Venture Fund Sues PricewaterhouseCoopers for Alleged Audit Deficiencies [WSJ]
You don't read about venture or private equity funds suing their auditors very often, but here we have a fund started by Burrill & Co. suing PwC:
The fund, Burrill Life Sciences Capital Fund III LP, contends that PwC, its auditor, repeatedly approved its financial statements as sound from 2007 to 2013, when the firm should have scrutinized and alerted investors to transactions that weren’t allowed.
Specifically, BLSCFIII says management fees were transferred when they shouldn't have been by its Burrill & Co. founder, G. Steven Burrill, who is also being sued by the fund's new owner, Kearny Venture Partners:
Many of these transfers were labeled as management fees for work not yet done—even though the fund’s contracts didn’t allow for advanced payment of those fees, according to the fund’s lawsuit. The fund alleges that PwC failed to check if these transactions were permissible.
Many, many moons ago, I worked on alternative investment fund audits and, even though I know little about this particular case, it seems a little unbelievable that PwC would screw up something as simple as payment of management fees for six years. The fund alleges that the money was "used to market other investment products" and then in 2013, the fund didn't have the necessary capital to make good on some deals it committed to. For its part, PwC says it will "defend itself vigorously."
Firms, Regulators Try to Sort Out What’s Worth Disclosing to Investors [WSJ]
Are we suffering from disclosure overload? Meh, probably. It's more or less accepted that we're living in an age of information overload in general, so it's unlikely that corporate disclosures are any different. Here's a good example:
The Iran Threat Reduction and Syria Human Rights Act of 2012 requires companies to publicly disclose their activities with those nations. AXA Group said in an SEC filing this year that it provides car insurance to the Iranian Embassy in Berlin, and some of the embassy’s staff—taking in annual premiums of about $13,000. AXA didn’t reply to requests for comment on the effort it took to turn up those details.
AXA is a $60 billion company. Even if you're a hawk on Iran, I'm not sure $13k in car insurance for its diplomats is the kind of information that would change your investing decisions. The other thing that's interesting is that the article lacks the perspective of any investor advocates. The closest it gets is someone at the CFA Institute and an NYU professor. Business interests are represented heavily throughout and they are more than happy to talk about the burden of time, cost, effort etc. etc.
As long as non-quantitative measures are used, materiality will always be a hard thing to pinpoint. Just ask Valeant.
Valeant Gains as Citron Refrains From New Allegations [Bloomberg]
Speaking of Valeant, the report from Citron Research that said the company could be the "pharmaceutical Enron" has been mostly discredited but now that everyone else started sniffing around, Citron's Andrew Left is going to listen to his lawyers:
"They said if you get too deep into this thing, which you already are, let the other guys do the heavy lifting,” Left said. “It’s not my job to be judge, jury and executioner on this. People think I’m going to take a company that’s been financially engineered by the best minds in the pharmaceutical business and I’m supposed to take it apart in 2 1/2 weeks? What am I, the short-selling MacGyver?”
Matt Levine asks, "If getting the report right requires the skills of MacGyver, and you lack those skills, maybe don't publish the report?" Despite all that, in its new report, Citron "stands by our Enron analogy."
In other news: