What Did Ernst & Young Call Lehman’s ‘Goat Poo’ Assets?
Considering E&Y was, ya know, the auditors and all, they should have been aware that these assets were a grade or two (or three) below human excrement and probably had some name for them.
Lehman Brothers Holdings Inc (LEHMQ.PK) filed for bankruptcy on Sept. 15, 2008 and then quickly sold its prize investment banking assets to Barclays Bank (BARC.L). JPMorgan had been Lehman’s banker. The court papers, filed in U.S. Bankruptcy Court in Manhattan on Thursday, said that Barclays and Lehman called certain Lehman assets “toxic waste” and “goat poo” and knowingly excluded them from their sale agreement.
Jim Turley has been a willing participant in this whole thing so far but were far more interested in what you guys think.
How Long Does It Take to Climb the Ladder at Ernst & Young?
Welcome to the where-the-hell-is-Bahrain? edition of Accounting Career Emergencies. In today’s edition, a future E&Y tax associate wants the lowdown on the black and yellow ladder. How high are these rungs, anyway?
Caught in a career conundrum? Have a co-worker that keeps swiping your red Swingline? Want to put the moves on a fellow auditor in the copy room? Email us at [email protected] and we’ll help you avoid anything that involves in a knuckle.
Back to our girl on the partner track:
Hi,
I will be starting in the tax dept of a Big Four soon.
How long would it take to move up the tax ladder? (Yes, yes I know your response will be to start first before I start thinking about promotions… But I am thinking ahead…)
What is the minimum number of years typically required at each level? Are exceptions ever made? What goes into promotion decisions? How long would it take to get to the partner/director level? Is the promotion criteria generally standard across all Big Four or is there some variation?
Thanks,
Ms. Thinking Ahead
Dear Ms TA,
You’re quite the eager….errr, go-getter aren’t you? That’s good, I like my accountants ambitious. We’re not intimately familiar with the ladder at E&Y but we’ll give it a go and let the bean gallery fill in the gaps.
Typically, you can expect to be an associate two to three years before being promoted to senior. Depending on the needs of your practice group and your performance, this could be shorter or longer. In order to get the bump to manager, you can expect another three years at a minimum, again, subject to the needs of your group and whether or not you’re impressing the pants off the brass. From there, you can expect at least two years at manager, another two to three as a senior manager and then, if you’re lucky and you have a good business case, TPTB might start looking at your for admittance to the partnership. Altogether, you’re looking at a bare minimum of nine years before you can even get a whiff of partner and twelve to fifteen is probably a more realistic time frame. There are exceptions of course but that’s more or less the timeline.
Because tax doesn’t have the same fee pressure as their audit counterparts the wait might not be as long but don’t forget, not just anyone gets into the partnership. You need to be a performer and be able to win new clients. The benefit of tax is that it has more diverse career paths available, so if you find discover that you’re a wizard at transfer pricing or M&A, you might see a quicker ascension.
This presupposes the fact that you obtain your CPA in a timely fashion as most tax practices will not promote you to manager without a CPA, a JD or EA. How about it black and yellow tax troops? Dispel with the gory details as necessary.
Ernst & Young Employee Ups the Farewell Email Bar By Including Self-Made Rock Video
Last month, we kicked off a new year of epic farewell emails by sharing an ex-Deloitte employee’s somber sendoff. This was followed-up with a P. Dubber who answered the call to fight crime on the streets of Baltimore.
Today, we bring you the latest in epic sendoffs, this time courtesy of the “Black and Yellow.”
My fellow citizens of EY nation past and present. I know the EY grapevine talks, so this email probably doesn’t come as much of a surprise, but I wanted to personally let you know. Tomorrow is my last day here at this beautiful place called Ernst & Young. It’s almost been 6 years, which I believe EY years to be somewhat like doggie years, so that probably comes out to more like 7. Monday, I am moving into a new role as a [number cruncher] for [new employer] (here in [a city]). I am very excited about this new opportunity, but over the past few weeks, I have become oddly nostalgic about this place. So those 17 pages of EY jabs and complaints that I’ve been compiling for this day will have to stay with me. Just kidding! It certainly hasn’t been an easy road, but I honestly know I’ve gained some valuable experience, knowledge and skills I wouldn’t have in another position. I’ve also really enjoyed working with you all over the years and hope our paths cross in the future. Even though some of you are crazy workaholics, it’s so nice to be able to know that you will get the job done and even share a joke or a story along the way. I appreciate all that has been done for me and as a token of my appreciation I’ve thrown together a going away present from me to you:
Favorite lyrics and whether he’s as good as Steve Beguhn are now on the floor for discussion.
Jim Turley Doesn’t Seem to Be Tired of Answering Questions About Lehman Brothers
Jimbo does admit that “we are not pleased to be in the spotlight like this” but per ushe, he takes it in stride and says, “it is something that we will deal with.”
Turley Says Specifcs From Obama Need to Come `Quickly'
Uploaded by Bloomberg. – News videos hot off the press.
The Fortune 100 Best Companies to Work For: Ernst & Young #77 (2011)
Well, there had to be a biggest loser in Fortune rankings this year amongst the accounting firms and this year the honor belongs to E&Y. Now, we’re sure you’ll give us your thoughts on why you think the firm took a dive from #44 (highest ranked firm last year) to #77 but the fact that Fortune indicates the firm dropped subsidized gym memberships could be a good place to start. Maybe E&Y decided it prefers its people on the frumpy side? Or maybe they’re simply saving for the Lehman Brothers defense fund?
Ernst & Young – Previous rank: #44. Need reasons? How about corporate citizenship? Fortune says, “The consulting and auditing firm donated some $31 million to charitable causes in 2009, including $6.4 million in matching contributions.”
Stats of note:
• New Jobs (1 year): -1,751
• % Job Growth (1 year): -7%
• % Voluntary Turnover: 11%
• No. of Job Openings at 1/13/2010: 10,000
• Most common salaried job: Manager – $102,593
• % Minorities: 29%
• % Women: 49%
Taking a look at last year’s stats, new jobs, percentage job growth, voluntary turnover, average salary for most common job all trended negatively. Percentage of minorities was flat and percentage of women ticked down 1%. The number of job openings jumped from 622 last year to the 10,000 above, so interpret you can either interpret that as “we’re desperate for people” or “we’re growing like gangbusters.” Arguments for each, thoughts on the 33 slot drop or speculation on what kind of cigars Jim Turley (Cohibas, we thinks) took to Davos are welcome at this time.
Earlier:
The Fortune 100 Best Companies to Work For: Plante & Moran #26 (2011)
The Fortune 100 Best Companies to Work For: Deloitte #63 (2011)
The Fortune 100 Best Companies to Work For: PwC #73 (2011)
The Fortune 100 Best Companies to Work For: Ernst & Young #44
You’d Be Wrong If You Thought the Ernst & Young Golden Globe Auditors Were Taking a Back Seat to Other Award Show Auditors
Because, really, is team of Ernst & Young and Ricky Gervais versus PwC, James Franco and Anne Hathaway even a debate?
If you feel strongly about it we’ll hear you out but it’ll take some convincing.
The winners of the 68th annual Golden Globe® Awards will remain a secret until they are revealed January 16 to millions of viewers around the world, thanks to the efforts of Ernst & Young LLP, a leader in assurance, tax, transaction, advisory services and strategic growth markets. The Hollywood Foreign Press Association has relied on Ernst & Young for the past 38 years to conduct the ballot tabulation process of the Golden Globes® with security, integrity and reliability.
And just in case you’re concerned about Ernst & Young’s “security, integrity and reliability” because of you know who, the protocols have been laid out in detail:
• Winners are known only to three senior Ernst & Young executives in advance of the telecast;
• Ernst & Young is also responsible for qualifying voting members of the Hollywood Foreign Press Association, confirming that their credentials are current and meet the standards set forth by the Hollywood Foreign Press Association;
• Ernst & Young controls the entire voting process beginning with the nomination ballots, and maintains control of the ballots until the telecast is over;
• Results are triple-checked to eliminate any margin of error; and
• Winner envelopes are assembled by Ernst & Young and are maintained exclusively under Ernst & Young’s control until they are handed directly to each celebrity presenter moments before they appear on-stage.
Did We Also Mention Our Flexible Work Schedule Arrangements?
“We stand by the audit opinions issued by Ernst & Young relating to the financial statements of Lehman Brothers.”
~ Sarah Jurado, a spokeswoman for Ernst & Young in the UK, who sounds like she’s got the talking points down, quoted in Bloomberg.
KPMG Takes Subtle Approach Wooing Anyone Interested in a Job at Ernst & Young
Recruiting for the talent amongst the Big 4 is competitive. This is known. What isn’t widely known are all the tactics in this competitive game of catch the accountant. In the past, we have seen direct solicitation by an E&Y recruiter which may be an effective method but it may be too abrasive for many within in the business who value propriety over the win-at-all-costs attitude.
Now comes news of a more subtle approach from KPMG, courtesy of an E&Y tipster who was searching for the firm’s career website:
While searching for the link to my firm’s career website I stumbled upon a pretty awesome ad (in a “ohhhh no you didn’t!” sort of way).
Since we’re fairly unfamiliar (read: completely unfamiliar) with Google’s method to the madness, we can only speculate how this little link found its way to the very top of Google search of “ey careers” but it does say “Ad,” so make of it what you will. Anyhoo, just for fun, we did our own quick Google Search of “ey careers” and got this:
So, it’s in the margin for us as opposed at the very top. But it’s still prominently placed on the search page and it’s also pretty hilarious that the hyperlink, “Ernst & Young Opportunities” goes directly to a KPMG URL (yes, it’s clearly disclosed by the Jobs.KPMGCareers.com at the bottom but who pays attention to that?). Perhaps our tendency to make mountains out of molehills is getting the best of us here but at the very least, this is an exciting twist on Sneaky Pete Piet.
Making Sense of the Ernst & Young Defense
Over at Bloomberg, Jonathan Weil (who has the tendency to let the dust settle before chiming in) takes Ernst & Young to task for their lack of willingness to take responsibility for the Lehman Brothers bankruptcy and digs up a bunch of old bodies in the process.
E&Y had established itself as a repeat offender long before Governor-Elect Cuomo filed his suit. In recent years we’ve seen four former E&Y partners sentenced to prison for selling illegal tax shelters, while other partners have been disciplined by the SEC for blessing fraudulent financial statements at a variety of companies, including Cendant Corp. and Bally Total Fitness Holding Corp.
In the Bally case, E&Y last year paid an $8.5 million fine, without admitting or denying the SEC’s professional-misconduct claims. The SEC also has imposed sanctions against E&Y three times since 2004 for violating its auditor-independence rules.
After that friendly reminder (which certainly makes some people wince), JW takes a look at the E&Y’s response to the suit, specifically the part where they more or less say that Cuomo is off his rocker, “There is no factual or legal basis for a claim to be brought against an auditor in this context where the accounting for the underlying transaction is in accordance with the Generally Accepted Accounting Principles (GAAP).”
Weil says E&Y is missing the point entirely:
That isn’t an accurate depiction of the claims Cuomo brought, though. Cuomo’s suit unambiguously took the position that Lehman violated GAAP. What’s more, it’s not credible for E&Y to say that Lehman didn’t. (An E&Y spokesman, Charles Perkins, said he “can’t comment beyond our statement.”)
In the footnotes to its audited financial statements, Lehman said it accounted for all its repurchase agreements as financings. This was false, because Lehman accounted for its Repo 105 transactions as sales, a point the Valukas report chronicled in exhaustive detail.
The question is, of course, if this all adds up to fraud on E&Y’s part. Cuomo says it does. Weil says that E&Y needs to come up with a better story. Colin Barr, on the other hand, writes that E&Y could easily turn the tables:
The Ernst & Young statement suggests the firm will argue that it can’t be prosecuted under the Martin Act because Lehman, not E&Y, was the outfit actually producing the financial reports, and because it was Lehman, not E&Y, that was peddling billions of dollars of securities just months before its implosion.
In this view, E&Y was just a gatekeeper hired to vouch for Lehman’s books, something it will claim it did well within the confines of the law. This strikes lawyers who are familiar with the law as an eminently reasonable approach, if not exactly a surefire recipe for success.
“If I were Ernst & Young, I would assert I was not a primary actor,” said Margaret Bancroft, a partner at Dechert LLP and author of a 2004 memo that explained the Martin Act soon after Spitzer began brandishing it against Wall Street. “You can say that with more than a straight face.”
“Just gatekeepers,” and not “fraudsters,” is obviously the preferred view but the catch is, E&Y would be admitting that they are really shitty gatekeepers.
Ernst & Young Wants a Showdown
This was worth the wait.
Directly from the firm’s website:
Ernst & Young’s Response to New York Attorney General’s Complaint
New York, 21 December 2010 – We intend to vigorously defend against the civil claims alleged by the New York Attorney General.
There is no factual or legal basis for a claim to be brought against an auditor in this context where the accounting for the underlying transaction is in accordance with the Generally Accepted Accounting Principles (GAAP). Lehman’s audited financial statements clearly portrayed Lehman as a highly leveraged entity operating in a risky and volatile industry.
Lehman’s bankruptcy occurred in the midst of a global financial crisis triggered by dramatic increases in mortgage defaults, associated losses in mortgage and real estate portfolios, and a severe tightening of liquidity. Lehman’s bankruptcy was preceded and followed by other bankruptcies, distressed mergers, restructurings, and government bailouts of all of the other major investment banks, as well as other major financial institutions. In short, Lehman’s bankruptcy was not caused by any accounting issues.
What we have here is a significant expansion of the Martin Act. Although the Martin Act is almost 90 years old, we believe this is the first time that an Attorney General is attempting to use this law to assert claims against an accounting firm, rather than the company that took the alleged actions.
We look forward to presenting the facts in a court of law.
In other words, Andy – get lost; drop dead; suck it. AM Law Daily reports that E&Y has big guns on the case:
Miles Ruthberg, a former global litigation chair at Latham & Watkins, confirmed, via an e-mail to The Am Law Daily, that he’s representing E&Y in the suit along with Latham securities litigation and professional liability cochair Jamie Wine and Kramer Levin Naftalis & Frankel white-collar defense and SEC regulatory cochair Barry Berke. Latham, which has previously represented E&Y, has been handling securities litigation against the accounting firm stemming from Lehman’s failure.
To mark this occasion, we present an appropriate video (BL-inspired):
Fraud Experts: Calls for Criminal Charges Against Ernst & Young Are ‘Absurd’
Since Andrew Cuomo decided to make our lives insanely busy this week, we’ve been talking to lots of different people about what will happen next in the Ernst & Young saga. We stumbled across a couple of experts, Dr. Mark Zimbelman an Accounting Professor who specializes in fraud, forensic accounting and auditors’ detection of fraud at BYU’s Marriott School of Business, along with his son, Aaron Zimbelman, a doctoral student at the University of Illinois at Urbana-Champaign whose research interests include auditing, financial statement fraud and corporate governance.
The father and son team have a blog, Fraudbytes, that discusses, well< arious forms including a post from yesterday about this week’s developments.
We corresponded with the Zimbelmans by email for this interview. They have combined their positions to provide us with the answers to our questions.
Going Concern: Does E&Y risk losing creditability with the market at large (á la Andersen) because of these civil fraud charges?
Zimbelmans: We don’t think this case will hurt E&Y’s credibility, based on what we know at this point. Lehman’s accounting for Repo 105 transactions was in accordance with GAAP and appears to have been a common practice for similar transactions in the industry. In other words, E&Y was probably following the letter of the law in signing the audit opinion. In Andersen’s case, the firm had shredded documents and faced criminal charges. Until we see a clearer act of wrongdoing (e.g. a clear departure from auditing standards), we don’t see E&Y individually facing a significant loss of credibility. More likely, the auditing and accounting profession as a whole will take a credibility hit as individuals question the standards and industry norms adhered to by E&Y in auditing Lehman.
GC: Reports say that E&Y is in talks to settle – how do you interpret their willingness to settle rather than litigate in this matter?
MZ/AZ: We think a willingness to settle speaks mostly to the great deal of uncertainty associated with the litigation process in auditing cases. Jury trials in cases like these can be very unpredictable and may not be strongly related to whether or not E&Y actually did anything wrong. Juries tend to have a poor understanding of auditing and accounting issues and also tend to side with victims and against deep pockets. In this case in particular, were the case to go to trial, E&Y has a good chance to become a scapegoat for the collapse of Lehman and perhaps even the economic crisis as a whole. Even if the probability of a verdict against E&Y were fairly low, the damages assigned by a runaway jury could be devastating. This gives E&Y a strong incentive to settle, regardless of whether or not they did anything wrong.
GC: Is there any advantage to litigating?
MZ/AZ: If the requested settlement amount would be devastating to E&Y, the firm is better off litigating. The firm may also be better off litigating if the requested settlement amount is high and E&Y feels they have a very solid case that has a good chance at overcoming the common jury biases we discussed in the previous question.
GC: How would you react to those who feel that are calling for criminal charges against the firm?
MZ/AZ: We don’t really see any criminal behavior here–E&Y allowed Lehman to account for Repo 105 in accordance with GAAP and in accordance with what was fairly standard in the industry. Until we see evidence of potentially criminal behavior, calls for criminal charges seem absurd.
GC: Prediction time: what happens next? Fine of $X and….?
MZ/AZ: We doubt there are any criminal issues here. E&Y will likely try to settle as quickly as possible to get this behind them. Cuomo is likely to want a huge settlement because of the magnitude of the bankruptcy and because of the potential for a runaway jury. Given that Lehman’s bankruptcy was $691 billion, this settlement could easily exceed E&Y’s Cendant settlements which were over $600 million.
Is This a Picture From Last Night’s Ernst & Young Holiday Party?
Supposedly the picture at right was from last night’s E&Y festivus/”suck it, Andy Cuomo” party and we thought we’d share it with you to see if you recognize the scene.
Our tipster simply confirmed “EY Christmas Party: awkward sexual advances,” the former being in question, the latter, well, obv We employed some detection skills to help us determine if the pic is, in fact, from last night’s festivities. Here are a few clues that lead us to believe that this is a legit picture:
1. The lady is still wearing her ID badge – Lots of Big 4 types are hardly fashion conscious, so this oversight was probably fairly common last night.
2. Three dudes, three whites shirts – No tie on twinkle toes and the guy in the background is wearing khakis. Obviously not front office.
3. Talk to the Hand – Or alternatively, “Do not take my picture with this accountant who, sure as hell, isn’t Patrick Swayze.”
If you’ve got additional evidence to prove this picture as an authentic E&Y holiday rager action shot, (e.g. post-dance photo-op with Jim Turley) we’d love to see more pics. Or if you can provide more details to give it more context: a) What song were they dancing to? b) Was this serious dancing or twisting at Jack Rabbit Slims? c) Did everyone circle around or did a conga line ensue?
Any or all of these details would be helpful.
Ernst & Young Wasn’t About to Let Some Civil Fraud Charges Put a Damper on Their Holiday Season
A trusted source emailed us that things were getting festive last night:
EY had their FSO party last night at Cipriani’s downtown. Used to be at Tavern on the Green.
This is good news. And not just because this is an upgrade from last year’s party. Despite all the bad press the firm is getting, the celebration will go on! It must go on! Now whether the Governor-elect was aware of this and purposefully decided to make a few people’s hangovers a little worse by filing the charges today, we can’t possibly know (but he does seem to have an innate sense of timing).
What we would like to find out is the mood at this fiesta. Were there a lot of long faces, grumbling about Hank Paulson, weeping in their single malts? OR did people manage to convince themselves that this whole thing is NBD and people had a good time – enjoying the open bar, power smoking Cohibas, making awkward sexual advances, partners dancing?
We need, and the people demand details, so if you were at the party email us the details.
Lunchtime Reading: The Complaint Against Ernst & Young
Get some coffee first.
We’re working through it and we’ll update with anything interesting. If you see anything worth mentioning, chime in below.
Cuomo Checks Ernst & Young Off the Hit List
Or throws another scalp on the pile, whatever you prefer.
The Journal is obviously very cozy with the Governor-elect:
New York Attorney General Andrew Cuomo filed a lawsuit against Ernst & Young for civil fraud Tuesday, accusing one of the nation’s largest accounting firms of helping Lehman Brothers Holdings Inc. hide its financial weakness from investors for about seven years before the bank finally collapsed in September of 2008.
Ernst & Young knew about, supported and advised Lehman on its “R s, a type of debt the bank took on, but labeled as sales, which made the firm appear to investors less risky than it really was, according to the complaint. The audit firm also stood by while Lehman misled analysts and investors on conference calls and in financial filings about its levels of risk, particularly after the firm’s stability began to crack after the credit crisis began in 2007, said the complaint.
“Ernst & Young substantially assisted Lehman Brothers Holdings Inc., now bankrupt, to engage in a massive accounting fraud,” Mr. Cuomo wrote in his complaint.
Now that the AG has pulled the trigger on this, we’re wondering what’s next. E&Y still isn’t talking, other than the statement they’ve been giving since the bankruptcy examiner’s report came out in March. One comment suggested a settlement in the nine figure range which would put them in proximity of the DOJ’s fine of KPMG back in 2005.
Colin Barr over a Fortune reports that Cuomo wants at least the audit fees back ($150 million, according to the complaint):
The complaint, filed in state Supreme Court, seeks the repayment of at least $150 million in fees the audit firm collected between 2001, when Lehman’s aggressive accounting began, and 2008, when the venerable bank collapsed, precipitating a global bank run.
“Our lawsuit seeks to recover the fees collected by Ernst & Young while it was supposed to be using accountable, honest measures to protect the public,” said Attorney General Andrew Cuomo.
Something tells us that Cuomo won’t be satisfied by simply the audit fees; we’re talking about the largest bankruptcy in history, after all. If you feel like ballparking the fine, we wouldn’t turn away any outlandish guesses.
UPDATE: Felix Salmon also points out E&Y’s lack of communicado:
E&Y knew this was coming—we all did—but despite that fact, its only public reaction so far has been to refuse to comment. That doesn’t look good, and it forces us back to what the company said in the wake of the Valukas report—that its work as Lehman auditor “met all applicable professional standards,” whatever that’s supposed to mean.
He also agrees with us that the fine will be greater than the $150 million and notes (not hiding his disappointment) that no partners were named, “E&Y will avoid admitting blame and also avoid criminal prosecution. […] [T]he only defendant is Ernst & Young LLP; there are no named individuals on the list. So E&Y’s partners are probably safe too. Sadly.”
Unless, of course, the SEC or PCAOB opt to take up that disciplinary slack. Don’t forget that some people think that Cuomo is making this move because he wants the “last scalp” before leaving the AG’s office for the Governor’s mansion. We realize pinning hopes on the SEC and PCAOB isn’t exactly comforting for those wishing to see more action but maybe Cuomo’s actions are the motivation they needed.
We’ll keep you updated throughout the day and if there’s any internal word from the hallowed walls of 5 Times Square, do email us the details.
But What if the Auditors Were Fools?
“Could Ernst & Young have done a better job? Maybe, but claiming they could have done a better job doesn’t necessarily make them liable. Even the best of auditors can be fooled.”
~ Anthony Sabino, professor of law and business at St. John’s University
Charlie Gasparino: Someone’s Holiday Vacation Is Holding Up the Ernst & Young Settlement Talks
The Fox Business Network ace reporter is saying that Cuomo & Co. would like to settle this thing up ASAP (a “quick scalp” before AC goes to Albany) however it is definitely not happening this week because, “According to people at Ernst & Young […] one of the lead investigators in Cuomo’s office is on vacation.”
Also interesting is that Chaz reports that E&Y thought there wasn’t going to be such a rush to get this thing settled but now everyone is all worked up because the story got leaked.
As for the SEC stuff, we don’t know what to make of it since there’s been hardly any news about talks between E&Y and the Commission. Francine McKenna told us that Gaspo “got a lot of smoke blown up his tush,” which is typical for reporters who cover Big 4 firms once in a lunar eclipse on the winter solstice.
Ernst & Young Partner May Have Known This Lehman Brothers Bankruptcy Situation Was Going to Get Worse
This was in January 2009 after the shit had hit the fan and E&Y’s partner on Lehman, Hillary Hansen, may have had an idea of how cozy she was going to get with bankruptcy examiners, the NYAG, SEC, PCAOB, etc.
Skip ahead to around 17:00 (you have to go to the website to watch) where Hansen says, “We audit Lehman Brothers, unfortunately,” to sparse chuckles.
Zero Hedge makes the case against E&Y (Hansen being the main culprit) in excruciating detail and thinks FSO might be down for the count:
[W]e are confident that (again, with the assumption that we live in some semblance of a sane/ration world), E&Y’s Financial Services Office is done (even despite such ironically apropos warnings on the firm’s website as “Top six liquidity risk management challenges for global banks “), and quite possibly the entire firm. Integrity is the number one currency for an auditor, and just like Anderson, E&Y’s just went out in a puff of green-colored smoke.
(UPDATE) Early More Chatter on the Ernst & Young Civil Charges
As we mentioned earlier, the Wall St. Journal has reported that out-going New York Attorney General Andrew Cuomo will be filing civil fraud charges against Ernst & Young related to its actions (mostly lack thereof) that led to the Lehman Brothers bankruptcy. Charges are expected this week but everyone is talking about it now obviously (and we were hoping for a quiet week).
Anyhoo, we’ve rounded up some of the early sound blog bites out there and we’ll keep you updated throughout the day. Of course, if you’re with E&Y and have any insight or hear some calming, soothing words from TPTB, email us t��������������������ore–>
In her column at Forbes, Francine McKenna is happy that Andrew Cuomo is actually doing something, which is more than can be said for the Feds:
Whether Cuomo is doing this on his own, in defiance of the Feds, or has their implicit blessing in light of the Federal Government’s seeming unwillingness to act, New York’s Attorney General is showing the world he’s the only one in the US with the nerve to shake this tree.
Fox News’s Greta Van Susteren is not so impressed, saying criminal charges are really what’s needed:
Attorney General Andrew Cuomo needs to get tough instead of this “window dressing” CIVIL business. He is soon to be the Governor of NYC and this is his last act as the State’s Attorney General. I hope this is not to appease Wall Street. Let a jury decide whether is is criminal behavior or not and whether anyone has committed a crime. As it stands now, Cuomo is blocking that determination with only civil charges.
Felix Salmon postulates that Cuomo is using the possibility of criminal charges to scare E&Y into a settlement:
On the other hand, a civil fraud suit is not a criminal prosecution. Even if E&Y fights the charges and loses, it probably won’t find itself on the receiving end of the kind of criminal charges which brought down Andersen. Still, I’m sure that Cuomo’s office is doing nothing to downplay the contingent existential threat here, in its negotiations with E&Y.
Yves Smith at Naked Capitalism is practically giddy and hopes that this will turn up the heat on Dick Fuld:
One can only hope turning up the heat on Ernst & Young will lead to the prosecution of Richard Fuld. The buck is supposed to stop with the CEO, particularly when they are paid as many bucks as Fuld received. Given the scale of looting that took place in the runup to and after the crisis, there is no hope of getting the banking industry back in its proper role of supporting the real economy until we see some senior bank executives in orange jumpsuits.
CNBC’s John Carney thinks that execs at both Lehman and E&Y should take the civil charges as good sign:
Why should executives at Lehman and Ernst & Young be relieved? Because the filing of civil charges rather than criminal charges may signal that prosecutors do not believe they can prove a criminal case. The key difference between criminal and civil charges in these contexts is the quality of evidence and it looks as if New York Attorney General Andrew Cuomo’s office has decided it doesn’t have the evidence to prove a criminal case beyond a reasonable doubt.
Fortune’s Colin Barr is appalled that E&Y’s Global CEO Jim Turley believes that there wasn’t any chicanery going on:
Take this exchange between E&Y chief Jim Turley and Fortune’s Geoff Colvin, from a September interview.
Colvin: Would it be fair to say that the crisis was caused in part by some financial firms doing misleading things that were within the rules?
Turley: I don’t know that it would be fair to say they were doing misleading things.
It’s remarkable Turley would still say that two months after the financial firm of the best and the brightest, Goldman Sachs (GS), agreed to pay $550 million to settle Securities and Exchange Commission charges that it misled investors in a bubble-era debt deal. The auditors weren’t involved in that one, but the Wall Street mindset was pretty obvious to everyone not running an audit firm.
Over at DealBook, Peter Henning has an interesting theory that the NYAG could be going after the accountants while the SEC focuses on individuals:
If the S.E.C. agreed to share the Lehman case with the New York attorney general, then it may be that the state took the accountants as the focus of its investigation while the federal government concentrates on individuals. Such a division of labor would allow each to husband resources by avoiding any duplication of effort in the investigation – and may be the reason the state is planning to file charges before the S.E.C. decides to act.
Emily Chasan at Reuters managed to get a statement out of someone (Charlie Perkins’s phone has likely exploded by now) although the firm is sticking to the talking points:
A spokeswoman for Ernst & Young said the company did not comment on speculation and repeated a previous statement made by the firm about its dealings with Lehman Brothers. “Throughout our period as the auditor of Lehman, we firmly believe our work met all applicable professional standards, applying the rules that existed at the time,” the statement said.
Matt Taibbi (whole post is worth a read) is calling for the paramedics:
My guess is that this suit is the beginning of the end for Ernst and Young and, who knows, may be the beginning of a series of investigations that ultimately take down the auditors and ratings agencies that made the financial crisis possible. Without accountants and raters signing off on all the bogus derivative math and bad bookkeeping, a lot of this mess would never have happened.
We’ll be updating this post with more reactions and as things develop.
Update on Censured Ernst & Young Manager
Just a brief follow-up on the manager who received the disciplinary action handed down by the PCAOB on Monday.
We attempted to reach Jacqueline Higgins late yesterday at her office number in Boston, however we discovered that when we were transferred to her extension we simply bounced back to reception, who needless to say, was very confused about that phenomenon. After attempting to page Ms. Higgins, only then did the receptionist learn and then relay to us that Ms. Higgins was no longer with the firm.
We checked with Ernst & Young spokesman Charlie Perkins on this development and he confirmed that Ms. Higgins “will be leaving the firm at the end of the year.”
And lest there still be any confusion due to the carefully worded E&Y statement, the partner and senior manager in question have been dismissed from the firm.
We’ll keep you updated if we hear more from inside at the firm or if further action is taken by the PCAOB.
(UPDATE 2) PCAOB Gives Ernst & Young Manager the Charlie Rangel Treatment
~ Update includes statement from Ernst & Young.
~Update 2 includes statement from Claudius Modesti, PCAOB Director of Enforcement and Investigations
Today in obscure accounting oversight board enforcement actions, an Ernst & Young Manager in the Boston office was censured by the PCAOB for repeated violations o y to Cooperate with Inspectors, and Auditing Standard No. 3 (“AS3”), Audit Documentation.
The violations occurred when 27 year-old Jacqueline Higgins “(1) added documents to the working papers without indicating the dates that documents were added to the working papers, the names of the persons preparing the additional documentation, and the reason for adding the documentation months after the documentation completion date; and (2) removed a document from the working
papers after the documentation completion date.”
The timeline goes like this: E&Y was given notice by the PCAOB that an inspection of the unknown company’s audit was being performed on March 30, 2010 and the partner, senior manager and manager on the engagement were given notice on March 31, 2010. The inspection fieldwork was set to begin on April 19, 2010.
On April 5th, the three Ernsters began preparing for the inspection and that’s when problems started cropping up which led to more trouble. The order has the details:
First, Respondent reported to the Engagement Partner and the Senior Manager that a “Review Procedures Memorandum” was missing from the external working papers. The Engagement Partner and the Senior Manager directed Respondent to create and print out the missing document, and to backdate the document to November 30, 2009. The Engagement Partner and the Senior Manager directed Respondent to backdate her sign-off on this working paper to November 30, 2009, and to add this document to the external working papers.
17. Second, Respondent reported to the Engagement Partner that the tie-out of the financial statements contained in the external working papers was performed upon a pre-final set of financial statements. The Engagement Partner directed Respondent to remove this document from the external working papers, and to replace it with a newly created document which tied-out the final financial statements, and which the Engagement Partner directed Respondent to backdate to November 2009.
18. Third, Respondent reported to the Engagement Partner that the Average Forward Foreign Currency Contracts Calculation (“A3a Working Paper”) was missing from the external working papers. The Engagement Partner directed Respondent to gather the missing document, backdate it to November 2009, and add it to the external working papers.
19. Finally, Respondent reported to the Senior Manager that three checklists were missing from the external working papers. The Senior Manager directed Respondent to assemble the missing checklists as a single document (“HH6.8 Working Paper”) and to backdate her sign-off on this working paper to November 2009. The Senior Manager directed Respondent to add the document to the external working papers. The Senior Manager and Respondent reported to the Engagement Partner the facts and circumstances related to the creation of the HH6.8 Working Paper, and the Engagement Partner took no steps to cause the document to be properly dated, or to have it removed from the external working papers.
So those are the wonky details. Where this particular story is most interesting (in our opinion) is that Ms Higgins was, prior to this little mishap, on the fast track. According to the order, she graduated in May of 2005 and started with E&Y in September. She was promoted to senior associate in October of 2007 and then promoted to manager in October of 2009. Now, perhaps she was an audit-savant or perhaps not but in just over four years, she was a manager, which is a much quicker pace than usual.
Granted, she was still under the supervision of the senior manager and partner on the engagement but a young manager nevertheless. Now, you might be asking yourself, “what about the senior manager and partner? Are they getting their wrists slapped?” Conventional wisdom tell us, “absofuckinglutely” but the PCAOB isn’t saying. We were told by a spokesperson that the Board cannot comment on any other action related to this case.
As far as what a censure by the PCAOB actually entails, we were told that “It is an official reprimand from the PCAOB.” Some might call it a wrist slap but we’re damn sure you don’t want that in your file when you’re 27 years old. The action also states that Ms. Higgins was removed from the engagement in July 2010 and “at that time Higgins ceased participating in issuer audit engagements.”
Messages with E&Y spokesperson Charles Perkins and A message left with an attorney for Ms. Higgins were not immediately returned.
Ernst & Young has issued the following statement:
Our firm policy clearly prohibits persons from supplementing audit workpapers in circumstances like those described in the disciplinary order. When we determined that firm policy had been violated, we put the three individuals involved on administrative leave and subsequently separated the partner and senior manager. We have advised the PCAOB of these facts and have cooperated fully with the PCAOB throughout its investigation of this matter.
Based on the above, you might conclude that more disciplinary action will be coming from the PCAOB but like we said, they’re not talking.
UPDATE 2 – circa 3:30 pm: Claudius Modesti, PCAOB Director of Enforcement and Investigations, explained the seemingly light punishment in an email to Going Concern:
As to the censure, under the facts and circumstances, the censure is appropriate given Higgins’ relatively junior position on the audit team and her overall role in the conduct. We also considered the fact that she settled the matter without requiring the Board to commence litigation, which would have been nonpublic as required by the Sarbanes-Oxley Act.”
It was then explained to us that the PCAOB has never explained a disciplinary action in this way: “We also considered the fact that she settled the matter without requiring the Board to commence litigation, which would have been nonpublic as required by the Sarbanes-Oxley Act.”
If that’s not quite clear, consider this: It is significant because, had Ms Higgins acted in the alternative (i.e. not settled), litigation would have been necessary and no one outside of the PCAOB, Higgins, her lawyers and E&Y would have known about the proceedings. Granted, it’s fairly common for lighter disciplinary action to result from a settlement but it also makes sense from a PR perspective (not to mention, transparency and investor protection) if the PCAOB can actually announce that they are taking action against people who break the rules. Part of the challenge the Board has faced is convincing anyone that they have teeth.
It will be interesting now to see if the senior manager and partner follow the same track as Ms. Higgins and how the PCAOB will respond to their cooperation (or lack thereof).
Ernst & Young Study: U.S. Is Great for Renewable Investment If You Don’t Count the Red States
China has everyone beat, no shocker there, but if you don’t count Sarah Palin’s real America the red, white & blue is #2!
Ernst and Young counts only perhaps half (or is it three quarters?) of the 300 million people in the US as “US”, by considering only those states that are doing anything about renewable energy, like California…The “US” excludes all the dirty states that lack renewable policy; states like Wyoming, Indiana, North Dakota, Kentucky, Oklahoma and so on.
Ernst & Young: U.S. Blue States Nearly as Attractive as China for World Renewable Investment [Reuters]
Some Clarification on the Bathroom Situation at E&Y Jericho
Yesterday, we shared a story with you that probably caused you to thank your lucky stars that you don’t work in Norway (especially if you’re a woman). In that post, we called back to our old report from January about the secure lavatories at Ernst & Young’s Long Island location in Jericho.
You may have been under the impression that someone within E&Y was responsible for the lockdown, however, thanks to an enterprising E&Y employee, we now know who the keymasters really are:
I don’t work in the Jericho office, but got shipped out there for random clients for most of this summer. The bathrooms are in the common areas shared by all tenants of the building, so the keyed entry to the bathrooms is mandated by the building management, not EY (not that I’d put it past the partners to come up with something like this, though).
Also, while there are keys for each bathroom, there are also entry codes you can use instead. So you can grab one of the communal keys (kinda gross), or remember the terribly difficult four digit code (0001 if I remember correctly).
As a side note, I remember the admin mentioning that the original set of five keys for the men’s room was down to two. I’m wondering why someone would make off with these nasty over-sized germ farms.
Okay, so the missing keys aren’t news but what’s it going to take to get some extras made? And, again, who’s making off with the keys in the first place?
And while it’s good to know that the E&Y brass in Jericho aren’t actually the ones putting the clamp on the johns, would it kill them to spring for some private restrooms that non-E&Yers don’t have access to? It’s one thing to have to schlep to the front desk to get a key every time; it’s entirely another to be sharing a bathroom with the entire building. What is this, Penn Station?
Seriously, how much time and cost would it take to throw in some pots, sinks, urinals and XLERATORs®? It’s a health issue for crissakes.
Some Ernst & Young Employees Got Paid to Look at a Plethora of Porn
Really not sure why or how E&Y landed this gig but work is work.
Police may be called on to investigate reports [New South Wales] [Members of Parliament] or their staff accessed websites containing sexually explicit images of young people.
The findings were contained in an independent report by Ernst & Young, commissioned in September after an unauthorised audit of computer use in the NSW parliament showed “adult” websites had been visited from the offices of some MPs.
The report, tabled in parliament yesterday, says that of the 72 most-used websites on parliamentary computers over a 10-month period, 35 “appear to be adult-related sites”.
Nine contained sexually explicit images of young people, some of whom may be under 16.
Nearly 50% of the most-used sites over a 10 month period? And some that could involve minors (in NSW)! That’s impressive even by SEC standards.
Ernst & Young Rang the Closing Bell Today
We don’t recognize anyone but you’re invited to point any notables out.
.
And you just know that somewhere, Dick Fuld is slobbing around in a old CU sweatshirt, muttering about backroom number-crunching dweebs that are still in business.
[via NYSE]
Ernst & Young Employee Disappointed with Boston Office’s Party Planning, Lack of Boozehounds
From the mailbag:
EY Boston Tax had their end of busy season party last week. On Tuesday, we had beer and wine in the office. Considering everyone had to work through the first football sunday of the year, the least they could do is get us drunk on a Thursday so we can enjoy ourselves. Who’s gonna get drunk in the office on a Tuesday? [Ed. note: show of hands?]
I have to say I’m disappointed with the social/drinking scene at this place compared to other Big 4s in this market. Pretty stiff, but I feel like the firm takes pride in that–I have no idea why.
Without the proper context, it’s difficult to know what kind of a drinker our tipster is. If he/she is merely a two wines/beers and out person then E&Y Boston is really bucking the trend in that fair city. However, if the tipster is Charlie Sheen, then there’s no cause for concern.
Any Bostonians familiar with the situation are invited to elaborate on the Big 4/next tier drinking scene below or share with us directly.
Ernst & Young: Hedge Funds Like Us! They Really Like Us!
A source informs us that this is hardly surprise as E&Y has some the best known shops as clients including SAC Capital, Third Point, Anchorage Capital Partners, Reservoir Capital Group and Pershing Square. Although the HF honchos still appreciate the recognition:
“Receiving this award is a testament to Ernst & Young’s 25-year commitment to serving hedge funds through every phase of their business – from starting up through investment, global expansion and going public,” said Art Tully, Co-leader, Global Hedge Fund Practice, Ernst & Young LLP. “Since we began serving the alternative investments industry more than two decades ago, our seasoned professionals have worked to help hedge fund clients anticipate and meet new regulatory, transactional, accounting, tax, technology, operations and investor demands.”
“Ernst & Young’s hedge fund practice was founded on start-ups. In 2009, we audited the most significant share of the top 25 fund launches in 2009,” said Mike Serota, Co-leader, Global Hedge Fund Practice, Ernst & Young LLP. “As these organizations continue to evolve and expand, we can support their evolving needs through our extensive portfolio of services.”
E&Y is two for two in Hedge Fund Manager Week’s Best Accounting Firm Category so it’s a little early for any “dynasty” rhetoric but they seem to have a decent hold on things.
Some People Are Wondering When/If KPMG and Ernst & Young Will Ante Up
From the mailbag, courtesy of an E&Y senior associate:
I work for EY. Roommates are Deloitte and PWC. I’m hearing from the PWC employees that in addition to a holiday bonus, as well as a March compensation adjustment similar to Deloitte’s, PWC is also giving their employees the last two weeks of December off without requiring them to use their vacation days.
Thoughts on whether EY or KPMG will ante up? Hot topic at my client site today as you can imagine 🙂
Before we get to E&Y and KPMG, it should be noted that PwC is really playing hardball here. A quick recap:
• Mid-year bonuses that include an option for an iPad. Steve Jobs hater or not – that’s a cool bonus.
• Rumors of poaching seniors in Chicago and New York.
• New Yorkers given the option to shovel Thanksgiving sustenance at a Manhattan location to be named later (btw, we really want to know where, so get in touch with details when known).
• iPhones are now available and Christmaskuh festivities return.
Now there are rumors of a merit increase in March and two free weeks of time off? This is quite the run of employer gratitude. We won’t say “unprecedented” but it is an impressive show of generosity.
Maybe PwC has gone on this offensive because they had a kick-ass first quarter. Or maybe it’s because they lost the number one spot to Deloitte and they still want everyone to know that they’re still capable of equating love with money. OR maybe they’re trying to make people forget about Logogate. Whatever the motivation, the firm is throwing money around with the gusto of Charlie Sheen and they are getting a relative amount of attention for it.
Now, then – Ernst & Young and KPMG. Maybe these two firms are spreading the wealth on the Double-DL but if not, TPTB have to be aware of the what the competition is up to. If not, maybe someone should clue them in. Regardless, there has to be heat to act in some way.
One explanation for the House of Klynveld is that the fiscal year just ended, so it is too early for leadership to communicate “the great first quarter,” thus rationalizing a mid-year bonus. If KPMG comes out to soon with the news, they risk the “Monkey see” effect.
As far as E&Y is concerned, we’re stumped. They have the same fiscal year as PwC and should have a pret-tay good idea how Q1 went. Now that PwC has made the first move, any action by E&Y is going to look reactionary .
So for the E&Y and KPMG crowd – you clearly have some expectations for something but are you hearing anything about mid-year bonuses or will the belly aching continue into the holidays? Discuss below and get in touch with details.
Ernst & Young Employee Shared Sue Sachdeva’s Taste in Loot, Lacked Her Fraudulent Self-control
If you work for a partner who likes shamelessly showing off their money, it’s likely that you will think to yourself one of two things: 1) “What a flashy douchebag.” OR 2) “How do I get to be that flashy douchebag?”
For Lily Aspillera, her thinking was more along the lines of the latter, as she made off with $1.7 million from 2002 to 2008 by writing checks to herself that drew on an account of an E&Y client. She used the cash to buy your run-of-the-mill embezzler items: German cars, jewels, vacations, a nice home, etc.
An executive assistant at the giant accounting firm Ernst & Young has been sentenced to more than two years in federal prison for a $1.7 million embezzlement scheme that helped finance a posh San Francisco home, two BMWs, jewelry and stays at luxury resorts, authorities said Wednesday.
Lily Aspillera, 65, of San Francisco was ordered Tuesday by U.S. District Judge Susan Illston to serve 30 months behind bars for mail fraud and tax evasion.
Impressive. Not necessarily by Sue Sachdeva’s standards but impressive nonetheless. However, Lil’s little scam only last a measly 6 years compared to Sachdeva’s twelve year scam because yes, her own greed got the best of her:
“Like so many who commit fraud, over time she increased the amount of money she embezzled, apparently emboldened by not getting caught,” Assistant U.S. Attorney Doug Sprague wrote in a sentencing memorandum.
Defense attorney Donald Bergerson wrote in court papers that his client “has been punished by her own conscience as much as she can be punished by any term of imprisonment.”
The personal guilt over getting caught – after managing to steal money for only six years – would be pretty overwhelming.
Jim Turley Explains Why You Should Work at Ernst & Young Rather Than Facebook
JT spoke to NYU students earlier this week and of course during the Q&A, Diane Brady, a senior editor at Bloomberg threw him a softie, asking if the firm was hiring, to which Diego responded, “we’re always hiring.” This, of course brought the house down (laughs, raucous applause).
Anyway, Brady decided to throw Jim a curve and asked why a young recruit would pick E&Y over Zuckerland.
“Should students ever consider starting at a big firm of yours?” Brady said. “Why not just go out there and make the billions with Facebook? What is the attraction at Ernst & Young?”
Turley responded by saying that most entrepreneurs, despite common misconceptions, are not just out to make money.
“[Entrepreneurs] go out there to find a need,” he said. “At Ernst & Young, you have opportunities to be extraordinarily mobile and move around the world.”
His advice? “First, find something that you love doing,” Turley said. “Second, align with an organization that actually thinks about where the world is going. And lastly, find an organization that wants you to change them as opposed to them to change you.”
See, if you can’t find a need then you need care about being “extraordinarly mobile.” Seems like a fair trade-off, especially since billionaires don’t travel much.
And just curious, how would the members of Ernie’s army like the firm to change? We’re assuming JT goes with the “whatever is good for the goose” mantra. Leave your suggestions below.
Ernst & Young Employees Are Chipping in a Little Extra for Medical Insurance for 2011
According to this:
It’s our understanding that the firm is going to “unitized pricing” which apparently results in the increases above. In addition, the firm had an “eye discount card” in the past which was a freebee but now an insurance option has been added. The deductibles and out-of-pocket maximums are also increasing.
So question for the group – are you seeing similar changes to your benefit options for next year? Our feeling on the matter is that it’s always easier to blame a faceless insurance company than any other mega, faceless corporation but if you’d like to take issue with your firm on this trend, your rationale will be heard below.
Will Ernst & Young Be the Next Firm to Get a Makeover?
[caption id="attachment_18945" align="alignright" width="150" caption="No more square?"]
[/caption]
It sounds like it!
Judging by the article over at Marketing Week ideas are being kicked around and since Audits the Emmys!” Perhaps, “Zitor works for us!” Or simply, “Our opinion indicated that Lehman’s financial statements for that year were fairly presented in accordance with GAAP!”
Even a more important questions – should they incorporate a mascot? Maybe an E&Y Phanatic? A live animal may do the trick. Or this.
Let’s hear some ideas.
Ernst & Young looks to stand out among “big four” [Marketing Week]
Ernst & Young Staff Twitter Account Shares School Pride, Multiple Sneezes Record
Exciting news gang! Ernst & Young has given an entire Twitter account to its staff! “Sunny” is the current Tweeter. She is a Virginia Tech grad and a multiple sneezer:
The question that remains is that after these eleven sneezes, was Sunny greeted with “God bless you” or “You are sooooooo good lookin’.”? And did she get laid out of it?
Jim Turley Doesn’t Think That The Financial Crisis Was Caused By Anyone Doing Anything Misleading
It turns out – without naming names (read: Dick Fuld) – the companies at the nucleus of the shit hitting the fan were just making bad business decisions. That’s all.
He also takes exception with the notion that E&Y committed malpractice.
And would like to explain exactly what the Bankruptcy Examiner does and points out that he didn’t have any problem with the accounting.
C-Suite Strategies [Fortune]
KPMG, Ernst & Young Sneak on to U.S. News Tax Firm Ranking
You may or may not be aware that U.S. News & World Report is the shot caller when it comes to ranking law schools (much to the chagrin of some) and now (to even more chagrin) the magazine is delving into extensive law firm rankings and the Big 4 will enjoy a little bit of perceived prestige that comes along with these rankings.
Christ. We’re barely into rankings/list season and they’ve already chalked up working moms and consulting rankings and U.S. News is now throwing around its weight with this new list.
Granted, virtually no accounting firms will even get a whiff of this list but something tells us that because U.S. News has decided to dive head first into ranking law firms by practice are the Big 4 will be jockeying to make the tax list, even though it is a sliver of a much larger and broader ranking that they won’t be included on at all.
Excuse us while we choke down the vomit that we caught making it’s way out.
Why the hell not?!? U.S. News figured that the world couldn’t do without it’s rankings-for-hire in one more area for the legal field but this time the Big 4 will enjoy a bit of a ride on this wave.
Right. The list. The two of Big Four of course, make their way on the ranking for tax firms: Ernst & Young falls into the coveted Tier 1 (includes 36 firms) and KPMG drops on Tier 2 (47 firms). There were a total out of 119 firms across three tiers.
Admittedly, this is an opportunity for both KPMG and E&Y to boast their tax practice prowess over Deloitte and PwC who don’t appear on the list at all. That being said, Deloitte and PwC enjoy higher spots on the consulting rankings so they’re probably not overly concerned although no one turns down a notch on the bedpost if they can get it.
What this new ranking ultimately will be is one more marketing tool for the firms to use on the impressionable recruits and experienced hires who want to work in top notch – TOP NOTCH! – tax practice. Be it lawyers or CPAs, the firms will tout this ranking to their tax professionals (if not firm-wide) to throw around ONE. MORE. LIST. to impress the trousers off the masses but now people will be saying, “Oh, this is a U.S. News ranking.”
So for the Big 4 to be included in this “prestigious” ranking is a little bit, as Elie Mystal states, like “Christmas morning – if only Santa were a jolly red prestige whore.”
U.S. News Tax Firm Rankings [TaxProf Blog]
Best Law Firms [U.S. News & World Report]
U.S. News Launches First Official Law Firm Rankings [ATL]
Will Defecting from E&Y to PwC Change Anything?
Today in makeshift accounting therapy, a fed up E&Y vet is contemplating a move to arch-rival PwC and wants to know if this is a suicide move.
Have a question about your career? Need advice on how to explain why your Fantasy Football league is always up on your laptop? Looking for advice on how to best flirt with recruits without being creepy? Send us an email with your query to [email protected] and will give you the best free advice you’ll ever get.
As for our potential E&Y Benedict Arnold:
I’m at EY, looking at a position one-level above where I am at PWC. Is this a frying-pan/fire situation?
EY as “more people friendly” is a concern, because EY is horrifically NOT people friendly.
I’ve know the guy I would be working for at PWC very well and I think I’m maxed out at EY.
Okay, so not a lot to go on here but we’ll take a stab at this. First off, if you’re maxed out at E&Y then looking for a new gig is the right move. The timing isn’t bad (assuming you’re not in the tax practice) and it sounds like you’ve got a decent lead at PwC. That said…
What makes you think PwC will be better than E&Y? Has the guy that you would be working for told you explicitly that he’s having the time of his life over there? That, besides the PwC Experience, you’ll be getting 40-50 hour weeks, happy hours devoid of assaults and access to professional oral sex providers on a regular basis?
More questions to consider: Does “the guy” stand to get a referral bonus for poaching you? Can you see yourself working for him? This could turn out to one hell of an epic mistake if he gets a few thousand bucks and you end up working for a whip-wielding taskmaster.
Now that we’ve planted the skepticism seed, if “a position one level above” is a legit promotion (title and salary bump), that might be worth considering. If it’s more of a lateral move, then we’d suggest passing unless there were perks like we described above.
Other important things to consider: 1) You will be torching many bridges at E&Y. Are you okay with that? 2) Is your potential new job really what you want to do. We’re making the assumption that you like your work but you’re over life at E&Y. If you don’t like your work then you’ve got a whole other problem. 3) Do you really, really, really, really want to stay in Big 4? Have you seriously asked yourself that question?
Ultimately, the opportunity may be a great one but you’re still taking a big risk assuming your life will be infinitely better working at PwC over E&Y. Proceed with caution.
Why Did Dave & Buster’s Fire Ernst & Young?
Earlier in the month, adult playground company Dave & Buster’s filed an S-4 to register $200 million in senior notes. Everything seemed to be in order and the month of August just moseyed along as it does.
Until the 24th, when GOD KNOWS what happened and D&B’s audit committee up and fired E&Y. They then filed the amended S-4, letting the whole world know about it:
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSUREOn August 25, 2010, Ernst & Young, LLP (the “Former Auditors”) was dismissed as the Company’s independent auditors. The Audit Committee of the Board of Directors of the Company approved their dismissal on August 24, 2010.
The Former Auditors’ audit report on the Company’s consolidated financial statements for each of the past two fiscal years did not contain an adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles.
During the Company’s most recent two fiscal years and through the subsequent interim period on or prior to August 25, 2010, (a) there were no disagreements between the Company and the Former Auditors on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the Former Auditors, would have caused the Former Auditors to make reference to the subject matter of the disagreement in connection with its report; and (b) no reportable events as set forth in Item 304(a)(1)(v)(A) through (D) of Regulation S-K have occurred.
Naturally, this invites rampant speculation as to the why, why and the why? It’s not the most high profile client on Earth but as Adrienne pointed out, Ernst & Young is now on a list with Vice-President Joe Biden and no one needs that.
Dave & Buster’s, Inc. Announces Dismissal of Independent Auditor [Business Newswire via JDA]
Ernst & Young Loses a Special Houseguest
Or a loudmouth neighbor depending on your political preference. Either way you look at it, 5 Times Square won’t be the same.
Giuliani Partners, the consulting business formed by the former mayor shortly after he left City Hall, has vacated the flagship office it had on a floor of the Ernst & Young offices in Times Square for nine years, consolidating space with the ex-candidate’s law practice, sources confirm.
Giuliani Partners closes Times Square office [Maggie Haberman/Politico]
Is Everyone at Ernst & Young Excited About the Four Day Weekend?
There has to be some tax people working. Just a hunch. If your plans have been ruined, we want to hear about it.
Good Thing They Had Auditors
“Lehman’s books were in such a mess that I don’t think they knew where they were.”
~ Elizabeth James, a director of Barclays’s futures business, testifying in bankruptcy court.
There Are More Than a Few Texans Who Aren’t Impressed with Ernst & Young’s Auditing Abilities
And this has nothing to do with Lehman Brothers.
Attorneys from Houston’s Ahmad, Zavitsanos & Anaipakos are representing a group of investors in a lawsuit filed against hedge fund auditors Ernst & Young after the group lost more than $17 million following the collapse of a Plano, Texas-based hedge fund that promised low-risk investments.
The lawsuit focuses on two funds sold by Plano’s Parkcentral Global and was filed on behalf of Houston financial consultant Gus H. Comiskey and four Tucson, Ariz.-based entities, including the Thomas R. Brown Family Private Foundation. The now-defunct Parkcentral Global was operated by affiliates of billionaire and former presidential candidate H. Ross Perot before closing its doors after losing a total of more than $2.6 billion.
“Our clients were told that an investment in Parkcentral was designed to preserve capital. Instead, they lost every penny in record time. E&Y was supposed to be auditing Parkcentral, but the audited financial statements never once warned Parkcentral’s investors of their impending doom,” says attorney Demetrios Anaipakos, who will try the case with Amir H. Alavi.
Did you hear that E&Y? RECORD TIME! But why the Ross Perot mention, Ahmad, Zavitsanos & Anaipakos? Got something against eccentric Texas billionaires that like explaining complex things with charts? Sadly, the BPR does not elaborate.
The lawsuit includes claims that New York-based Ernst & Young falsely represented that the company fairly audited Parkcentral Global and the auditor failed in its “watchdog” [Ed. note: These quotation marks appear to be unnecessary. Also, the “watchdog” thing, sucks as metaphor.] role to warn relying investors of the risk of fraud and noncompliance by management. The suit accuses Ernst & Young of fraud, negligent misrepresentation, securities fraud and conspiracy.
This month, Brown Investment Management, L.P., one of the plaintiffs in this suit against Ernst & Young, won a Delaware Supreme Court ruling that requires Parkcentral Global to disclose its former investors. Those investors could be added to the new Houston lawsuit.
The investments of the Brown foundation, Brown Investment Management and the two other family-related ventures totaled $16 million and were lost within 90 days despite a “worst case loss” estimate of 5 percent. Mr. Comiskey, like his fellow investors, lost 100 percent of his investment when Parkcentral Global went under.
Mr. Anaipakos and Mr. Alavi have handled disputes against hedge funds and private equity firms for more than a decade. This lawsuit is separate from a class action filed in the U.S. District Court for the Northern District of Texas against Parkcentral Global.
Ernst & Young Partner Might Be Hiding Emmy Results Under His Pillow, Fails to Land Groupies
On Sunday, The Emmys will be handed out to several cast and crew of Mad Men and a few other people. In order to give these proceedings some legitimacy, Ernst & Young partner Andy Sale (and possibly a few others) counts these votes and certify the results.
The L.A. Times published a Q&A with Sale today since the big day is nearly here and we took the liberty of bringing you the highlights.
For starters, Andy understands that the MSM could really get two shits about accountants except when there are audit failures or celebrities involved:
How cool is it to walk on the red carpet?
It’s one of those things where for at least one day a year, being an accountant is something the press wants to shine a light on.
He also doesn’t appreciate the LAT’s presumption that being an accountant is boring:
Is it the one day of the year it’s fun to be an accountant?
I think it’s fun to be an accountant every day.
Cool fact: if one of the presenters is Mel Gibson-drunk and just blurts out a name that is completely wrong, Andy must sprint on stage give the presenter a roundhouse uppercut and state unequivocally who correct winner is. Fortunately, that has happened…yet:
Has anyone ever screwed up reading a winner?
Part of our role is to ensure the appropriate name is read onstage. If a name was omitted or read inappropriately, we would be duty-bound to go onstage and correct it. It’s never happened. We hope to continue that streak.
The security around these events has to be tight and Sale and the team have to keep things creative when hiding the results. That means the results could be anywhere – a vault, his underwear drawer, Jon Hamm’s pants:
Let’s talk security. After you’ve finished counting the votes, where do they go?
Where they are secured and how they are secured changes every year. It can be in a vault. It can be under a pillow. We have multiple sets of envelopes and those multiple sets of envelopes arrive at the Nokia Theatre by different means. For security reasons, I can’t divulge those specific means. They’re delivered by a means both conventional and unconventional, and that’s all I’ll say on that.
And as glamorous as this gig is, it still not getting Andy as much action as he would like:
Do you get groupies out of this?
I can’t say I’ve seen a lot in the way of groupies.
Andy Sale is counting on Emmy Awards [Los Angeles Times]
Ernst & Young Risks Alienating Acrophobic Employees in China
From Big 4 Blog:
Ernst & Young China is announcing the grand opening of its new office in China’s tallest building and premier location – Shanghai World Financial Center (SWFC) in the Pudong District of Shanghai. All of Ernst & Young’s 2,500 Shanghai people (of the 9,000 total China employees) will be one single location to help provide better services to clients and laying the groundwork for our further expansion in the China market. Prior to this, E&Y was in three different Shanghai locations.
Jim Turley managed to ignore the issue entirely saying, “Our confidence in the long term prospects in China is demonstrated in the investment in our business and our people. We currently have over 9,000 people in China, and will further grow our manpower with the business.”
Former Ernst & Young Partner Still Getting Screwed By Mistress He Gave Insider Tips To
Former E&Y partner James Gansman could finally be done paying for all his bad decisions. Web CPA reports that Gansman has settled with the SEC over his insider-trading-for-sex activities. You may recall that Jimbo received (and is currently serving) a one year and a day prison sentence back in February for his efforts.
This settlement with the SEC will set him back $250k but his mistress – who admittedly cheated on him and then testified against him – seems to have gotten a better deal.
The final judgment to which [Donna] Murdoch consented further orders that she is liable for disgorgement of $339,110 together with $64,943.52 in prejudgment interest, but, based on her demonstrated inability to pay, waives payment of disgorgement and prejudgment interest and does not impose a civil penalty.
Murdoch will probably still see some jail time but this just has to burn the Gansman up. Unless he’s found Jesus or something.
Former E&Y Partner Settles Insider Trading Charges for $250,000 [Web CPA]
Is Ernst & Young Dishing Out iPhones to New Associates?
A soon-to-be E&Y associate would really like to get their very own version of Alan the Accountant but would prefer it if Ernie chipped in with the whole iPhone part of that equation:
I’m starting with Ernst & Young in the fall, and was wondering whether you know if Ernst & Young allows iphones to be used with their system like Deloitte? I don’t really want to ask a recruiter or anything just in case it looks bad.
For the record, some of the recruiters are easily rankled, so if there’s anything you don’t want to ask a Big 4 recruiter, you can certainly ask us.
Back to the issue at hand – if your memory serves, you’ll recall that Deloitte has been allowing all professionals to opt for the iPhone for awhile but it was just back in January that the firm quit charging you $13 a month for it.
But as far as E&Y goes, we’ve got no idea what the iPhone situation is, so enlighten the future associate.
Experienced Recruiting Amongst The Big 4 Gets Aggressive
As you know the Big 4 are extremely competitive when it comes to picking up talent. Now that the firms have amped up their experienced hiring, things appear to be taking an interesting turn.
Case in point, the following email went out to PwC professionals in the Southeast:
Hello. I work for Ernst & Young’s Assurance Recruiting Team and, through my networking, came across your name. I was wondering if you would be interested in making contact for professional networking purposes.
We are currently seeking managers and senior managers in our Southeastern markets. Your referrals would be greatly appreciated as you know the best people in this industry! We are expanding our Assurance Experienced talent pool and look forward to hiring only the best and brightest talent!
There are twelve more reasons to consider EY as a strong career option!! Ernst & Young was just named to FORTUNE’s “100 Best Companies to Work For” list for the 12th year in a row–and ranked highest among the global professional services organizations. The reason? Our people. Together, we’ve created a culture of learning, flexibility, inclusiveness and community responsibility that truly makes a difference.
I have been a finance/accounting recruiter for six years and assure you that not all Big 4 firms are cut from the same cloth……it never hurts to have a dialogue!!!
Thanks in advance for your time and consideration. Have a wonderful summer!
Say what you want about these particular tactics but if there is a need in a particular office or region, it is Big 4 recruiters’ job to go out and find the talent to fill that demand. Other Big 4 firms seem like a pretty good place to start since they have the “talent” that the firms want. Plus, the email does state that the intent of the message is to “open a dialogue” which, sure, could lead to someone switching firms but let’s be real – this happens.
And don’t forget! This isn’t confined to Dixieland. You may recall that PwC in the UK had been allegedly poaching E&Y partners, as reported by the Times Online.
So if you want to get all defensive about a rival firm going behind enemy lines to do their jobs, so be it, but your firm is likely doing the exact same thing.
Earlier:
Grant Thornton Picks Up Four Tax-Exempt Experts from WTAS
Ernst & Young Striving for Fewer “Cookie Cutter” Engagement Teams
E&Y’s annual intern conference invaded Orlando yesterday and the ‘Berg had Director of Campus Recruiting, Dan Black on to discuss Gen Y and why they are pre-tay, pret-tay, pret-tay important to the future of the firm.
Despite their technology savviness, it appears that Gen Y is still relying on rock-paper-scissors as a key decision-making tool. Apparently, darts and jigsaw puzzles are important too.
Oh, and the time you put in as a line cook at Applebees’s in college really doesn’t translate into anything useful so don’t be too concerned about that.
Comp Watch: Early Returns at Ernst & Young Keeping Pace with PwC
So far there are several reports of low to mid-teens and some as high as 20%, which some simply don’t believe.
We do have some specific details for assurance associates in New York and they don’t sound terrible:
NYC first year associate went from $55k to $64k, associate raises [are] coming in around 11-18%
So if you’re keeping score at home (and we know you are) it appears that the partner at E&Y who prognosticated that raises at his firm would beat PwC’s Raises appears to be right in some cases but perhaps not all.
Sooo, Ernie troops – are you happy? Disappointed? Suicidal? Ready to jump ship? Or calling your friends at PwC to brag how you’re keeping the pace? Discuss.
Earlier:
Are Ernst & Young and PwC Neck and Neck in the Compensation Race?
(UPDATE) Comp Watch ’10: Ernst & Young Numbers Coming Out This Week?
Last time we checked in on E&Y in the comp department, convos on promotions and ratings were to have gone down by last Friday. That appears to have happened right on cue and now we’re told that starting this week, the numbers will be coming down from 5 Times Square:
Latest regarding compensation (exact $ amount) in both FSO/New York and Northeast/New York regions is discussions should start today and run for 2 weeks. Big push right now in all business units to try and appear to care about people; people advisory board members have been reaching out for ways the firm can improve.
Feel free to speculate as to why the “caring” and “reaching out” is happening at this particular time of year (and if the Facebook downloading is at all related). Also, if you’ve had the talk and have great/disappointing news to report, do share or get in touch with us.
UPDATE: Word is that meetings are still being had this week and the numbers are still good. One source (Manager) in the assurance practice reported a 5 rating and a 21% bump. Not too shabby.
Why Would E&Y Download 100 Million Facebook Profiles off BitTorrent?
Good question! In case you didn’t hear, someone – his name is Ron Bowes – created a “crawler” (resident tech expert Nick told us it’s “a bot that has directives and algorithms based on known patterns in a webpage it ‘visits’ a webpage and pull information from selected places in that structure.”) that pulled data on 100 million Facebook profiles.
Since it only pulled the data that was publicly available, you could claim that this is NBD as Nick told us, “[A]ll the crawler did was collect it and put it into a single place, presumably in a format that is searchable and very ordered.”
And Engadget agrees, “There’s nothing illegal about any of this, of course — we put our information out there into the public forum that Facebook is, after all — but there’s still something creepy about the idea of someone torrenting our profile.”
What may be even more creepy is that lots of corporations – including E&Y – are downloading the data.
Nick told us that any corporation could have done this anyway but since someone else did, these companies figured, “why the hell not?” and downloaded the data. But E&Y? Maybe it’s just some back office guy stalking ex-girlfriends, as Gizmodo suggests, or Zitor collecting names for future abductions but it certainly makes you wonder.
So much so, we emailed E&Y spokesman Charlie Perkins to ask him about it (and if nothing else, we may have introduced him to a new website!) but we haven’t heard back and we don’t have our hopes up.
Major Corporations Are Downloading Those 100 Million Facebook Profiles off BitTorrent [Gizmodo]
Is Mary Schapiro Talking About a Certain Lehman Brothers Auditor?
Maybe! After last week’s settlement with Team Jehovah and the financial reform bill allowing for a few more hands on deck, the SEC chair says there are some other smackdowns in the works.
Unfortunately she doesn’t name names but use your imagination:
“We have investigations in the pipeline, across products, across institutions, coming out of the financial crisis,” SEC Chairman Mary Schapiro said after testifying before a House of Representatives subcommittee hearing.
Asked if the bulk of the cases have already been brought to light, she said: “Not necessarily, not necessarily.”
So it’s a grab bag really. Although, as you may recall, Dick Fuld is on the record that E&Y was on board with whatever the dorks in accounting were doing. Or maybe MS is just messing with Congress. The situation remains fluid.
SEC chairman says more post-crisis cases in pipeline [Reuters]
Are Ernst & Young and PwC Neck and Neck in the Compensation Race?
From the mailbag:
I heard some scoop and wanted to share with my fellow indentured servants in the big 4 field. Word on the street is that P-dubs gave 10% raises to staff 2s becoming senior 1s (early promote) and 16% raises to staff 3s becoming senior 1s.
However, P-dubs doesn’t hand out the 5k bonus that Uncle Ernies offers to its staff 2s becoming senior 1s. I’d like to see how EY will top this, per an earlier promise from a partner that EY raises will be higher than P-dubs (maybe can some low performing partners?). In addition, the variance between average performers and high performers at P-dubs is only .6% (not significant at all).
If you forgot what this is referring to, back in April we reported a tip out of the Ernstiverse that a partner had claimed that the raises at E&Y would beat PwC’s. The reports out of PwC have been better than expected, although not for everyone.
So if this partner’s prognostication holds up, how will they pull it off down the stretch? Seems like a good question. Conversations are going on right now and the official news will reportedly be out in a couple weeks.
Since we’ve got half of the Big 4 involved here we’ll just mention that the belly aching at KPMG is in full force on the bonus front but maybe there’s hope for a strong move down the stretch?
As for Deloitte, apparently communication has occurred for promotions but it sounds like word on comp could be more than a month out. If you’ve got the scoop get in touch with the details and discuss this four horse race but as it stands right now, it looks as if PwC has E&Y by a nose.
Forced Rankings Appear to Be in Full Effect at Ernst & Young
Confirming some discussion in the comments from last Friday’s Ernst & Young compensation post, a source got in touch with us with more details on some rankings getting chopped:
I’ll confirm what your sources are saying about reviews being available in fso. Not only that, but forced rankings are in full effect. While [there] was less pushback during roundtables earlier (which was accurrate at the time), the ratings for at least 5 people were lowered by a notch from what was agreed to by the full committee at the end of may. (5 to 4, 4 to 3) While they do say after all people are discussed they’ll assess the levels to ensure the same criteria is being used, I firmly belive its being used as a way to lower ratings (and raises). Why have the formal review committees (roundtables) if the partners are going to have the ability to act unilateraly to ‘right size’ the ratings?
We’ll still have to wait a couple more weeks before we find out if the forced rankings actually translate into disappointing raises, as the official communication won’t come until August but this news surely doesn’t bode well. If you got knocked down a peg, discuss below and as always, keep us updated.
Promotion and Compensation Watch: Ernst & Young Communication to Come Eventually, Someday
Straight out of the Bubba Gump Shrimp location up the street from 5 Times Square:
Ernst & Young, Financial Services Office, NY
Received communication that our annual ratings were finalized and discussions between counselors and counselees to occur by July 30. Promotions are still not final, but promotions and compensation will start to be communicated in August (to be effective October).
So t-minus three weeks (give or take a day here or there) until “you’re not going to be disappointed with raises” which apparently could mean that they will make PwC’s raises look like chump change (for auditors anyway).
BUT! In case you need a refresher on the numbers so far: 3-5% is what we last heard for those in the meaty part of the curve. No word on what top performers are getting but speculation is welcome. Keep us updated.
PCAOB Report States That There Was a Fair Amount of Failing Going on at Ernst & Young
The PCAOB has issued its annual report on Ernst & Young having given the firm the third degree at its national office and 30 of its 80 U.S. offices. It inspected 58 audits performed by the firm but exactly who is, of course, a big secret (unless you tell us).
There were five “Issuers” that were listed in the report and some form of the word “fail” was used 25 times (that includes the footnotes).
[Issuer A] The Firm failed to adequately test the issuer’s loan loss reserves related to certain loans held for investment. Specifically, the Firm failed to reconcile certain values used in the issuer’s models with industry data, failed to test the recovery rates used in the issuer failed to test the qualitative components of the reserves.
Damn those loan loss reserves!
[Issuer C] The Firm failed to perform sufficient procedures to test the issuer’s allowance for loan losses (“ALL”). The issuer determined the general portion of its ALL estimate, which represented a significant portion of the ALL, using certain factors such as loan grades. Data for this calculation were obtained from information technology systems that reside at a third-party service organization. The Firm relied on these systems, but it failed to test the information-technology general controls (“ITGCs”) over certain of these systems, and it failed to test certain of the application controls over these systems. Further, the Firm’s testing of the controls over the assignment and monitoring of loan grades was insufficient, as the Firm failed to assess the competence of the individuals performing the control on which it relied.
This loan thing appears to be a trend…
[Issuer D] The Firm failed to sufficiently test the costing of work-in-process and finished goods inventory. Specifically, the Firm’s tests of controls over the costing of such inventory were limited to verifying that management reviewed and approved the cost allocation factors, without evaluating the review process that provided the basis for management’s approval.
Hopefully that doesn’t blow back on an A1.
Anyway, you get the picture. The whole report is below for your reading pleasure. E&Y’s got its $0.02 in, however it was short and was mostly concerned about the firm’s right to keep its response to Part II (the non-public part)…non-public:
We are enclosing our response letter to the Public Company Accounting Oversight Board regarding Part I of the draft Report on 2009 Inspection of Ernst & Young LLP (the “Report”). We also are enclosing our initial response to Part II of the draft Report.
We note that Section 104(g)(2) of the Sarbanes-Oxley Act requires that “no portions of the inspection report that deal with criticisms of or potential defects in the quality control systems of the firm under inspection shall be made public if those criticisms or defects are addressed by the firm, to the satisfaction of the Board, not later than 12 months after the date of the inspection report.” Based on this statutory provision, we understand that our comments on Part ii will be kept non-public as long as Part ii of the Report itself is non-public.
In addition, we are requesting confidential treatment of this transmittal letter.
So this doesn’t mean much other than E&Y would prefer that no one know how it managed to tell the PCAOB to fuck right off as nicely as it could.
If you had the pleasure of being on one of these 58 engagements, we’d love to hear about your experience.
Today in Auditor Musical Chairs: KPMG and Deloitte Both Get the Boot
Evergreen Energy of Denver dismissed Deloitte effective June 23rd according to the company’s 8-K filing. Hein & Associates, a local Denver firm, will take it from here.
It stands to reason that Evergreen didn’t appreciate the going concern opinions that Deloitte gave the company for its December 31, 2009 and December 31, 2008 financial statements but in cordial SEC filing fashion, there are no parting shots from the company.
Evergreen’s press release indicates that this was simply an opportunity to throw some action to another firm (most likely with lower fees), “With the sale of certain Buckeye assets and our exit from the coal mining industry, Evergreen Energy has transitioned into a green technology company. This is an ideal time to switch to a Denver-based regional accounting firm with substantial public company expertise in the clean technology and software industries that can more cost effectively meet our needs.”
Deloitte’s letter to the SEC is abruptly admits that everything is cool rather than flat out saying, “you’ll be sorry you ever ditched us, you losers.”
Similarly, Measurement Specialties, Inc. showed KPMG the door for Ernst & Young. The company says everything was hunky-dory between the two although there was a small matter of the internal controls around a significant joint venture of which the company had no control. Oh, and the effectiveness of internal controls of some recent acquisitions also couldn’t be determined. But it was cool and the company said, “it was in the best interests of the Company to change its independent registered public accounting firm.”
KPMG has NFI what that means saying in their letter, “we are not in a position to agree or disagree with Measurement Specialties, Inc.’s statements relating to the reason for changing principal accountants.”
We wish everyone nothing but happiness.
Wanted: Actor Who Can Channel the Quality of Ernst & Young
We know Ernst & Young is looking for some extra help but this particular role will require someone (an extra from Inglorious Basterds, perhaps?) that is theatrical first and a numbers person second:
For starters, why do you need an actor to “demonstrate what not to do in the workplace”? Couldn’t they just secretly film employees on any old regular Thursday and get the footage they need? Then you could do a candid camera type ending where Jim Turley jumps out and cans their asses.
As far as casting is concerned, David Hasselhoff immediately comes to mind but in the off-chance that the Hoff isn’t available, who picks up this gig? We imagine an in-house choice would be preferable in order to save on costs.
JT has a nice strong face/chin but can he do the accent? We know the Vegas office is a cesspool of talent. Perhaps this is the hazing for one of the new partners? Ideas welcome.
Promotion Watch ’10: Ernst & Young Names 126 New Partners in the Americas
To please you hair-splitters, that number includes principals. E&Y also named 62 new executive directors and 19 new directors.
It’s been a couple weeks since the announcement but we finally were able to run down a few details on the new partners at E&Y:
We’re not sure why Howe had to slip in the diversity soundbite there but he did. Thoughts?
In terms of the breakdown, right now we only have a few specifics so far out of the Northeast:
Of the offices in NY, MA, CT, RI, and NJ, we had a total of 16 new execs: nine tax, four advisory, and a whopping three assurance.
If you’ve got more details, let us know. Congrats to the new PPEDDs at E&Y!
(UPDATE) Compensation Watch ’10: Are Raises Looking Bleak at E&Y?
It’s been awhile since we’ve heard any news on the E&Y comp front but we finally received a preliminary report from one source late last week:
[Roundtables] went the same way they always go. Surprisingly, less pushback on proposed ratings for the portion I was involved in. I really think they may be scared to lose more people. Indications are raises will be low (3-5% range for most, more for 4/5 rated people) Bonuses are probably non-existent for the masses. Annoucements of promotions for other levels will be made in August (staff to senior, senior to manager, manager to senior manager) they will also do comp increase discussions then. Effective 10/1…
So despite Ernst & Young re-reassuring merit increases the 3-5% for the meaty part of the curve and no bonuses isn’t exactly what “the masses” were expecting.
That being said, this office may be catching some bad luck since we that at least one E&Y partner was confident that the raises would beat PwC’s.
Although, some lucky E&Y soldiers have seen some “spot bonuses” for their hard work but it’s not clear how widespread that generosity is.
On a marginally-related note, we’ve received word that the partner promotions were announced but we’re still trying to run down some details. Get in touch with us if you’ve got the scoop on the new partners, what you’re hearing about comp in your office and discuss below.
UPDATE, Wednesday June 16th: A couple more accountants familiar with E&Y have their own take on the comp situation:
I heard that we “we’re not going to be disappointed with raises” here at EY. I don’t know what that means. And I tend to believe, that as you posted today, 3-5%, is a more realistic view of what’s going to happen (though that’s just my own pessimism).
and that is coupled with another source, “Haven’t heard anything further on comp other than ‘moderate.’
Continue attempting to decipher the latest. As you were.
Is Ernst & Young Quadruple-Checking Your Expense Reports?
A curious mind out of Casa de Turley:
EY just moved to a “new” (basically the same, but it does look more flashy) expense reimbursement system in the US. Along with that move though, my expense pay back times have increased from usually about a 2-3 day turn around for approval to a 5-7 day approval. While it’s not unheard of that it would take that long, I was wondering if other EY people were experiencing the same payment delays and what this could be signaling? Just slow/less staff processing expense reports or is this some sort of cash flow management? I’m not sure that that even makes sense since we bill the client for the expenses, so it puts off the billing process as well as the reimbursement process.
As to why and how this happening, we’re guessing that those of you that got into the habit of going to Bobby Vans twice a month, playing Omaha, Hold ‘Em et al. on the web and lap dances and somehow convinced yourself it was business related have finally broke the proverbial camelback. It’s either that or Jim Turley is pulling up his boot straps and checking every single expense report himself.
Other theories or wild-ass guesses? Fire away.
PwC, Ernst & Young Building Defenses Against Each Other’s Spies, Peeping Toms
Ernst & Young had a nice little buffer zone from the other Big 4 in their London office until PricewaterhouseCoopers decided they’d set up camp next door and now the two firms are strategerizing.
P. Dubs is finishing up the construction on their new digs and the Telegraph reports that “At their closest point the two offices are roughly 10 [meters] apart.” This proximity (not to mention the obnoxious tendency of Big 4 types to be competitive just for the sake of being competitive) has apparently led to rampant paranoia at the two firms about spying.
Getting up in E&Y’s shit seems to be bean counting as usual at PwC, as this latest move more or less correlates with the alleged poaching of 20 E&Y partners in the Middle East.
The Telegraph is insinuating hilarious war-esque undertones, saying, “First blood in the battle has gone to PwC with the installation of blinds that close automatically whenever audio-visual presentation equipment is switched on and an office layout that ensures no computer screens face windows.” The obvious concern being that PwC’s secret “we provide the absolute best client service” plan would be imitated by E&Y, which would mean an all-out war.
However, the real concern should be voyeurs scoping out the office sexcapades. As we’ve mused in the past, the odds of fornication for accountants are slim as it is and work relationships are a convenient option. With this development, some E&Y and PwC minions will be denied the opportunity for office sex. This is not as much of a problem for the exhibitionists at the firm, however, that cross section is likely small.
E&Y is reportedly “evaluating a number of options,” to combat P. Dubs’ tactics, which may or may not include the following:
A) A group mooning that will involve the most portly E&Y employees.
B) Placing inflatable bozos in the windows.
C) Draping the entire building with a photo of Susan Boyle in Beckham’s PwC undies.
D) Your idea.
Blackout curtains beckon as accountancy rivals find themselves too close for comfort [Telegraph]
Allegedly, a Few Ernst & Young Partners Just So Happened to Join PwC
Never having the pleasure of attending a partner-only soiree, we don’t have much knowledge about the haps at these events but we do imagine catering slightly better than what you would find at an in-house training but served by oompa loompas. And an open bar, natch.
Likewise, we’ve never heard about Big 4 partner mixers where, for example, an PwC partner might chat up a E&Y partner talking IFRS, where they fall on the staff’s hottie list and “oh by the way, waddaya say you join our firm?” To save face, we imagine said E&Yer responding with a “No, I will not make out with you” retort followed by open-faced slaps and ripped Jos. A. Bank until the beefy security pulled the two apart (at which point the P. Dubs partner gives his target the “call me” sign).
We bring all this up because the Times Online reports that there has been a fair amount of defection from Ernst & Young to PricewaterhouseCoopers in the Middle East (no sissies allowed). PwC’s Middle East practice was purchased by the UK firm last year and now the Times reports that 20 E&Y partners have been poached by P. Dubs:
According to people familiar with the situation, the defections — amounting to almost a fifth of Ernst & Young’s partners in the Middle East — were in several locations across the region. Most were from Ernst & Young’s consulting business, The moves began last summer but were kept secret because of a settlement between the two firms. PwC agreed that it would not approach any more Ernst & Young staff in return for Ernst & Young agreeing not to take legal action to block the departures.
Neither firm would comment for the Times article except to boast about their numbers in the region, “PwC confirmed that it had recruited 25 new partners and 400 staff in its Middle East offices in the past 12 months,” and “A spokesman for Ernst & Young said that it remained ‘easily the largest’ of the Big Four in the Middle East,” so both firms’ communication departments seem to be operating as normal.
Whether such (alleged) deliberate defections have happened in the States, we don’t know but we hear it is quite the spectacle (marched out by the OMP the second the news got dropped) when one partner notifies his/her intent to leave for a competitor, so all out war could reasonably be expected.
PwC raids rival before Middle East step [Times Online]
Bonus Watch ’10: Ernst & Young Is Rewarding The Hard Workers
From the mailbag:
EY Mclean Office- partners are reaching out to people giving $400 spot bonuses for hard work during busy season.
This particular lucky duck was in the tax practice. Cash? Gift certificates at the Cracker Barrel? Just McLean? If you’re getting greased, phone them in.
Apparently Ernst & Young Doesn’t Buy the “C’s Get Degrees” Mantra
We know that lots of you out there are perfectionists, so this could never happen to you but for you mere mortals, you can sympathize a little bit.
Courthouse News Service reports that a class action suit in California has been filed against E&Y claiming that the contracts signed by graduating seniors “compel” them to work for the firm but allow the company “to legally renege or cancel the offer of employment” if the senior does not maintain “continued strong academic standing.” Apparently this means if you slack off your senior year and slip a couple of C’s in there, you could be out on the street.
Yunjung Gribben, 43, is the named plaintiff in the suit and she is seeking damanges for wrongful termination, age discrimination, breach of employment, specific performance and violations of the Labor Code.
Ms. Gribben claims that she graduated from Cal State Fullerton with a 3.6 grade point average but, “After working for Ernst & Young for a month, Gribben says, she got a call from human resources, questioning her about the C’s she got in her senior year. She says she was fired the next days [sic].”
She claims that “continued strong academic standing” was not defined in her contract, although she admits that there is a “hazy reference” to the term on the firm’s website.
Dale Fiola is representing Ms. Gribben and he us, “No student should be under the impression that they have an employment agreement once they graduate. Most of the time when people sign offers of employment they think they’ve got something.”
The suit alleges that other students have cited the “continued strong academic standing” language and in Ms. Gribben case, “younger employees were allowed to stay at the company.”
Ernst & Young spokesman Charlie Perkins had no comment at the time our post was published.
Class Sues Ernst & Young Over Contract [Courthouse News Service]
Any Attempts by Accounting Firms to Boost Morale May Be Too Late
From an accountant familiar with E&Y:
We got two voicemails today, one from head of Banking and one from the Vice-Chair of people, both talking about compensation. I think the underlying fear is that we don’t have enough people anymore in our practice because they keep stressing all the things that the partners are going to do besides compensation to boost morale (like have a lunch with staff sometime around cinco de Mayo).
The last month and a half has been a bit, shall we say, tough on the E&Y and the troops. That being said, the news that Ernie would beat P. Dubs raises may or may not have got some people to relax but it appears that the firm’s leadership is still on the offensive to keep spirits high.
After discussing it with our resident HR expert, the problem with these little wine & dine events is that at this point they are too little, too late. People don’t want they faces fed. They want answers. They are crawling the walls with anxiety about three things:
1. What raises will be.
2. If there will be a bonus pool.
3. Who is getting promoted.
And they want to know the answers ASAP. Raises have been triple-reassured at all the firms and people want to know that number; they want to know if there’s a bonus pool.
Everyone at the point of promotion has made up their minds about what they will do if they get promoted or not. Plus everyone who is not up for promotion is talking about who will get promoted, who won’t and the reactions that will result (e.g. storming out of the office or a nervous breakdown).
The reality is that these things take time. The fact that PwC put a number out there was impressive (and some have said, desperate) shows that partners are aware of the anxiety and they’re trying to get people to relax.
Deloitte is up first, as their fiscal ends 5/31 and we’ve heard that there has been generosity passed around there but it will ultimately depend on the the merit increases. We hear their all hands webcast is coming up soon and that discussions are occurring this month so it won’t be long.
No amount of margaritas, $100 bonuses or NHL playoff hockey tickets will change the fact that people have worked it out in their heads about what they will do when they get the news. And once that news is known, people will act fast. We would encourage everyone to be patient, try and be rational etc. etc. but we also know that’s an futile request.
Ernst & Young’s Raises Will Be Better Than PricewaterhouseCoopers’
I said it on Tuesday and I’ll say it again. HERE. WE. GO.
Caleb ran a post yesterday about Ernst & Young raises that as of deadline time had no comments. Zilch. Nadda. I was surprised by this because if anything guarantees comments on GC posts it’s talk about layoffs, Overstock.com shenanigans, and money (not in that order). Needless to say, I think this update will change things.
GC received a tidbit from an EY reader about the recent phone call:
“I did receive a voicemail from Steve reassuring compensations but, it appears that the firm will concentrate giving raises to its “high performers”. So, this potentially could mean that only EYers rated a 5 (need to catch a fraud to get this or have really sore knees) or 4s (need to be well liked all the way up the pipeline on an audit) will have a respectable raise.”
So – if you burned through busy season working yourself to the bone for Uncle Steve but stopped short of needing knee pads (it should also be noted that the parts in parentheses above are part of the original email…) you might be shit out of luck for a respectable raise.
Continuing…
“In addition, I checked with a partner and the August 1st early pay increase is a rumor. The rumor appeared believable since EY is a monkey see monkey do type of firm but, our partner said that EY’s raises although be start on October 1st, will be higher than what PwC will offer to its auditors.”
Boom. To quote my man and crime fighting detective Marcus Burnett, “Shit just got real.”
Shit. Just. Got. Real.
Is there any credibility to this? Sure there is. To think that the upper leadership from every firm does not talk to one another about compensation targets is ridiculous. Merely for the sake of the partners’ bottom line, it’s necessary to know what ones competitors peers are paying in compensation. Why some loose-lipped partner is sharing this information is beyond me, but hey, it’s dedicated readers fed up with their own compensation that forward these tips on. Now, let’s talk it out.
Which would you prefer – every 10 key cruncher receiving a mediocre payout or just the stars receiving something slightly-better-than-insulting? Comment below, regardless of which firm you work for. Be sure to shed some light on the timing of EY’s payouts if you know any details.
Compensation Watch ’10: Ernst & Young Re-reassures Merit Increases
About a month ago, we heard about an E&Y town hall in Chicago that was meant to rally the troops after the last two weeks of March saw ubiquitous Lehman Brothers/Repo 105/bankruptcy examiner’s report coverage.
Plus, it was the end of busy season so people were likely at their wits end. At said town hall, the raises promised by Americas Managing Partner Steve Howe back in January were reassured.
Despite this message, Steve Howe sent out a triple-reassuring message yesterday to everyone that wasn’t listening and/or didn’t get the communiqué:
Stevie Howe just sent out another long VM confirming raises this year. On a related note, FSO sent out a note about accelerating the annual review process to account for the expedited compensation review process.
Another source told us that more details are to come on an upcoming webcast, and because of the “expedited comp review” process, it has been suggested that the merit adjustments may occur earlier than usual. Right now, our source speculates that it will go down in August but no hard date has been thrown out there. Keep us updated.
Some Behind the Scenes Details on the Ernst & Young “We Are Las Vegas” Video
On Tuesday we briefly shared a video that was put together by the E&Y Las Vegas office that involved a large pair of headphones (Koss perhaps?) an Elvis impersonator, plenty of off-key singing and out-of-sync choreography.
Unfortunately, the video didn’t last and AG piped in only to replace the singalong with another video that had – ugh – subtitles but at least it was a little better rehearsed.
Anyway, we did some poking around and we found out a little back story on this whole “We are Las Vegas” production.
Apparently, the video had its non-GC debut at a townhall meeting in LV last night that was relatively uneventful, according to an accountant close to the sitch:
It was basically a loyalty pep rally. They told us that we would be getting raises, but of course said we would “follow the market.” That’s ironic from a firm that strives to be the “market leader.”
Sounds like the typical yarn but it sounds like it was followed by mucho boozing so that made up for it… Anyway, what about that video?!?
What’s with the ginormous headphones?
Headphones guy was just asked to wear them as a prop. Stevie Wonder did, why not somebody else???
Was the whole office in on this thing? Were accountants forced to participate against their will?
There were people from all service lines. I would say tax and audit were both represented equally. Amazingly, there WERE people who were excited about singing the song.
How was the video received?
I was amazed how the upper level management at the town hall (from various west coast cities) was impressed with the song. The overwhelming response at town hall was “that was a good video.” I think a training at our Times Square office might be in place.
Why on Earth did someone decide to put this on YouTube?
The world may never know.
Ernst & Young Pulls Its “We Are Las Vegas” Sing-a-Long (cry)
Editor’s note: Caleb is at some Si Se Puede rally with other pissed off Big 4 expatriates or something so I’m forced to bring you this news. Surely he’ll return shortly to continue keeping E&Y’s “Internet Reputation Team” in a job.
Earlier today, Caleb posted a pretty awful Ernst & Young sing-a-long that I unfortunately did not get to watch before it was pulled by – well duh – E&Y. Hope you saw it while it was up, I’m sure it was fabulously lame.
It appears they have a bit of a public relations nightmare on their hands but who can say?
Here’s another excellent Uncle Ernie flick, wonder how long it takes for them to pull this one?
Damn. That makes me want to be an auditor.
Elvis Fails to Make Ernst & Young Singalong Less Awkward
Any thoughts on this? The swaying needs work, that’s for sure.
[Source]
Ernst & Young Needs You to Beg Your Friends to Work at Ernst & Young
Maybe beg is a stretch but the Banking & Capital Markets (they had non-Lehman Brothers clients, you know) practice needs more people ASAP.
The following email is from a partner in the FSO practice requesting recipients to get three to five of their friends to drop whatever they’re doing and join Uncle Ernie’s Army:
Hello Everyone,
Please review the following notice regarding Employee Referrals. The success of our Banking & Capital Markets practice is dependent upon the quality of our people and our ability to grow. In order to reach the goals we have put forth this year, we will need to significantly grow the size of our Practice. A key driver to that growth is Employee Referrals. I would like each person in the practice, from Staff through Partner/Principal, to come up with 3 to 5 qualified referrals who you believe would be strong additions to our practice and help contribute to our growth and success. In addition to submitting them through the Employee Referral Program website, please send the candidate’s name, contact information, resume (if you have available) to our Recruiter, [redacted].
Thank you very much for all of your help and hard work!
Does anyone that just finished up busy season even have 3 to 5 friends/acquaintances outside the firm? Anyone that was your friend prior to the beginning of the year probably assumed that you’re dead.
Anyway, here’s the original plea for Ernsters to play recruiter that includes a nice little bonus if your friend/acquaintance/frenemy makes the cut:
Your help wanted to fill critical job openings within the FSO Assurance Practice
Employee Referral ProgramThe Employee Referral Program encourages and generously rewards you for recommending great people to Ernst & Young. Over and above the monetary awards, we believe the ultimate satisfaction of making a referral comes from the very real difference you can make for your friends, as well as for Ernst & Young. Here’s a great opportunity for you to help a friend or acquaintance, Ernst & Young and yourself — all at the same time!
The Assurance – Banking & Capital Markets practice is looking to immediately fill positions (Experienced Staff and Seniors) in the areas listed below. You could receive a generous referral bonus (up to $7,500!) by suggesting someone you know who you think would be a good candidate and a great EY team member. All referral bonus award information is listed on the EY Employee Referral Program website below.
Banking & Capital Markets (New York, Boston, Stamford)
Asset Management (New York, Boston, Stamford)
Insurance (New York, Boston)
On-Call Advisory/FAAS (New York) *openings at Senior and Manager levelsTo make a referral for one of these positions, please visit the EY Employee Referral Program website at http://chs.ey.net/Referral.
Through the referral program, you make can make a real difference for someone you know, for Ernst & Young and for you. We know for a fact that our very best hires are referred to us by our current people. So, please think about who you know that might make a great addition to our team.
Whether this means that the markets mentioned will avoid layoffs this summer remains to be seen. Happy hunting.
Fuld: Ernst & Young “Supported” Lehman’s Repo 105 Treatment
Dick Fuld has a big date with the House Financial Services Committee tomorrow and he’s going to say that he knew absolutely nada about Repo 105 until that nasty little report came out last month.
Fuld will also state that Repo 105 complied with GAAP and that Ernst & Young “reviewed that policy and supported the firm’s approa f the relevant rule, FAS 140.” Further, E&Y was “auditing our financial statements and reviewing our quarterly and annual SEC filings. Each year, E&Y issued formal opinions that Lehman’s audited financial statements were fairly presented in accordance with GAAP, and they were.”
Presumably E&Y will be okay with this since they’re standing by their audits of LEH so we’re sure no one at 5 Times Square will be interested in tomorrow’s testimony.
Full testimony, via Deal Journal:
Mr. Chairman, Ranking Member Bachus, and Members of the House Committee on Financial Services, you have invited me here today to address a number of public policy issues raised by the Lehman Brothers bankruptcy report filed by the Examiner.
Since September of 2008, I have given much thought to the financial crisis and the perfect storm of events that forced Lehman into bankruptcy. Everyone’s focus is now on how to prevent another crisis. The key is how regulation and governance should be deployed going forward to better protect the financial markets and the entire system.
The idea of a “super regulator” that monitors the financial markets for systemic risk, I believe, is a good one. To be successful in today’s challenging environment, this new regulator should have actual experience and a true understanding of the business of financial institutions, the capital markets and risk management and must be given the resources sufficient to accomplish its important mission.
My view is that the new regulator also should have access, on a real-time basis, to all information and data regarding transactions, assets and liabilities, as well as current and future commitments. In addition, we should put in place established and effective methods of communication between the regulator and the firms being regulated, all of whom should be guided by clear standards for capital requirements, liquidity and other risk management metrics. The job of the new regulator can only be done, in my opinion, with the creation and utilization of a master mark-to-market capability that determines valuations and capital haircuts on all assets, commitments, loans and structures. In short, to have a fair and orderly market, I believe we need a single set of transparent rules for all of the participants.
You have asked specifically about the role of the SEC and the Federal Reserve Bank of New York. Beginning in March of 2008, the SEC and the Fed conducted regular, at times daily, oversight of Lehman. SEC and Fed officials were physically present in our offices monitoring our daily activities. The SEC and the Fed saw what we saw, in real time, as they reviewed our liquidity, funding, capital, risk management and mark-to-market processes. The SEC and the Fed were privy to everything as it was happening. I am not aware that any data was ever withheld from them, or that either of them ever asked for any information that
was not promptly provided. After an extended investigation into Lehman’s bankruptcy, the Examiner recently published a lengthy report stating his views.Despite popular and press misconceptions about Lehman’s valuations of mortgage and real estate assets, liquidity, and risk management, the Examiner found no breach of duty by anyone at Lehman with respect to any of these.
Speaking of asset valuations, the world still is being told that Lehman had a huge capital hole. It did not. The Examiner concluded that Lehman’s valuations were reasonable, with a net immaterial variation of between $500 million and $2.0 billion. Using the Examiner’s analysis, as of August 31, 2008 Lehman therefore had a remaining equity base of at least $26 billion. That conclusion is totally inconsistent with the capital hole arguments that were used by many to undermine Lehman’s bid for support on that fateful weekend of September 12, 2008.
The Examiner did take issue, though, with Lehman’s “Repo 105” sale transactions. As to that, I believe that the Examiner’s report distorted the relevant facts, and the press, in turn, distorted the Examiner’s report. The result is that Lehman and its people have been unfairly vilified.
Let me start by saying that I have absolutely no recollection whatsoever of hearing anything about Repo 105 transactions while I was CEO of Lehman. Nor do I have any recollection of seeing documents that related to Repo 105 transactions. The first time I recall ever hearing the term “Repo 105” was a year after the bankruptcy filing, in connection with questions raised by the Examiner.
My knowledge, therefore, about Lehman’s Repo 105 transactions, and what I will say about them today, is based upon my understanding of what I have recently learned.
As CEO, I oversaw a global organization of more than 28,000 people with hundreds of business lines and products and with operations in more than forty countries spread over five continents. My responsibility as the CEO was to create an infrastructure of people, systems and processes, all designed to ensure that the firm’s business was properly conducted in compliance with the applicable standards, rules and regulations.
There has been a lot of misinformation about Repo 105. Among the worst were the completely erroneous reports on the front pages of major newspapers claiming that Lehman used Repo 105 transactions to remove toxic assets from its balance sheet. That simply was not true. According to the Examiner, virtually all of the Repo 105 transactions involved highly liquid investment grade securities, most of them government securities. Some of the newspapers that got it wrong were fair-minded enough to print a correction.
Another piece of misinformation was that Repo 105 transactions were used to hide Lehman’s assets. That also was not true. Repo 105 transactions were sales, as mandated by the accounting rule, FAS 140.
Another misperception was that the Repo 105 transactions contributed to Lehman’s bankruptcy. That was not true either. Lehman was forced into bankruptcy amid one of the most turbulent periods in our economic history, which culminated in a catastrophic crisis of confidence and a run on the bank. That crisis almost brought down a large number of other financial institutions, but those institutions were saved because of government support in the form of additional capital and fundamental changes to the rules and regulations governing banks and investment banks.
The Examiner himself acknowledged that the Repo 105 transactions were not inherently improper and that Lehman vetted those transactions with its outside auditor. He also does not dispute that Lehman appropriately accounted for those transactions as required by Generally Accepted Accounting Principles.
I have recently learned that, in 2000, the Financial Accounting Standards Board published detailed accounting rules for transactions of this very type, described them and dictated how they should be accounted for. In 2001, Lehman adopted a written accounting policy for Repo 105 transactions that incorporated those accounting rules. E&Y, the firm’s independent outside auditor, reviewed that policy and supported the firm’s approach and application of the relevant rule, FAS 140.
As I now understand it, because Lehman’s Repo 105 transactions met the FAS 140 requirements, that accounting rule mandated that those transactions be accounted for as a sale. That was exactly what I believe Lehman did. Lehman should not be criticized for complying with the applicable accounting standards.
In other words, those transactions were modeled on FAS 140. The accounting authorities wrote the rule that expressly provided for those transactions and how they should be accounted for. To the best of my knowledge, Lehman followed those rules and requirements.
My job as the CEO was also to put in place a robust process to ensure that Lehman complied with all of its obligations to make accurate public disclosures. I had hundreds of people in the internal audit, finance, risk management and legal functions to ensure that we did, in fact, comply with all of our obligations.
Part of that process was E&Y’s role in auditing our financial statements and reviewing our quarterly and annual SEC filings. Each year, E&Y issued formal opinions that Lehman’s audited financial statements were fairly presented in accordance with GAAP, and they were.
We also had in place a rigorous certification process that was carried out in advance of every annual and quarterly SEC filing. That bottom-up process involved hundreds of people who had first-hand knowledge of the firm’s day-to-day business and the responsibility to review for accuracy and compliance the firm’s SEC disclosures before they were filed.
Before we made any annual or quarterly filing, the key people who were involved in this process signed certifications confirming that, to their knowledge, the filing did not contain any untrue statement of a material fact or any material omission and that it fairly presented Lehman’s financial position.
Our certification process culminated, every quarter, with a mandatory, allhands, in-person meeting, which was chaired by Lehman’s Chief Legal Officer. In addition to me, that meeting was attended by the firm’s President, Chief Financial Officer, Financial Controller, Executive Committee members, business heads, the principal internal audit, finance and risk managers, legal counsel and our outside auditors.
After we had reviewed the draft annual or quarterly filing in detail, the Chief Legal Officer and I would each ask everyone present to speak up if there was anything in the document that caused them concern, or if anything had been omitted that they thought should be included. Attendees were also told that they should speak separately with the Chief Legal Officer if they had an issue that they did not want to raise at the meeting. To my knowledge, no one ever, at any of those meetings, raised any issue about Repo 105 transactions.
I relied on this certification process because it showed that those with granular knowledge believed the SEC filings were complete and accurate. I never signed an SEC filing unless it was first approved by the Chief Legal Officer. Mr. Chairman, I thank you for allowing me to speak on these issues and I will be pleased to answer any questions this Committee may have.
The PCAOB Is the Latest Headache for Ernst & Young
Charlie Gasparino is on E&Y like stink on a monkey this week. After reporting yesterday that the SEC may eventually get around to charging Dick Fuld and/or Ernst & Young for the accounting hijinks at Lehman Brothers, CG is now reporting that the PCAOB is asking all kinds of questions that E&Y would rather not answer.
Not exactly great news from CG so we emailed E&Y spokesman Charlie Perkins to see what’s what. He declined to comment and said the firm would not be releasing a statement related to this report.
We also called up the PCAOB to get their take and spoke with Colleen Brennan, Deputy of Director of Public Affairs, who said that the Board is prohibited from discussing these matters and provided us with the details:
The PCAOB cannot comment on whether it is investigating a particular registered accounting firm or a particular public company audit by a firm. The Board, however, takes all allegations of improper professional conduct by a registered public accounting firm seriously and considers all information relating to such allegations.
PCAOB investigations and contested contested disciplinary proceedings are confidential under the Sarbanes-Oxley Act. The PCAOB’s inventory of enforcement matters includes audits of all sizes and varying complexity, including matters related to audits by large firms for issuer audit clients involved in the financial crisis.
So no one is talking. Fine, we’ll just have to take Charlie at his word. What we do know is that if the Board does decide to lay the smackdown on E&Y, they’re going to tell the entire universe about it via its “Disciplinary Orders,” and as CG notes in his report, if the PCAOB does bring an action against E&Y it will be the highest profile enforcement action in its short history. Not exactly a BusinessWeek list.
SEC Might Bring Civil Charges Against Ernst & Young Soon, Maybe
Charlie Gasparino is reporting that the SEC probe in the Lehman Brothers bankruptcy is “ramping up” and that the Commission is under hella-pressure to bring civil charges against Dick Fuld, Ernst & Young and whoever else is on the list.
It’s unclear if the SEC can muster the necessary proof to show that top executives like former CEO Richard Fuld or the firm’s outside auditor Ernst & Young intentionally misled investors about the health of Lehman’s balance sheet in the months before it filed for bankruptcy in mid-September 2008, according to people close to the probe…It’s unclear when any charges might be filed by the SEC, but people close to the inquiry say the SEC believes it does bring one, it must do so “very soon,” possibly within a few months given a combination of the outrage over the report’s findings and that Lehman’s bankruptcy is going on two years old.
Okay, so things are urgent but not that urgent. It’ll be Father’s Day maybe the 4th of July by the time we get a Mary Schapiro smackdown.
But that’s not all! Things are really serious at Ernst & Young now because Charlie reports that E&Y “has hired high-profile white-collar attorney William McLucas as its outside counsel in the matter, people close to the firm say. McLucas had been the SEC’s enforcement chief before entering private practice.” We checked with our friends over at ATL and it turns out that Mr McLucas is a partner at high-powered WilmerHale and was lead counsel to the special committee of the Enron Board that reported “hard-hitting findings” (sayeth he).
Since Mr McLucas doesn’t take shit from the likes of short-seller Jim Chanos, we’ll take Charlie’s word that things are pretty serious over at 5 Times Square.
E&Y spokesman Charlie Perkins declined to comment.
SEC Probe of Lehman Picking Up Steam [FBN]
See also:
Gasparino: SEC May Be Forced To Do Something About This Whole Lehman Thing [DB]
Compensation Watch ’10: Ernst & Young Still Planning on Merit Increases
A little more from inside E&Y to round out the week. We got a tip earlier in the week that there was an oddly-timed town hall going on in Chicago this week. Our tipster indicated that the meetings usually occur after the June 30 year-end or in September.
We asked around and from the sounds of it, the meeting amounted to an extremely sober pep rally. The need for a little HR cheerleading is completely understandable, considering the month E&Y has had.
“[T]hey just talked about how they know morale is down, yet no plans for how to fix it. Additionally, they said there would be raises this year, but no mention of how large or small…[and] your basic HR ‘Thank’s for your help’ stuff.”
We haven’t heard the details for the cause “low morale” but it’s quite possible that it could be due, at least in part, to the ehmanlay rothersbay uckshowfay. Plus, busy season is in the home stretch and most people are just over it at this point. As far as fix for morale, our suggestions of Canadidan Tuxes, Timberlands and Hitler videos are obviously being ignored with extreme prejudice. We’re all out of suggestions. Maybe they aren’t the best ideas but at least we’re trying.
The silver lining here is that comp increases are still on the agenda after the initial announcement made by Steve Howe back in January. If they go back on this promise — we’re confident they won’t — you can just blame it on Dick Fuld.
Quote of the Day: If Felix Salmon Was on an Audit Committee | 03.25.10
“If I was on the audit committee which received this letter, I would certainly be shopping my account right now.”
~ Felix Salmon, on Ernst & Young’s “hilariously disingenuous” letter to various audit committee members.
Can the Month of March Get Worse for Ernst & Young?
Today in non-Lehman Brothers Ernst & Young news, the firm has been sued by a liquidator in Luxembourg just a few weeks after a Lux court ruled that individual investors couldn’t bring suits against UBS and E&Y. The suit seeks over $400 million in damages against the two firms. The Iriving Picard de Lux is Alain Rukavina, who filed the suit today.
BBW reports that “Rukavina is one of two liquidators who in December sued UBS and Ernst & Young over Access International Advisors LLC’s LuxAlpha Sicav-American Selection Fund, which once had $1.4 billion in net assets.”
A UBS spokesperson stated that this development was not unexpected and we’re sure that E&Y isn’t yawning at this news, chalking it up to fairly typical Monday.
So in case you’ve been in a coma for the last week or so, you’re probably aware that JT and Co. haven’t had such a great March. Anyone got ideas for how they turn all these frowns upside downs? Do Canadian Tuxedos become standard dress code M – F? Does Jimbo send everyone a complimentary pair of Timberlands? An E&Y Hitler video to lighten the mood? Suggestions are welcome.
UBS, Ernst & Young Sued by Madoff-Fund Liquidators [Bloomberg BusinessWeek]
Quote of the Day: Mary Schapiro Is Being Coy | 03.18.10
“It is safe to assume that we are looking at the conduct of a number of firms.”
~ Mary Schapiro, to a House appropriations subcommittee, not specifically naming Lehman Brothers or Ernst & Young.
(UPDATE) Ernst & Young Doesn’t Care if You Missed Murray State Upsetting Vanderbilt
From an upset Ernster on the Left Coast:
EY Blocks all Websites with “sports” because of March Madness. People in my SoCal office are all ticked off. This sucks. First it was pandora and now it is sports websites. What is next? Lunch breaks? Bathroom breaks?
Music, sports, food, bodily functions. That seems like the right order, doesn’t it?
Since our source sounds pretty upset, this must not be an annual ritual for E&Y. It’s also not clear if this some kind of punishment for everyone showing up hungover today or if it is somehow Lehman Brothers related. Let us know if you’re blacked out at we’ll send you updates.
UPDATE, 6:43 pm: Turns out this was just temporary, THANK GOD:
It turns out there was an internal webcast about Lehman Bros so they shut down all sports websites during the webcast because it was interferring with the webcast. Sports websites are back up but there were a lot of people who were ticked off and went home to work.
Damn you Lehman Brothers! We knew it! So now the question is, what was said on the webcast? Anyone take copious notes?
Former SEC Chairman Pitt: Criminal Prosecutions Are Possible for Ernst & Young, Lehman Execs
Okay then! Not exactly what you’d want to hear from a former SEC Chairman on Monday but what’s a former SEC honcho to do? Paint a rosy picture for everyone? Hell no! The man is gong to get real about this latest bank/accounting firm disaster. Barron’s ran down Harv to get his $0.02 on the whole Lehman/E&Y sitch and he he laid it out for Dick Fuld, E&Y, et al. as how to best handle this dicey situation.
Regarding the timing of a response to the report, you best explain yourselves ASAP and while you’re at it, none of that fancy-schmancy language. Everyone needs to be able to understand this:
If they want to avoid the logical consequences of the Report’s conclusions-and none of those consequences are at all good for either Fuld or E&Y-they will need to come forward quickly with a very plain, easily understandable explanation of the errors or their defenses. The longer it takes them to do that, the less likelihood they will have of mitigating the publicity the Report’s allegations have already received.
Consequences, you ask? How about indictments? How about no more SEC clients for E&Y? Next Andersen? Maybe! Shockingly, the SEC seems to be dragging its feet, per the usual standard operating procedure (emphasis original):
Many are wondering why there hasn’t been any action taken, and why the government hasn’t reported on the same events itself. Criminal prosecutions are possible, as are SEC civil actions. For Fuld, an SEC action could mean that he would forfeit his right to participate in the securities industry and possible disgorgement of monies he received over the years from Lehman. For E&Y, the SEC has the power to suspend their right to practice accounting, limit their ability to take on new clients, and impose remedial sanctions.
Yeah, that last part is kind of the crux. As you may recall, Andersen did not bite the dust because of the money it had to pay to Enron investors but because it’s reputation took such a bad hit that states began revoking their license even before the firm voluntarily surrendered its license to practice before the SEC. This occurred after Andersen clients started running away from the firm like a band of lepers. There’s no indication that’s what will happen to E&Y but there’s a 2,200 page report with E&Y’s name all over that says nothing flattering about the firm.
And say what you want about Harvey Pitt: bearded Bush yes-man, lawyer, whatever. As far as we can tell, he has nothing to gain by throwing out wild-ass speculation about what the possible outcomes could be.
Inside Ernst & Young: Talking Points on Lehman Brothers
If you’ve ever worked at a Big 4 firm, you’re aware that when big news hits the MSM, A) it’s never good and B) there is typically some sort of communication from management reiterating the firm’s position on the matter, everything is cool, thanks for your hard work, etc. etc.
With last week’s revelation of the bankruptcy examiner’s report on Lehman Brothers, E&Y seems to be following this protocol as it relates to the troops on the ground. As you would expect, leadership is keeping their heads about this while in the background in-house counsel is likely engaged in all-night smoky room strategy sessions.
We checked in with a few of our Ernst & Young sources to get an idea of what people were thinking and so far, there doesn’t sound like there are any signs of panic (yet!).
From one source:
Overall reaction from what I gathered is pretty muted. We did get a call from some of the higher-ups saying that we reviewed our work and that we feel that our audit was completely adequate and that Lehman’s failure was nothing more than the same systemic failure of two of the other major banks and that we plan to defend ourselves vigorously. Presumably, the examiner’s report really didn’t give any ah-ha moments….
[I]s there a possibility of a payout at some point? It’s possible. Are we worried that we’re the next Arthur Andersen? I don’t think so.
So at least on the surface, E&Y leadership is communicating that what came out in the report wasn’t surprising and that the defense of the firm’s position will be, as usual, vigorous.
That doesn’t of course stop the speculation:
I heard from a technical guy there was some concern because they didn’t issue a going concern opinion [for the previous audit].
And as you might expect, “I heard that [the firm] helped cook the books and is deep shit,” with the book cooking being arguable but pretty hard to prove and the “deep shit” aspect being a given.
Some Ernst & Young partners are probably losing sleep just thinking about the potential liability involved here but eventually they’ll get over it (until something else comes up).
No partner worth their salt got admitted to the partnership focusing on the downside. The problem is that when people use consistently use words like “deceptive” and “misleading” to describe Lehman’s accounting this reflects poorly on the firm since they were comfortable with the treatment.
And because it’s still busy season for a lot of people, they are focused on the shitstorm that currently surrounds them, not one that will likely drag on for years after they’ve left the firm (voluntarily or otherwise).
Anyone with more insight or thoughts on the matter, get in touch with us and we’ll keep you updated on the chatter inside E&Y.
Quote of the Day: Ernst & Young Partners Losing Sleep? | 03.12.10
“A successful lawsuit against E&Y could result in a court finding that the failure to properly advise the audit committee prevented Lehman from taking genuine steps to substantially reduce its leverage, which may have saved the firm from bankruptcy. Which is to say, E&Y could find itself blamed for all the losses to Lehman shareholders. That would be a stretch – such a claim would be speculative – but it still should be scaring the heck out of the partners.”
Ernst & Young Was ‘Comfortable’ with Lehman’s Shady Accounting
Late yesterday, U.S. Bankruptcy Examiner Anton Valukus released a 2,200 page report that details the collapse of Lehman Brothers. It points the finger at Lehman execs for engaging in shady accounting that Ernst & Young knew about and was comfortable with. Lehman’s Board of Directors were not informed of the questionable accounting treatment.
To put it in more technical terms: Ernst & Young is in deep shit. The lead partner on the Lehman audwed more times than Dick Fuld for crissakes.
The accounting in question was known inside Lehman as “Repo 105.” These transactions moved billions of dollars off of Lehman’s balance sheet that were described by emails in the report as “basically window dressing” and their global financial describing them as having “no substance.” The Times reports that the treatment was so crucial to LEH that one executive, Herbert McCade, was known internally as the “balance sheet czar” and that he described in an email that the treatment was “another drug we r on.”
The really bad part for Ernst & Young is that they were okay with the “drug.” From the report, the lead partner stated that E&Y “had been aware of Lehman’s Repo 105 policy and transactions for many years.” For you wonky types, Lehman was accounting for these “Repo 105” transactions based on guidance from Statement on Financial Reporting Standard 140, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions.
E&Y’s “team had a number of additional conversations with Lehman about Repo 105 over the years,” although they were not involved with drafting the policy nor did the firm provide any advisory services related to the transactions. According to the lead partner on the engagement, the firm simply “bec[a]me comfortable with the Policy for purposes of auditing financial statements.”
The problem, according to the Examiner’s report is that E&Y was okay with the treatment based on the theory:
Ernst & Young’s view, however, was not based upon an analysis of whether actual Repo 105 transactions complied with SFAS 140. Rather, Ernst & Young’s review of Lehman’s Repo 105 Accounting Policy was purely “theoretical.” In other words, Ernst & Young solely assessed Lehman’s understanding of the requirements of SFAS 140 in the abstract and as reflected in its Accounting Policy; Ernst & Young did not opine on the propriety of the transactions as a balance sheet management tool.
According to Lehman’s Global Financial Controller Martin Kelly, “Ernst & Young ‘was comfortable with the treatment under GAAP for the same reasons that Lehman was comfortable.'” Don’t you love it when things work out like that?
Ernst & Young has issued a statement that simply addresses the final audit that the firm performed: “Our last audit of the company was for the fiscal year ending Nov. 30, 2007. Our opinion indicated that Lehman’s financial statements for that year were fairly presented in accordance with Generally Accepted Accounting Principles (GAAP), and we remain of that view.”
SO! E&Y is in a bit of a pickle. Civil suits have already been filed against both firms and more investigations will certainly be coming. If you’ve got some time over the weekend, take a flip through this beauty. We know there is accounting porn in there for some of you.
Report Details How Lehman Hid Its Woes as It Collapsed [NYT]
Examiner: Lehman Torpedoed Lehman [WSJ]
Lehman Brothers Holdings Inc. Chapter 11 Proceedings Examiner’s Report [Jenner & Block]
Luxembourg Court Ruling Nullifies Madoff Investors’ Claims Against Ernst & Young, UBS
Of course the investors are appealing but one win at at time, amiright?
The suits were filed in the fall by investors who lost millions in the LuxAlpha Sicav-American Selection fund which had 95% of its fund invested with Bernie Madoff. The fund claims that it had $1.4 billion in net assets a month prior to Madoff’s arrest.
UBS acted as the custodian while E&Y was the auditor and were sued for “seriously neglecting” their supervisory duties for the fund. Investors in the fund filed more than 100 lawsuits against the two companies.
Luxembourg’s commercial court said in a ruling today concerning 10 test cases that investors can’t bring individual lawsuits for damages. The court said it’s up to the liquidators of the funds that invested with Madoff to seek the “recovery of the capital assets.”
In other words, UBS and E&Y, you’re going to get sued by Irving Picard de Luxembourg rather than 100+ pissed off individuals whose life savings went *poof*. Setting legal precedent aside, taking emotion of the equation works wonders for making an argument.
UBS, Ernst & Young Win Bid to Block Madoff Lawsuits [Bloomberg BusinessWeek]
Earlier:
Ernst & Young Is Thankful for Lawyers, Possibly Toblerones
Ernst & Young Auditors Accused of Missing ‘Tax Loan’ for Investment Adviser’s Stripper Girlfriend
Today in unaudited stripper expense news, two Ernst & Young auditors have been accused in an SEC enforcement action for not investigating a “tax loan” that was misappropriated by a Chicago investment adviser.
John Orrechio founded AA Capital, Inc. in 2002 and he immediately started wining and dining potential clients (primarily unions) in Detroit and Las Vegas. In August of ’03, Orrechio started dating a Detroit stripper (as these stories often go) and he started spending truckloads of money on her and her family. Shortly thereafter, in 2004, Orrechio started taking money directly from client’s tax accounts to fund said his lifestyle and the lifestyle of said stripper.
Orrechio’s stripper fund must have ran dry at some point and he decided to pursue other methods of financing his family fun time. Since he probably wasn’t too keen on letting everyone in on his little problem, Orrechio told his CFO, Mary Beth Stevens, that he owed a grip to the IRS because of his ownership in one of the affiliate private equity fund and that E&Y screwed up filing one of his tax returns:
Orecchio told Stevens that he needed to borrow money to pay his taxes. At Orecchio’s direction, Stevens withdrew $602,150 from AA Capital’s client trust accounts and then wired the money to Orecchio’s personal bank account.
Between May and December 2004, Stevens made three additional disbursements to Orecchio to pay his purported tax liability. During 2004, Orecchio received a total of four separate disbursements under the guise of the “tax loan” totaling approximately $1.92 million.
Ms Stevens, probably not wanting upset the boss (i.e. get in the way of a man and his stripper girlfriend), played ball. When the two auditors in question, Gerard Oprins and Wendy McNeely, learned of this tax loan, they are accused of doing, well, not much:
20. After learning about Orecchio’s purported “tax loan,” Oprins and McNeeley failed properly to evaluate the transaction or require other audit team members to do so. The audit team did not obtain any documentation reflecting Orecchio’s tax liability or the terms of the “tax loan.” They did not discuss the “tax loan” with Orecchio. They did not take steps to confirm Stevens’ statements that Orecchio “made a payment to the IRS for $1,921,050” or that the “tax loan” would be repaid by Orecchio or the IRS during 2005. They did not take steps to assess the collectability of the “tax loan.” They also failed to discuss Orecchio’s tax liability with their colleagues in Ernst & Young’s tax department who prepared the tax filings for AA Capital and its affiliated private equity funds.
21. Oprins and McNeeley also failed to scrutinize Orecchio’s “tax loan,” or require other audit team members to do so, in light of several red flags that the audit team encountered related to Orecchio’s spending habits.
This all led to an unqualified opinion issued by Ernst & Young on AA Capital’s and AA Capital Equity Fund’s (the affiliated private equity fund) 2004 financial statements. Because of the undisclosed stripper piggy bank, the actions of the auditors amounted to financial statements that weren’t in accordance with GAAP and an audit that wasn’t performed in accordance with GAAS.
An Ernst & Young spokesperson declined to comment.
The two auditors are accused of “improper professional conduct” which could result in the two not being allowed to appear or practice before the SEC, which, if you were to ask Harry Markopolos, will save you the trouble of working with idiots.
ACCOUNTING AND AUDITING ENFORCEMENT [SEC]
Ernst & Young Auditors Accused in Investment Case [Web CPA]
(UPDATE) Jim Turley Breaks Out the Fancy Footwear for His Interview on Bloomberg
~ Update includes quote from Britt Aboutaleb of Fashionista
We meant to get to this on Friday but there was a social engagement occurring that couldn’t be avoided; you know how it is. Anyhoo, the Ernst & Young CEO sat down with Bloomberg last Friday to talk tax policy and we found a few things rather interesting. Watch and we’ll chat about some things after the jump:
First things first: How about the two hotties that Bloomberg threw at JT?
Second: why does the MSM always refer to the “Big 4” as the “so-called Big 4”? Does Big 4 carry some negative connotation in some corners of society or is it meant to be a not-so-subtle dig, like when you call the token short guy on your team “big guy”?
Third and of utmost importance: what’s with JT’s footwear? Are those Timberlands? Does he just put on whatever the wife lays out for him or did she happen to take all of his wingtips to the cobbler this week? OR did he just get back from hiking the Appalachian Trail à la Mark Sanford?
Whatever the situation is, they look like they’ve gotten some good use. We’re not sure what Jimbo likes to do for recreation but it must involve some rugged backdrops that may involve him wearing a flannel shirt and chopping wood.
Britt Aboutaleb, one of the editors of our sister site, Fashionsita, had these thoughts, “I can’t even see the shoes — they look like they’ve emerged from a swamp! Maybe he forgot the shoes he was supposed to change into after trekking through the snow? Or maybe he didn’t realize his feet would be caught on camera…”
God, we hope JT could have arranged for some car service rather than schlepping through the snow. On the other hand, maybe walking to interviews is part of a green initiative? Either way, he could have brought the shoes along and changed into them. Just a thought.
On the other, to say that this is a fashion faux-pas would be an understatement akin to saying “E&Y had a few layoffs last year.”
Ernst & Young Announces Canadian Tuxedo Fridays for the Remainder of Busy Season
Officially, it appears that it’s just half of the Canadian Tux. You can show up in the jacket if you want but we’d advise you lose it while at the office.
Oh right, showing up at your client from head to toe in denim is not advisable so that eliminates a fair share of you. As for the rest of you, kindly schlep that extra outfit with you just in case. You never know when you’ll need the biz-pro or biz-casual uniform handy. On a somewhat related note, it’s not entirely clear is if the Texas Tuxedo is allowed.
Allowing denim on Fridays during busy season is probably not unprecedented but it may be enough to get some of you through the next 30-ish days. Enjoy.
Ex-Ernst & Young Partner Sentenced to One Year and a Day for Securities Fraud
James Gansman, a former E&Y partner in transaction services, was sentenced to one year and one day in jail on Monday after being convicted on six counts of securities fraud last year.
Gansman had provided his mistress, Donna Murdoch, with tips on mergers that Ernst & Young were advising which she subsequently traded on. Despite the help, Murdoch needed more money and she began an affair with another man who used the tips to make trades.
To add insult to injury, Murdoch ultimately cooperated with investigators and testified against Gansman. She is still awaiting sentencing after pleading guilty to fifteen charges of securities fraud, obstruction of justice, and making false statements.
Beside making bad relationship choices, Gansman’s hot tips were in violation of E&Y’s “written policies and the duty of trust owed to the firm’s clients.” That extra day in prison should give him just enough time to study better decision making.
Ex-Ernst & Young Partner Gansman Sentenced To 1 Year, Day In Prison [WSJ]
Ernst & Young Shares the Glory of Its Fortune 100 Victory
Shockingly, many of you don’t get too excited where your firm falls on the F100BCTWF list. Well, in case you’ve forgotten, your firm cares. They care a lot and they want you to care too because dammit, this is important. Somebody over at E&Y got to thinking and decided that bribing you with pastries was the solution to get you Scrooges to appreciate the firm’s 12th year on the list aaannnd being the highest ranking accounting firm on this year’s list:
We’re guessing Jim Turley might be phoning someone in order to save him all the bearclaws, so you best get there early.
Ernst & Young “Believes” It Will Have Pay Raises This Year
Great news Ernstiverse! If you didn’t have the pleasure of hearing it yesterday, Steve Howe, your Americas Area Managing Partner, announced that he “believes” that you’ll be back to pay increases this year, but he’ll let you know for sure as you get closer to the “salary adjustment date”. Sounds like a guarantee to us!
Plus! Being a general believer in resolutions (and noticing you haven’t don’t anything about that paunch), we heard that the firm will now reimburse “reasonable fitness fees incurred while traveling.”
No doubt Steve-o was in a good mood yesterday after seeing that E&Y was the highest ranking Big 4 firm on the F100BCTWF list and he felt like spreading more good news. In his mind, the title was never in doubt but it’s still nice to see the confirmation.
SH makes three accounting firm big shots to announce that happy times are here again in 2010. Along with soon-to-be blogger Stephen Chipman and the original shot-caller, Bob Moritz, the thawing of salaries might be gaining momentum.
The question does remain: will T Fly and Dr. Phil make similar announcements? Have they already? Are they saving it for a better time, say, mid-February when many of you will be close to losing your shit and are about to storm out once and for all? If they’ve made guarantees, kindly let us know, we’d like a superfecta if possible.
(UPDATE) Ernst & Young Partner Sentenced to Prison for Role in Tax Shelter Scheme
In accountants going to jail news, E&Y partner Robert Coplan was sentenced to three years in prison for his role in creating tax shelters for wealthy clients from 1998 to 2006.
In addition to the jumpsuit (denim?), Mr. Coplan was ordered to pay a $75,000 fine and peform 120 hours of community service, half of which must be counseling of tax professionals about his time as a scofflaw.
Judge Sidney Stein said that while Mr. Coplan was an otherwise all right guy, the sentence was for ‘general deterrence’ and that he understood that ‘there was pressure coming from higher-ups at Ernst & Young’.
Judge Stein is scheduled to hand out more prison time to former E&Y partner Martin Nissenbaum today, while former partners Richard Shapiro and Brian Vaughn tomorrow.
Presumably all the men have access to a toilet without too much hassle.
UPDATE, Friday 8 am: Martin Nissenbaum was sentenced to two-and-a-half years. Not sure why he got 6 months less than Coplan but we’re sure he’s thrilled with the outcome.
E&Y partner gets prison over tax shelter scheme [Reuters]
The Fortune 100 Best Companies to Work For: Ernst & Young #44
The always über-hyped Fortune 100 Best Companies to Work For is out and a handful of accounting firms make an appearance, thus, extending the number of years that firms will continue to boast about their inclusion. We’ll present each in the order they are ranked for your enjoyment/debate/debunking, starting with E&Y.
Ernst & Young #44 – Previously ranked #51. According to Fortune E&Y is great because, “E&Y is the only one of the Big Four to offer a traditional pension in addition to a 401(k). The firm is courting alumni via a new magazine, Connect.”
Other interesting stats per the snapshot:
• New Jobs (1 year): -1,111;
• % Job Growth (1 year): -4%;
• % Voluntary Turnover: 10%
• No. of Job Openings at 1/13/2010: 622
• Most common salaried job: Manager with average salary of $105,544
This is the first we’ve heard of Connect but we’re guessing Zitor makes a regular appearance. If no Zitor, we wouldn’t bother.
On a more biological note, it’s not clear is where E&Y would rank if Fortune had gotten word of someone hoarding the keys to the mens john in Jericho. We figure if they knew a sicko like that worked at E&Y it would knock them out of the top 50 at least.
Layoff Watch ’10: More Details on Ernst & Young
We have some additional details to share with you to supplement last Friday’s post on E&Y’s New Year layoffs.
While we were surprised at the timing, a source has indicated to us that IT Risk and Assurance layoffs have occurred at the firm each January since 2008. This is due to a serious drop off in utilization in the new year after high utilization in the fall months with the exception of especially in the audit heavy ITRA practices.
In regards to the audit practice, we spoke to another source over the weekend that told us that layoffs would not occur until after busy season but assured us that they are being planned.
Finally, in response to one comment asking about severance details, we were informed that the severance for those let go is a week’s pay for each year of service with a minimum of 4 weeks pay. This seems to be fairly standard (with a few variations) amongst the Big 4.
We’ve received word on some positions cut but we’re still awaiting further details so if you have any information or can provide more insight discuss below or get in touch and we’ll update them here.
UPDATE: A source has indicated that three IT Advisory managers in FSO in New York were included in the cuts.
Layoff Watch ’10: Ernst & Young January Edition
Confused doesn’t even begin to describe what were feeling. We are hearing tons of rumors about layoffs in the Ernstiverse this week.
We’ve heard rumors from Denver to the East-Central (fka North-Central) and New York FSO. This includes both client serving professionals and support staff. We have already confirmed that two admins were let go earlier this week in New York.
The timing is especially strange since, you know, it’s January and in some offices the mandatory hours have already rolled out. Even if it were only support staff being let go, the timing is still unheard of. Why wait until January to let people go when having cuts in November? Maybe it’s just us but if we had survived that November cut, we would have thought that our job would be safe until at least the spring.
And since the roundtables seem to be SOP you wouldn’t think they would be anything to worry about but they definitely have people talking and wondering what will go down.
So far, Ernst & Young has not responded to our request for comment.
If you hear anything about your office get in touch in with us and discuss in the comments.
Rumor Mill: New Ernst & Young Office Requires Sterile Cubes, Secure Lavatories
As you’re all aware, your working environment is crucial to your productivity (or lack thereof). The slightest change can throw off your mojo for days or weeks at time. Maybe indefinitely.
So when we heard that the E&Y Long Island office had moved from Melville to Jericho we were concerned for the professionals in that office.
Brand new office in EY spirit, bright white, yellow partner and senior manager offices, orange walls in the enormous staff through manager room. We have super tiny cubes with really short walls where you just sit up an inch and you can see the person across from you. No space heaters or mini fridges allowed and you aren’t allowed to put up anything on you [sic] “cube” / “workstation” walls. They have to remain white. Oh and the bathroom requires a key in which you must walk from the far back of the office (where are seats are) to the front desk to get the key. There are 5 keys for men and 5 for women but the mens keys have dwindled down to 2 so you have to wait for someone to come back from the bathroom to go.
The team colors are a nice touch but the cube dwellers aren’t allowed to decorate? No pictures of spouses, kids, friends, dogs, cats, co-worker crush, favorite metal band allowed? What about the certificate you got from the latest in-house CPE? Can that go up? It sounds as though TPTB are insisting on the most sterile environment possible. No distractions. What about looking that person across from you dead in the eye while they’re eating with their mouth open? How’s that for a distraction?
Speaking of sterile environments, what’s with the bathroom keys? Are homeless people sneaking in and stanking up the joint? And they’re down to two keys for the men? Where did the other three keys go? What sadist is hoarding keys at the expense of other people’s excretory and digestive systems? Any ideas people? Maybe the keys just got flushed. Let’s get to the bottom of this mystery. Discuss.
Ernst & Young Extends Busy Season Two Weeks
While Deloitte rings in the new year with generosity, E&Y has apparently taken a different approach.
One of our sources in the Ernstiverse has told us that busy season is being extended by two weeks this year. The first “official” week is this week (moved up one week from its usual spot) and there will be an additional week on the back end (first week in April as we understand it). This means mandatory 55 hours weeks are in full effect, so find some work people.
Oh! And it’s also our understanding that this week, “roundtables” are going on in the audit practice. We don’t know what those are exactly but it sounds sorta serious and it’s definitely not billable, so enjoy making up the time. If you’ve had the pleasure of attending one of these sit-downs, let us know how it went and keep us updated with other details.
Rumor Mill: More Ernst & Young Offices to Become “Virtual”?
Last month we told you about the E&Y Greensboro office shutting its doors to become a “virtual office”. All the client-serving professionals (around 60) are now reporting and being serviced out of the Raleigh office.
This followed the closure of the Manchester office that we reported on in October and that became official in November. In this particular case, there was no merging of sites and client service professionals (non-partners) were let go.
The latest speculation is that there are several small offices that are at risk of going virtual as opposed to out-right closing post busy season, using the Greensboro office as the model. Offices that are being serviced by nearby larger offices are of greatest risk as well as small offices that have a dwindling client base.
Although the virtual office seems to be the most warm and fuzzy of the two options, there would certainly be layoffs of support staff and service professionals that weren’t interested in working from an office that was a considerable distance from where they lived.
Whether or not this strategy will be utilized by other Big 4 firms is not clear but this story will continue to develop as busy season progresses. If you hear rumors about your office get in touch with us. We’ll keep you updated as we learn more.