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Huron Shareholders Sue over Accounting Scandal

August 7, 2009

Huron Consulting Group, a consulting firm set up by a group of former Arthur Andersen partners, is now facing a series of shareholder class-action lawsuits after admitting last week to accounting irregularities.

The Chicago-based firm was founded by about two dozen former partners of the auditing firm, which collapsed in the wake of the Enron and WorldCom scandals. Gary Holdren, Huron’s chairman and CEO, resigned last Friday, along with CFO Gary Burge and chief accounting officer Wayne Lipski, after Huron’s audit committee found that payments had been redistributed among its employees and employees of the firms it was acquiring.

The acquisition-related payments were not consistent with the employees’ ownership percentages. The firm denied that the payments were kickbacks, but Huron nevertheless restated its financial results for 2006, 2007, 2008 and the first quarter of 2009, reducing its reported income by $57 million.

Now Huron is facing a series of shareholder lawsuits, including five from a single law firm. Among those on the receiving end are Holdren, Burge and Lipski, along with Huron’s auditing firm PricewaterhouseCoopers. Huron’s share price has fallen about 70 percent in the week since the news of the accounting irregularities surfaced.

Some observers are blaming a culture left over from the Andersen days of loose accounting practices. However, the situation could be a matter of not knowing how to properly classify the payments. In some cases, the “earn-out” payments were tied to performance and should have been classified as compensation, but were instead classified as goodwill.

Nevertheless, the situation seems reminiscent of Andersen and WorldCom mixing up billions of dollars in operating expenses and capital expenses. Fuzzy accounting, to say the least.

Comments (2)
I agree with Doug here. Someone would have been able to tell the difference between compensation and goodwill. Many of these companies have been trying to figure out the way to handle business the right way, but many have been carrying over past trends that may have lead to our current economic situation.

KJ Rodgers
Posted by vbpoutsourcing | Tuesday, August 11 2009 at 1:21PM ET
Two points. (1) Wouldn't you think that a former BIG 8 (Arthur Andersen in this case!) partner would know how to classify a payment to their employees? Let's see, compensation or goodwill? Gee. This is really technical and hard to figure out.! Employers seem to think if you've got "Big 8" or "Big 4" experience, you know all of this "technical" stuff. (2) Businesses can have more controls and checks than our space program has on the space shuttles it launches, but it won't matter if you don't have quality, ethical employees working for you. Yes, a company needs good internal controls, etc., but the most important thing is to have good, honest, quality employees. We see less and less of this because it is politically incorrect to teach our children in public schools the kind of Judeo - Christian values that made this country great! We are reaping what we have been sowing. Stay tuned for more of the same! As my grandpa use to say, "you can mark my word on it." Doug Shearer AICPA member.
Posted by DougShearer | Monday, August 10 2009 at 3:57PM ET
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