Huron Consulting LLP, the Chicago firm formed in 2002 by 25 partners defecting from Arthur Andersen, revealed in an 8-K on July 31 that it would restate its earning for 2006, 2007, and 2008 because of an accounting error related to the acquisition of four businesses. Chief Executive Gary Holdren, Chief Financial Officer Gary Burge, and Chief Accounting Officer Wayne Lipski resigned from the company. The Securities and Exchange Commission (SEC) is investigating the accounting errors. .
In connection with the management changes announced in the 8-K, Huron said that no severance expenses were expected to be incurred by the Company.
As a result of the restatement, net profit for the three years dropped from $120 million to $63 million. Following the announcement Huron's stock fell $30.66, or 69 percent, to $13.69, the Chicago Tribune reports. .
Huron built a reputation as an expert on litigation and regulatory issues, the Tribune
reported. It advised United Airlines, a unit of UAL Corp, on its bankruptcy and helped uncover accounting shortfalls at mortgage giant Fannie Mae
Huron had accounted for payments to some employees of four businesses acquired between 2005 and 2007 as goodwill. The company discovered after an internal inquiry that some of the employees were not selling shareholders and Huron should have accounted for these payments as non-cash compensation expense.
In the 8-K
Huron says that the Audit Committee of the Board of Directors of the Company discovered that, in connection with one of the 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.
The Audit Committee then commenced an inquiry into the relevant facts and circumstances of all of the Company’s prior acquisitions to determine if similar situations existed. The Company notified their independent auditors, PricewaterhouseCoopers, who had not previously been aware of the Shareholder and Employee Payments.
According to the 8-K, the inquiry found that the selling shareholders had redistributed portions of acquisition-related payments among themselves in amounts that were not consistent with their ownership percentages at the date of acquisition by the Company. The payments were also dependent, in part, on continuing employment with Huron or on the achievement of personal performance measures.
The selling shareholders also redistributed portions of their acquisition-related payments to certain Company employees who were not selling shareholders of the Acquired Businesses. Again, the payments were dependent on continuing employment with Huron or on the achievement of personal performance measures.
The 8-K also acknowledged that Huron was responding to a separate inquiry by the SEC into the allocation of chargeable hours. “This matter has no impact on billings to the Company’s clients, but could impact the timing of when revenue is recognized. Based on information to date, the Company does not expect the allocation inquiry to result in a material adjustment to its historical financial statements” the company said in its filing.