Audit & Accounting

Federal prosecutors have charged a California lawyer with taking illegal payoffs to act as a plaintiff in lawsuits brought by an unnamed New York law firm that has been identified in published reports as securities class-action giant Milberg Weiss. The indictment, handed down last week, alleges that Seymour Lazar acted as lead plaintiff in dozens of corporate class-action suits filed by Milberg Weiss in return for a share of the attorneys' fees, which is illegal -- though paying a bonus to lead plaintiffs is not. It said that Lazar had received at least $2.4 million in "secret and illegal kickbacks" from the firm, and that the firm had filed false and misleading court documents and hid the payments from the courts. In comments reported in the Washington Post, Lazar's lawyer characterized the payments as common fee-splitting practice, and said that the charges were an attempt to get Lazar to say negative things about Milberg Weiss. The law firm, through a spokeswoman, acknowledged that it was the firm in question, and in various reports said that it was cooperating with the government, and that the accusations were "baseless." The indictment is part of a three-year investigation into the practices of Milberg Weiss Bershad Hynes & Lerach, which split last year into two entities based separately in New York and San Diego.

In a deal motivated in part by stricter regulation, Citigroup announced Friday that it will swap its asset management business for the broker/dealer business of Baltimore-based Legg Mason. Citi will get $1.5 billion in common and preferred Legg Mason shares as part of the $3.7 billion deal, which lets the company ditch the less-profitable business of creating its own asset management products, while avoiding the conflict of interest of having its sales force promote both in-house and external funds. Under a separate arrangement, Citi will continue to be able to offer its clients its asset management products. Legg Mason will gain approximately $437 billion of assets under management. The deal, which had been under discussion for some time, is expected to close toward the end of the year. Separately, Legg Mason announced that it was paying $800 million for 80 percent of hedge fund company Permal Group, with an option to buy the rest. Permal is one of the largest fund-of-funds operators in the industry, with around $20 billion under management.

Porter Keadle Moore is reaping benefits from presenting annual seminars on two hot topics: going private in the age of Sarbanes-Oxley, and the benefits from bankers' perspectives of S corporations. "Going Private, Staying Private" was put together in six weeks to address the large number of public company clients and prospects that had been inquiring about deregistering from the Securities and Exchange Commission to avoid the headaches of SOX compliance, according to the Atlanta-based firm's director of marketing, Laura Snyder. The half-day seminar drew 75 attendees, and was co-sponsored by PKM and a law firm. Topics included how to structure and execute such transactions; a valuation, funding and liquidity discussion with investment bankers; real-life anecdotes on community reaction; and tips on staying private. The second seminar, "New Rules Make S Corp a Better Bet for Banks," was the fourth annual forum on the topic of S corps. This year, the seminar drew some 90 attendees from across the country, and focused on the regulatory changes that make S corps a stronger structure for closely held businesses. The two-day event was co-sponsored by PKM, a law firm and a correspondent bank, and featured a panel of bank executives who discussed their conversion to S corporations, and outlined the new S corp basics, including regulatory changes, core financial benefits of S corp election, ways to structure a sale, shareholder issues and shareholder agreement, growing an S corp versus a C corp, employee stock ownership plans, compensation strategies, and raising capital. The goal is to draw between 65 and 150 clients, prospects and referral sources to each event, says Snyder. "Because we charge for these events and share the remaining expenses between the co-hosts, the cost for each seminar typically ranges from $750 to $6,500. In addition, we enhance our value to existing clients, and typically generate new business from one or two prospects that has ranged from $17,000 at one event to $64,000 at another." The invitation list is assembled from the client/prospect databases of the seminar hosts, and contains some 3,000 names. "Because a large portion of the target audience is registered with the SEC, the database information is available to the public," Snyder says. Snyder adds that these seminars "establish PKM as an expert on S corporation taxation and other hot accounting issues; disseminate details regarding tax law and accounting regulation changes to clients and prospects; demonstrate the cooperative working relationship between the seminar hosts; enhance the firm's partnership with seminar hosts, thus increasing referrals; generate new business; and provide an opportunity for CPE credit for bank attendees, firm presenters and firm attendees."

Big Four firm KPMG, which is sweating out a possible indictment from the Department of Justice over its sale of tax shelters, is working to limit its liability from civil suits by negotiating with class-action firm Milberg Weiss Bershad & Schulman.According to The New York Times, Milberg Weiss is working with the firm to reach a "prepackaged settlement" with clients of the shelters who claim that they were hurt by purchasing the products.According to documents filed in federal district court in Hot Springs, Ark., KPMG had recently began talks with Milberg Weiss; under the reported settlement terms, KPMG would pay $195 million.A representative from Milberg Weiss told WebCPA that the firm could not comment. Currently, the firm faces a class-action suit filed by Bernstein Litowitz Berger & Grossmann, and the class includes purchasers of a KPMG shelter from January 1998 to Oct. 31, 2000.Other defendants in the class action are Presidio, an investment advisory firm started by former KPMG partners; Deutsche Bank; and Sidley Austin Brown & Wood, a law firm that issued favorable opinion letters on the shelters.

President Bush's Advisory Panel on Federal Tax Reform will likely hold a July meeting to review the information and comments gathered during the ten days of public hearings that the panel has convened since its inception in January. According to Tax Analysts, the reform panel groups have been reviewing materials in preparation for their final recommendations, which is scheduled to be presented to Treasury Secretary John Snow Sept. 30. Prior to that, however, the panel's final recommendations will probably be presented in a September public hearing.

Big Four firm PricewaterhouseCoopers and McLean, Va.-based Brabeion, a provider of IT security risk and compliance tools, have entered into a pact whereupon Brabeion will be PwC's third-party provider of security content as part of Brabeion's Enterprise Security Architecture System. Terms were not disclosed. PwC originally developed ESAS to help large organizations manage and implement enterprise-wide security policies. Brabeion purchased the ESAS solution from PwC in April 2005.

The Multistate Tax Commission, a consortium of 47 state governments that works to hone the administration of tax laws applicable to multistate enterprises, has named Joe Huddleston Esq. as its executive director. Huddleston begins begin Aug. 1, and succeeds interim ED Rene Y. Blocker. Huddleston was most recently vice president of tax solutions for Liquid Engines Inc., a tax software firm focused on state income tax planning models and methodologies for multi-state and multinational companies. Prior to that, he was a state and local tax partner at national CPA firm Grant Thornton, serving middle-market and Fortune 500 companies He also served as commissioner of the Tennessee Department of Revenue from 1987 to 1995. "I look forward to working with state tax organizations as we address the challenges that will define the next several years," said Huddleston in a statement. "The MTC has made enormous strides in recent years, and I very much intend to help write the next chapter of the continuing success story at the commission."

Following a decision by a federal appellate court that overturned a Securities and Exchange Commission ruling that required at least 75 percent of mutual fund directors to be independent of the fund company, the commission said that it would vote on the matter June 29. The SEC adopted the rule roughly a year ago, when the $7 trillion mutual fund industry was embroiled in a series of late-trading scandals. The SEC mandate required that the fund board chairman and three quarters of fund directors have no direct ties to the manager of the respective fund. The court ruled that the regulator had the authority to adopt the rule; however, it maintained that the commission had not considered any alternatives and did not consider the costs of such a rule. Under that mandate, it was estimated that roughly 3,700 funds would have to seek new chairmen. Prior to next week's vote, the SEC would have to perform more extensive studies on the costs of compliance with the rule.

H.B. 492, a bill requiring personal finance education for high school students in Texas, has been signed into law by Gov. Rick Perry. The bill, which had the support of the Texas Society of CPAs, was first introduced in the Texas House of Representatives. Prior to its passage, TSCPA chairman Ed Polansky had testified in favor of the legislation in March. Polansky said that the TSCPA would help school districts comply with the bill by continuing to make available the multi-lesson curriculum guide that was developed by the American Institute of CPAs. Texas now becomes the eighth state to require personal finance education for high school graduation, joining Alabama, Georgia, Idaho, Illinois, Kentucky, New York and Utah.

The Professional Oversight Board of Accountancy, the auditing regulator for the United Kingdom, said that it had discovered some procedural deficiencies in a round of audit inspections of 27 British corporations conducted by Big Four firms. Overall, the report stated that it didn't find any "systemic weakness" in the auditing firms' procedures, but noted that in at least two instances, the POBA had concluded that "there was sufficient doubt as to whether" the company being audited "had applied the correct accounting treatment or made appropriate disclosures." "The quality of audits is under threat from a number of risks which are not addressed by all firms in all audits," said POBA Chairman Sir John Bourn. "We found that each of the Big Four firms of auditors have the necessary infrastructure in place, and the commitment, to complete good quality audits. However, where the firms do not follow their own procedures they expose themselves to the risk that future audit opinions may not be appropriate." However, the report did not specifically identify any of the firms in the report -- KPMG, PwC, Ernst & Young and Deloitte. The POBA was established last year. A copy of the report can be obtained at www.frc.org.uk/poba/publications/.