of directors to meet with them and for criminal prosecutions of corporate officials responsible at the time of the crashes.

Senator Richard Blumenthal, chair of the Senate’s Permanent Subcommittee on Investigations, supported the call for prosecution, citing overwhelming evidence. The two crashes, linked to a safety system called MCAS, led to a 20-month worldwide grounding of the Boeing 737 MAX.

Families of Boeing 737 MAX crash victims ask US to seek $24 billion fine | Reuters

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