Huron shares drop 70 percent amid accounting scandal

NEW YORK (Reuters) - Shares of Huron Consulting Group Inc (HURN.O) lost 70 percent of their value in early trading on Monday, after the company said it will restate more than three years of earnings and announced the departure of its entire management team amid an accounting scandal.

The company, which provides consulting services to Fortune 500 companies and academic institutions, late on Friday replaced Chairman and CEO Gary Holdren, as well as Chief Financial Officer Gary Burge. The company said Chief Accounting Officer Wayne Lipski will be leaving the company.

Huron's audit committee discovered shareholders of four businesses that Huron acquired between 2005-2007 redistributed portions of their acquisition-related payments among themselves and to certain Huron employees.

As a result, these payments have to be classified as non-cash compensation expenses under U.S. accounting rules, said Huron, whose website says the company helps its clients "comply with complex regulations."

In a statement on Monday, the company said the employees who got the payments were client-serving and administrative staff of the acquired businesses. The employee payments were not "kickbacks" to Huron management, the company said.

Robert W. Baird & Co analyst Daniel Leben said, "We believe there are legitimate worries about Huron being a going concern, but cannot reasonably quantify the risk."

Oppenheimer analyst Scott Schneeberger said, "The damage to Huron's reputation will likely be significant."

FROM THE ASHES OF ANDERSEN

The restatements raise costs for 2006-2008 and for the first quarter of this year. As a result, aggregate net profit for that period dropped to just $63 million from $120 million.

Huron also cut its 2009 revenue outlook to a range of $650 million to $680 million from its prior view of $730 million to $770 million.

Two law firms are investigating potential shareholder claims against Huron over possible securities violations, while an analyst raised questions about the company's ability to survive.

Huron, which was among Fortune magazine's 2008 list of the 100 fastest-growing companies, is also conducting a separate investigation into its allocation of chargeable hours in response to an inquiry from the U.S. Securities and Exchange Commission.

Chicago-based Huron was founded in 2002 by 25 partners from Arthur Andersen, the accounting firm that collapsed in connection with the Enron Corp accounting scandal in 2002.

In 2007, Business Week magazine ranked the firm No. 22 on a list of hot growth companies, noting the company's expertise in "probing allegations of misdoings," and saying it stood to benefit from the regulatory environment.

Its stock was down $30.93 to $13.42 in early trading on the Nasdaq.

(Additional reporting by Supantha Mukherjee in Bangalore)

(Reporting by Nick Zieminski; Editing by Derek Caney)