Yesterday we published a story about an AI-powered tax startup that received $10 million in venture capital on top of the $4.5 million they’d already raised to build their vision of a tech-forward option for high net worth clients. This vision includes buying up existing tax practices with revenue of less than $6 million and recruiting (we read that as poaching) top-tier talent.
Someone had this to say about it on Xitter:
One of the big 4 will lean in hard and acquire an AI tax solution. I think its going to be a huge opportunity.
I bet you’re right. The first couple of these startups to get it right, grow just enough for it to be sustainable, and get out before the bubble pops are going to score bigly. Who knows, maybe the startups will do so well big firms will buy them just to eliminate competition.
Someone else remarked that Big 4 are building their own AI solutions and while true, it’s our belief that they’ll want to absorb smarter, leaner external outfits like the one mentioned above because those businesses are built with a singular goal rather than Big 4’s wide net and scattered priorities. Not to say Big 4 AI solutions will suck (you can say that if you want, we’re going to be a bit kinder), rather that bringing it outside practices will enhance what they’ve already got.
A number of boutique professional services start-ups have an edge by being able to build AI into their work unhampered, he said. “There is a patch in the middle” between being nimble and having “enough critical mass to give you the momentum”, creating opportunities for mid-sized firms, Ball added.
“If you’re really big there are lots of challenges about driving that extent of cultural change,” Ball said. “The Big Four are spending a lot of money on AI, and they’ve got the resources and investment to do it, but they’ll have their own challenges for adoption, because they’re so big.”
Nimble is the perfect word for it. Think of Big 4 as a giant ship and these smaller shops as powerboats. If the motor boat has to stop or turn quickly it can, when Big 4 has to make a quick pivot it’s like that one scene in Titanic (we all saw that, right?).
See you in a couple years when our prediction comes true.
~ Update includes clarification of partner’s employment status and statements from accused’s attorneys via MarketWatch.
~ Update at circa 7:20 pm ET includes statement from Deloitte
If you thought all this insider trading fun was just for hedge funds you would be sorely mistaken. Deloitte seems to have another case of a partner who can’t seem to control himself when he gets some insider info. Earlier this year, former Deloitte Vice Chairman Tom Fla > shelled out $1.1 million to settle charges with the SEC.
This time around, it’s still a family affair – husband, wife, wife’s sister and brother-in-law job – and it went overseas:
The Securities and Exchange Commission today charged a former Deloitte Tax LLP partner and his wife with repeatedly leaking confidential merger and acquisition information to family members overseas in a multi-million dollar insider trading scheme.
The SEC alleges that Arnold McClellan and his wife Annabel, who live in San Francisco, provided advance notice of at least seven confidential acquisitions planned by Deloitte’s clients to Annabel’s sister and brother-in-law in London. After receiving the illegal tips, the brother-in-law took financial positions in U.S. companies that were targets of acquisitions by Arnold McClellan’s clients. His subsequent trades were closely timed with telephone calls between Annabel McClellan and her sister, and with in-person visits with the McClellans. Their insider trading reaped illegal profits of approximately $3 million in U.S. dollars, half of which was to be funneled back to Annabel McClellan.
The UK Financial Services Authority (FSA) has announced charges against the two relatives — James and Miranda Sanders of London. The FSA also charged colleagues of James Sanders whom he tipped with the nonpublic information in the course of his work at his London-based derivatives firm. Sanders’s tippees and clients made approximately $20 million in U.S. dollars by trading on the inside information.
So not a bad haul. The kicker is, Annabel was also employed at Deloitte, working in the London, San Jose and San Francisco offices. The McClellans provided information to the Sanders on several companies including Kronos, Inc., aQuantive, Inc. and Getty Images.
The SEC brass gave their standard scolding. First, Enforcement Chief, Robert Khuzami, “The McClellans might have thought that they could conceal their illegal scheme by having close relatives make illegal trades offshore. They were wrong.”
And San Fran Director Marc Fagel, “Deloitte and its clients entrusted Arnold McClellan with highly confidential information. Along with his wife, he abused that trust and used high-placed access to corporate secrets for the couple’s own benefit and their family’s enrichment.”
But the real story here is the second instance of insider trading charges against a Deloitte partner this year. The firm successfully sued Tom Flanagan back in January but you have to wonder if there isn’t some flaw with the firm’s internal oversight. Not long after the Flanagan suit, we reported on the 475 reprimands for internal noncompliance in 2009. Those reprimands did not mention insider trading specifically but over 200 of them were related to independence violations. Pattern? You can weigh in below.
Anyone with any knowledge on this story is invited to get in touch with us. as it is not clear if there has been any internal repercussions yet. Messages (including voicemail, carrier pigeon and morse code) left with Deloitte have not been returned (see statement below).
Lawyers for Arnold McClellan denied charges Tuesday by the Securities and Exchange Commission that the former Deloitte Tax LLP partner was involved in a big insider trading scheme. “Arnold McClellan denies the SEC’s claims and will vigorously contest them,” Elliot Peters and Christopher Kearney of Keker & Van Nest LLP said in a statement on behalf of McClellan. “He did not trade on insider information, and there will be no evidence that he passed along any confidential information to anyone.” McClellan “had no financial incentive to commit the actions alleged,” the lawyers added. “He is a conscientious, law-abiding professional with a 23-year unblemished track record of client service at Deloitte to prove it. We will see the SEC in court.”
And just to clarify, McClellan is no longer with Deloitte, leaving the firm in June of this year. Deloitte spokesman Jonathan Gandal emailed us the firm statement (see below) still hasn’t returned our call (busy day, right?) but managed to give a statement toand was quoted by Reuters, saying that he was “shocked and saddened” by the allegations and “If the allegations prove to be true, they would represent serious violations of our strict and regularly communicated confidentiality policies.”
UPDATE 2: Here is the full statement from Deloitte:
“We are shocked and saddened by these allegations against our former tax partner and members of his family. If the allegations prove to be true, they would represent serious violations of our strict and regularly communicated confidentiality policies. Deloitte is committed to safeguarding non-public client information and has cooperated with the SEC throughout its investigation. The SEC does not allege any wrongdoing by Deloitte in this unfortunate matter.”
Last week, we tried to get the ball rolling on Ernst & Young compensation rumors and while some may chalk up the lack of chatter to “PwC sticker shock,” others claim this is simply standard operating procedure. If you remember last year, eventually Ernst & Young reported some impressive raises that kept pace with P. Dubs but one of Turley’s troops is expecting the worst this year and would like to give a partner a piece of his mind. Unfortunately, he isn’t sure how to do it:
Hello,
By way of introduction, I am a loyal reader of going concern as well as a big four slave in the audit practice. Slavery had begun four years ago at EY and with all the compensation talk going on at other big four firms, I can’t help but to think –
What is a tactful way of telling a partner during the comp talk, “well thank you for that oh so very generous double digit percentage raise (assuming if it’s even double digit), but I am still unhappy because even after this supposed raise, you are still not paying me jack for the amount of contribution and commitment that you demand from me.”
As noted above, I’m a second year senior from an east coast office and my base is still not breaking mid-60s. Seriously, what the f___?
I will be forever grateful if you post my question up for discussion. Thanks so much!!!
Yours,
Angry EY audit senior
There are various directions we can take here so I’ll try to cover a few options before turning it over to you all.
A. Start off with a variation of, “Look, I’m an ungrateful, bitchy auditor. I also have unrealistic expectations and an inflated notion of my self-worth. I’d really appreciate an explanation as to how you can reconcile these traits to this paltry 10-15% raise.”
Now you may not think these are “tactful” ways to have this conversation but he did sign, “Angry EY Audit Senior.” If I tried to reason with this person, I’d be doing him a disservice. And when is honesty ever not tactful? If you sugarcoat your frustration, the partner will assume you’re a pushover like everyone else. My guess is most partners want you to give it to them straight. If you’re a performer (and something tells me you think you are) than this partner doesn’t want to lose your talent.
Having said all that, not everyone can muster up the courage to ditch the filter in these meetings. If you’ve got better more practical ideas than what I’ve listed, feel free to bestow your sage advice below.
One thought on “Big 4 Might Have Trouble Winning the AI Race”
The biggest challenge the Big 4 firms (all of the large firms, really) have always had is their lack of creativity and imagination. Doesn’t bode well for all changes that are rapidly occurring in our economy and society. If these firms were publicly traded, these weaknesses would need to be disclosed in the risk factors section of their SEC filings…
“Our firm is run by a bunch of accountants who have worked here their entire career. Leadership’s lack of creativity and imagination presents a significant risk that the firm will not be able to recognize and adapt to changes in the macro business environment, and missed opportunities and necessary strategy adjustments could cause the firm to crash and burn or slowly die.”
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The biggest challenge the Big 4 firms (all of the large firms, really) have always had is their lack of creativity and imagination. Doesn’t bode well for all changes that are rapidly occurring in our economy and society. If these firms were publicly traded, these weaknesses would need to be disclosed in the risk factors section of their SEC filings…
“Our firm is run by a bunch of accountants who have worked here their entire career. Leadership’s lack of creativity and imagination presents a significant risk that the firm will not be able to recognize and adapt to changes in the macro business environment, and missed opportunities and necessary strategy adjustments could cause the firm to crash and burn or slowly die.”