Late on Friday, word came down that former Deloitte vice chairman Tom Flanagan was sentenced […]
You know, if ol' Tom ends up doing some hard time, I know of someone […]
Last we had heard of Thomas Flanagan, Deloitte had just taken him to the woodshed, successfully suing him for breach of fiduciary duty, fraud, and breach of contract related to Tom’s insider trading activities of Deloitte clients.
Now it’s the SEC’s turn to get in on this sweet action. The Commission charged Flanagan and his son, Patrick Flanagan for insider trading of Deloitte clients including Best Buy, Sears, Walgreens and Motorola.
Why Flanagan, the 38-year veteran of Deloitte and Vice Chairman of Clients and Markets, who thought that in the twilight of his career, the best move would be to engage in some insider trading is still a mystery. Since he was presumably pushing 60, one couldn’t help but wonder if perhaps his memory was going and he just totally spaced the independence thing.
But actually, no. Turns out, Tom Flanagan is just a liar:
According to the SEC’s complaint, Thomas Flanagan concealed his trades in the securities of Deloitte’s clients and circumvented Deloitte’s independence controls. He failed to report the prohibited trades to Deloitte, lied to Deloitte about his compliance with its independence policies, and provided false information to Deloitte’s personal income tax preparers about the identity of the companies whose securities he traded.
Flanagan & Son will be paying over $1.1 million in disgorgement and fines for their little stunt. And Robert Khuzhami had a little reminder for anyone else out there that thinks they can get cute, “Flanagan’s insider trading violated one of the most fundamental rules of public accounting. All audit firms should learn from this unfortunate episode and employ vigorous controls designed to ensure compliance with the SEC’s auditor independence rules.”
SEC Charges Former Deloitte Partner and Son With Insider Trading [SEC Press Release]
SEC Complaint Against Thomas Flanagan and Patrick Flanagan [SEC Complaint]
To be fair, Thomas Flanagan — having been a partner at Deloitte for 30 years — probably didn’t remember the day that his auditing professor covered independence. If you figure that Tom was in college in the late 1960s, it’s surprising that he remembers anything.
Also, as the vice chairman of the firm, his job was to remind people of their duty to remain independent of the firm’s audit clients. He didn’t actually have to be independent himself. What good is insider information if you’re not going to use it, amiright?
Deloitte had sued Flanagan in Delaware Chancery Court in October 2008 for breach of fiduciary duty, fraud, and breach of contract, saying the 30-year partner who had risen to vice chairman of the firm had secretly hidden trades in shares of Deloitte’s audit clients and lied about it to the firm.
“Because an auditor sells, at base, its independence and integrity, the firm relies heavily on the purported honesty and independence of its professionals,” Vice Chancellor John Noble, of the Delaware Court of Chancery, wrote in his opinion.
Deloitte said in its complaint that starting as early as 2005, Flanagan had made more than 300 trades in shares of Deloitte’s audit clients, including several clients for which he was Deloitte’s advisory partner.
Meanwhile, Flanagan specifically told the firm he was not trading in client stocks, which are restricted under the firm’s independence policies, according to the complaint.
Tom must have been a choir boy prior to getting the Vice Chair gig. How else could he have gotten to be such a bigwig if he wasn’t a poster child for integrity? Was he that good of a liar?
Never mind that for a sec. What’s really curious is why the hell a Vice Chairman needed the extra scratch. A comic book collection that would rival Nic Cage’s? Financing a business opportunity? A spendy wife/mistress/pool boy? If you’ve got any thoughts, discuss below and if this story doesn’t clear things up on independence, start crack the auditing textbooks.