New York City's Sidewalk Santa program, which raises money for food charities, has a new twist this year. In the past, the administrator, Volunteers of America, has used clients from its rehabilitation programs to man the sidewalk fundraising operation. This year it has an arrangement with Starbucks(Nasdaq: SBUX) to use the coffee-shop chain's employees as volunteers.

Those ought to be some seriously caffeinated Santas on the streets in front of Rockefeller Plaza. Volunteers, however, were told that they're not really Santa -- just his helpers (thank goodness). They were advised against drinking too much coffee before their shift and to keep mints handy for good breath. The Santas also were told not smoke.

It's a rough gig, spreading the yuletide cheer.

In today's Motley Fool Take:

Freddie Smack

The lack of fiscal control at Freddie Mac(NYSE: FRE) is not reassuring. The company disclosed this morning that its understatement of profits, earlier pegged to be no higher than $4.5 billion, came in at just over $5 billion for the years 2000-2002. The big surprise, though, is that it actually overstated its earnings in 2001 by $989 million. Overall, however, the company's results were understated .

Many investors are unclear as to why any company would understate its earnings. It's quite simple, really, and firms as diverse as Microsoft(Nasdaq: MSFT) and General Electric(NYSE: GE) have been criticized for using various legal, but distasteful "cookie jar" methods to save earnings for a rainy day. Stocks are generally awarded higher multiples if their earnings are thought to be steady and recurrent. By delaying or understating earnings in a period that has gone exceedingly well, the company smoothes out its results, and can retain some of those unclaimed earnings at a later date should they need to generate slightly higher results than they achieve organically.

So for a company nicknamed "Steady Freddie," the steadiness is part of the game -- it's part of what makes Freddie Mac an attractive investment. Wall Street demands it and Freddie supplies it using shady accounting, doctored diaries, and fancy swaps, asset "parking," and other tools devised by ... yup, Wall Street.

A report that was released in conjunction with the restatements shows how several Wall Street banks, including CSFB(NYSE: CSR) and Goldman Sachs(NYSE: GS), assisted with Freddie's convoluted derivative transactions to help the company groom its earnings.

The report by Baker & Botts law firm showed how Goldman, for example, partnered with Freddie Mac in some linked swap transactions to move more than $400 million of earnings from 2001 into later years. These swaps were approved by David Parseghian at Freddie, who briefly assumed the CEO's mantle at the company until regulators figured out that he was in the deception up to his eyeballs and demanded his ouster.

Freddie Mac says that it will be able to provide its 2003 restated financials by June. Problems solved, right? We're unconvinced. Recently Freddie and Fannie Mae(NYSE: FNM) were able to avoid greater oversight by federal regulators into their activities. Critics have charged in recent years that the two companies have taken on substantially more risk in order to continue their rates of growth as the housing markets have matured. Given that all of the above -- all of it -- was done for the sake of keeping Freddie Mac's stock price as high as possible and generating big bonuses for corporate executives, we'd suggest that the circumstances that made such financial malfeasance both possible and attractive need to be addressed, and badly.

Quote of Note

"The Board's Governance Committee is directing a remediation program to ensure the integrity of Freddie Mac's financial reporting and prevent these types of problems from recurring." -- George D. Gould, presiding director and chairman of the Board's Governance Committee

Biovail to No Avail

Canadian drug maker Biovail(NYSE: BVF) plummeted 21% today after the company received a letter from the Securities & Exchange Commission announcing an informal inquiry into its accounting for 2002 and year-to-date 2003. That's $4.79 off yesterday's $23.22 close.

On the back of several quarters of ripping double-digit year-over-year revenue hikes, the red-hot stock hit a 52-week high of $51.30 in June before taking a breather. But when the company warned in October for Q3, shares plunged 24% in two days.

Why? Some odd news about a truck accident affecting end-of-quarter delivery of $10 to $20 million of its Wellbutrin XL, the once-daily version of the bestselling antidepressant it makes for partner GlaxoSmithKline(NYSE: GSK). (Alyce Lomax reported that story.) Is it just us, or does this conjure up images of "C'mon, stuff that crap in there and let's get moving -- the quarter's about to end!"

And Q3 results, announced on Oct. 30, not only delivered a modest 3% sales gain vs. the prior year, but a lower-than-warned 83% drop in EPS. According to billionaire chairman and CEO Eugene Melnyk, "the results reflect a series of decisions we made to remain consistent with our conservative accounting approach." Parse that. At best, it implies that they wavered but returned to the fold. Never good.

The SEC inquiry joins a Health & Human Services Department inquiry into company sales practices, and we have to ask the same old question of many a high-growth story: Is it the real thing or manufactured? Investors should be wary.

Discussion Board of the Day: Biovail

Bump in the road for a growing company, or smoke signifying fire (and a truck crash)? Be heard on our Biovail discussion board and learn why our boards are voted the best on the Web!

AT&T Sues eBay

AT&T (NYSE: T) is suing eBay(Nasdaq: EBAY), claiming the company's PayPal division violates a patent filed in 1991 related to secure third-party transactions. The suit claims patent rights over electronic transactions between two parties that use an intermediary (in this case, PayPal) to make the transaction trustworthy and easy. AT&T was granted the patent -- called "Mediation of Transactions by a Communication System" -- in 1994.

Reportedly, AT&T approached eBay about this issue more than a year ago, demanding licensing fees on the $400 million in annualized revenue now generated by PayPal, as well as back fees involving claims against eBay's now-defunct Billpoint payment system. eBay refused to pay, pushing AT&T to file suit. eBay calls the suit "meritless."

The claim comes on the heels of a $29-million judgment against eBay in August when a single inventor sued the firm for patent infringement on "buy-it-now," or fixed-price, technology. eBay is appealing that case, and history shows that such cases -- as well as the AT&T case -- are more likely to be found in the defendent's favor than not.

Patent suits are difficult to prove, especially during times of rapid innovation. During such periods, many similar but different ways to skin a cat -- or conduct a transaction, in this case -- can be "invented." On the smallest distinction, eBay attorneys may show that the auctioneer's system is not addressable under the patents in question, and might point to eBay's own patent applications, if applicable.

Given the ubiquity of online transactions of all kinds, and how third parties have been involved in electronic transactions (credit cards, for instance, at small retailers) for years, eBay should have plenty of wiggle room. Arguments were probably stronger when AMZN) and BNBN) battled over Amazon's 1-click technology. That patent suit was filed in 1999 and settled outside court last year for undisclosed terms.

eBay has faced other lawsuits, most from individuals, but AT&T is certainly a more serious challenge. The fact that it's AT&T, however, does not make the patent violation any easier to prove. Odds and time are in eBay's favor, even if legal fees are not.

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More Fool News

For a list of all our stories from today, see Today's Headlines.

And Finally...

The holidays are a time for giving, right? Well, Rick Munarriz is giving advice in Where the Toys Are.... Less is more when it comes to portfolio turnover, and extremely active investors tend to woefully underperform the market. But the key to intelligent investing lies in reducing unproductive turnover.... XM Satellite CEO Hugh Panero plays "Buy, Sell, or Hold" on The Motley Fool Radio Show.

Bob Bobala, Robert Brokamp, Paul Elliott, Mathew Emmert, Jeff Fischer, Jeff Hwang, Tom Jacobs, LouAnn Lofton, Alyce Lomax, Bill Mann, Selena Maranjian, Dave Marino-Nachison, Rex Moore, Rick Munarriz, Reggie Santiago, Dayana Yochim