December 2, 2020

Judge Felt Compelled to Call Out Grant Thornton’s Extraordinarly Crappy Work

It's always amusing when a judge reprimands an accounting firm for sucking at its job. Usually it's due to some dumpster fire that auditors watched burn for too long, but today's bench slap came from a judge on Delaware's Court of Chancery in regards to some valuation work Grant Thornton performed:

Vice Chancellor Travis Laster blasted Grant Thornton's work in an opinion on Tuesday in a class action lawsuit by option holders against Caris Life Sciences Inc over its sale in 2011.

Laster found the tax advisory firm largely cribbed a report from rival PricewaterhouseCoopers, made "significant errors" on the work it did do and abandoned its prior valuation method to come up with numbers to satisfy a top Caris executive.

Here's the gist: Caris and its key shareholders wanted to avoid paying a ton of taxes that would result from a sale to another company, Miraca Holdings. Caris spun off two new units to shareholders and sold the profitable business to Miraca. The valuation of the new spun-off businesses needed to be low, so when GT came back with $200 million, the Caris CFO said, "Go back and try again":

Grant Thornton had valued the units in July 2011 at around $200 million, according to Laster. But in November 2011, after a discussion with Chief Financial Officer Gerard Martino, Grant Thornton used a new methodology and said the value was $47 million.

That lower valuation undermined stock options held by Caris employees, and Kurt Fox, who held options on 71,600 shares, brought a class action lawsuit on behalf of holders of Caris options.

What's kind of hilarious is that GT isn't even a defendant in the suit. But that didn't stop Laster from calling it a "new low" and that, "[GT's report] deserves separate mention because its contents were so flawed as to support both an inference of bad faith and a finding the process was arbitrary and capricious."

Be that as it may, GT is standing behind its work, saying, "we performed [the work] at the client’s request and based upon the information provided to us by the client."

Doubling down after a judge more or less says, "Your work is so sloppy that I can't believe you're not being sued for this," takes some balls, GT. Impressive. Very impressive.

Delaware judge blasts Grant Thornton deal advice as 'new low' [Reuters]

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