AICPA CEO Bows to Controversy Over CPA2Biz Stake

On March 29, 2002, the New York Times reported that Barry C. Melancon, president and chief executive of the American Institute of CPAs (AICPA) has agreed to donate his shares of CPA2Biz to charity. The decision came in the wake of considerable controversy over the appearance of a transaction nearly two years ago in which Mr. Melancon was given an opportunity to purchase a personal stake in the dot com that serves as AICPA's marketing and distribution arm.

Several factors combined to create the controversy:

1. The Times reported that, under changes filed two months ago to CPA2Biz's Delaware certificate of incorporation, Mr. Melancon's holdings have now grown to about 1.2 million shares and these holdings were recently valued at $5 million. A spokesperson for AICPA was unable to confirm this number.
2. The transaction was not widely disclosed when CPA2Biz was formed, and some AICPA members were concerned that any subsequent disclosure might undermine the effectiveness of a lobbying campaign in which Mr. Melancon speaks out against proposed audit reforms involving conflicts of interest.
3. Some critics were especially concerned about the similarities between the CPA2Biz transaction and the formation of the special purpose entities at Enron. These concerns focus on Mr. Melancon's receipt of personal benefits from what might be seen as an "insider transaction" and his ability to oversee the AICPA's relationship with a company in which he holds a substantial interest.

Lawsuits, petitions and distractions

The Times said the controversy had grown to the point where Mr. Melancon's critics went so far as to initiate a petition drive to remove him from office, and BDO Seidman, the nation's sixth largest accounting firm, has sued the AICPA over its ties to CPA2Biz. But Mr. Melancon, who serves as chairman of CPA2Biz, has defended the transaction in recent months, saying it was not improper. He said he was permitted to purchase a 1% stake in the dot com in return for an investment of $100,000. Although a spokesperson for AICPA said the investment was made with Mr. Melancon's own money and at his own risk, the transaction was reviewed and approved by the AICPA's governing council. Other AICPA leaders add that the transaction was also approved by the AICPA board of directors before it was presented to the council. Mr. Melancon reportedly told the Times he had taken the stake at the insistence of other CPA2Biz investors, including Microsoft, Thomson and others when they were considering investing more than $50 million in the dot com. To date, a spokesperson for CPA2Biz says, the amount of capital raised from outside investors has exceeded $100 million.

Mr. Melancon said he started thinking during the past month about donating the stock to charity. "This was a distraction to communication," he reportedly told the Times. "It just was causing us to not be focusing on the issues on Enron, the issues of change to be made." (Audit Group's Chief To Donate Disputed Stock to a Charity, New York Times, March 30, 2002.)

-Rosemary Schlank