In case you missed it, one of the more interesting bits of information Monday was the spectacular blow up by Huron Consulting Services (HURN). The company basically restated its last 3 years of earnings, sacked its Chairman and CEO, and killed its stock which at last check was down 70%.
Turns out the company was guilty of some mega shady compensation arrangements in its recent acquisition spree, trying to mask acquired earnings as organic growth:
It recently came to the attention of the Audit Committee of the Board of Directors that, in connection with one of these acquisitions, the selling shareholders had an agreement among themselves to reallocate a portion of the earn-out payments to an employee of the Company who was not a selling shareholder. Following this discovery, the Audit Committee commenced an inquiry into the relevant facts and circumstances of all of the Company’s prior acquisitions to determine if similar situations existed. The Audit Committee engaged legal and financial advisors to assist it with the inquiry and notified the Company’s independent auditors who had not previously been aware of the Shareholder and Employee Payments described below.
And here is why PriceWaterhouse Coopers will be having a field day explaining how it missed over 3 years of blatant accounting gaming.
1) Redistributed portions of their acquisition-related payments among themselves in amounts that were not consistent with their ownership percentages (“Shareholder Payments”) at the date of acquisition by Huron. Such payments were dependent, in part, on continuing employment with Huron or on the achievement of personal performance measures; or
2) Redistributed portions of their acquisition-related payments to certain Company employees (“Employee Payments”) who were not selling shareholders of the Acquired Businesses. Such payments were dependent on continuing employment with Huron or on the achievement of personal performance measures.
And as much as we respect Huron (or we did), we doubt they came up with this idea by themselves. It will be comic to see how many other smallish companies that recently underwent a massive growth campaign via M&A roll ups were paying the guys they acquired through back door schemes and avoiding an EPS hit. But who really cares about one company turning out to be a Ponzi when the administration has closed it eyes and given its blessing for a wholesale Fed-funded pyramidization of the overall economy. At least those in charge set a pretty good precedent with Barney, and once the pyramid is unwound, one can hope (but not really expect) to see comparable retribution for those who are encouraging the Madoff-esque fraud on all of the capital markets.