When accounting goes unaccounted for
A little over a month ago BDO USA began layoffs in audit and, as we predicted at that time, a fresh batch has hit tax now that 10/15 is behind us. According to multiple tipsters, tax layoffs started today. We don’t have numbers at this time.
Fishbowl:
Earlier:
Anyone affected or otherwise in the know is welcome to reach out with details. Consolation and sympathy available upon request.
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BDO’s Tax Solutions Group was going gangbusters back in the late 90s and early aughts. Unfortunately, the party more or less ended in December 2000 when the IRS served notice to the firm that some of the products were not ingenious tax planning strategies but rather illegal tax shelters. The DOJ launched an enforcement action in 2002 and just last year BDO partners started pleading guilty to tax evasion, conspiracy and some other fun charges.
BDO isn’t crazy about shouldering all the shame and embarrassment so it has decided to sue the law firm Morgan Lewis for “professional negligence, breach of contract, breach of fiduciary duty, fraud and constructive fraud.” BDO alleges that ML’s breach amounted to “disastrous results” which is likely referring to the tax shelter shitshow. They just want their $9 million back that they paid in fees and call it a day (they’re saving up!).
Morgan Lewis finds this all very amusing, stating that they advised BDO only on minor issues. ML is represented by Gibson, Dunn, & Crutcher led by James Fogelman, who made his client’s position very clear:
Morgan Lewis called the lawsuit a “sham” and contended it only advised [BDO Partners] on a few minor questions — none of which involved the questionable tax products. “There was nothing that Morgan Lewis knew about to warn BDO concerning BDO’s own conduct. … There was nothing more BDO needed to know,” Fogelman wrote.
The only time Morgan Lewis opined on a tax product, the firm contends, was in February 2000, when BDO asked it to weigh in on a tax shelter dubbed the Sentinal Transaction. Morgan Lewis responded that the tax shelter was “unlikely” to expose BDO to criminal convictions. In its motion to dismiss, the firm said, “[I]t does not appear that anybody has ever been convicted of any federal crime based on the Sentinal Transaction.”
And Morgan Lewis doesn’t simply want to be vindicated in this matter, they want to be right AND they they would like BDO and DLA Piper (BDO’s counsel) to have sanctions slapped on their asses for lying through their teeth in their complaint. ML contends that they presented evidence disproving the allegations but BDO and DLA must have decided that a bitter fight would be more fun.
And it is.
BDO Seidman Seeks $9 Million in Fees Back From Morgan Lewis [The National Law Journal via Law.com]
Another day, another PCAOB report. Today, our lucky victim is BDO USA, LLP. Of the […]
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Truth 1: Leadership was close to another deal prior to the ESOP deal but had to do the ESOP deal when the other deal fell through at the last second. The interest rate on the loan for the ESOP deal is sucking this firm dry.
Truth 2: A partner who sold in the ESOP deal told me that his equity was worth $100 per unit, for example, prior to the deal and he sold $40 of it. Leadership told the partners that they could earn the $40 back in value appreciation on the retained $60 in 3 years. At the end of 3 years, his $60 per unit was worth less than $62 per unit. Leadership either lied or was just that stupid.
Unfortunately, this is kind of frightening since BDO was prolific on the M&A. A partner who believed in 3 years that the ESOP stock would be worth more than at the transaction date had to have been shown that the ESOP debt would be paid off. Is that possible? This is how all the PE deals are structured with massive debt structures in place where no debt existed before. The non-ESOP firms are being sold the same bill of goods. I guess the firms will all be going public like CBIZ.
Let’s go public BDO! LOL.. probably wouldn’t be the best option but fuk it.. Why not? If bdo goes public, maybe we’ll be acquired down the rest of road and it’ll pay off!? Haha.. I have a better chance of winning the lottery.
The value of the ESOP stock is not a 1-for-1 relationship with the debt. Company performance, which debt is paid down as expected (life is far more than 3 years), is the primary driver of the stock valuation.
If you’re looking for ammunition for concern, I would look to revenue growth. Are they growing as fast as expected when the ESOP began? No.
Wait, so are you not allowed to take an EBITDA addback for potential billable dollars in under-utilized staff? Weird.
I, for one, am shocked. I am utterly shocked at this announcement. Shocked, I tell you. I just can’t imagine how many Benjamins Mr. Berson used to wipe the tears from his face upon hearing this news.
Gotta feel good to get laid off a week before your company completes a $300M acquisition.
It’s all about optics.
Wait BDO is suing you guys?
From what I’ve seen the esop wasn’t really a true esop deal. BDO took out a shit load of debt with really high interest rate and are now struggling. ESOP can work but you can’t straddle the company with this much debt at such a high rate and expect things to go well. Clients are gonna start paying more because the company borrowed all that money.
sounds like a typical esop deal to me. the problem with their structure is they can’t pay the debt down fast enough to increase the diminished stock value after the debt was placed on the firm. i still wonder what kind of projections were shown to the partners that showed how the firm would perform to increase the value of the stock that given out.
Will BDO send you a strongly worded letter for reporting this?
Related to the esop the non big wigs aka “regular” partners were sold a false bill of goods. We were told a bunch of stuff was “easily achievable”and we were pretty much lied to on metrics that could be achieved.