(Corrects spelling of Dr. Barbara Toffler's middle name in
paragraph 11 to Ley from Lay)
* Ex-Arthur Andersen partners started Huron
* Author says Andersen culture 'transferred' to Huron
* Governance expert: appearance of manipulating earnings
By Nick Zieminski
NEW YORK, Aug 3 A global consulting company
that rose from the ashes of the destroyed accounting firm
Arthur Andersen is now facing a scandal of its own.
The problems at Huron Consulting Group Inc (HURN.O) may
reflect a corporate culture that carried over from Arthur
Andersen, the firm that collapsed in connection with the Enron
Corp scandal in 2002, legal and corporate governance experts
Chicago-based Huron was founded by two dozen Andersen
partners. Gary Holdren, once a senior Andersen partner and a
member of its executive committee, on Friday resigned as
Huron's chairman and CEO after Huron said it would restate more
than three years of earnings because of misreported costs
related to acquisitions.
The chief financial officer and chief accounting officer
are also departing.
The company also said it was investigating its allocation
of chargeable hours in response to an inquiry by the U.S.
Securities and Exchange Commission.
Huron did not return calls requesting interviews.
Huron shares lost more than two-thirds of their value on
Attorney Hamilton Lindley of the Kendall Law Group, a
Dallas-based law firm, said he expected a class-action
complaint to be filed on behalf of shareholders this week.
"It's natural to look into whether the culture of Arthur
Andersen bled over into the culture of Huron Consulting,"
Lindley said. "That's a question we will pursue in our
Huron's audit committee discovered shareholders of four
businesses Huron bought redistributed portions of their
payments among themselves and to certain Huron employees.
Huron said payments were not "kickbacks" to Huron managers.
Andersen's corporate culture emphasized maximizing fee
revenue rather than a client's best interests, and it may have
gotten "transferred" to Huron, said Dr. Barbara Ley Toffler,
author of the 2003 book "Final Accounting: Ambition, Greed and
the Fall of Arthur Andersen."
"My reaction is, 'Didn't you learn your lesson once?'" said
Toffler, who worked for Andersen for four years in the 1990s
and was part of a group that reported to Holdren, the future
She said Holdren started a Midwest consulting group within
Andersen in response to a client's request to create an outside
monitor to ensure Drexel Burnham Lambert did not destroy
documents while the investment bank was under investigation.
Andersen was then viewed as a trusted corporate watchdog.
Holdren's litigation services group evolved into a collection
of consulting groups, including one focused on business fraud.
"It was a culture that simply wanted to bring in revenue,
regardless of what they had to do to get it," Toffler said.
Andersen tried to convert existing audit clients to a host
of consulting services with little regard to emerging conflicts
of interest, she added. For example, it tried to both sell
internal audit services to clients and pitch Andersen as
"Unfortunately, there probably were practices that became
the way you do things at Andersen that simply got transferred
-- that Holdren and others transferred," Toffler said, adding
she spoke as an expert on Andersen rather than on Huron.
"For the time I was there working for these folks, no one
ever asked me what did you do? They just wanted to know how
much did you make on it?"
Huron had built a reputation as an expert on litigation and
regulatory issues. It advised United Airlines UAUA.O on its
bankruptcy and helped uncover accounting shortfalls at mortgage
giant Fannie Mae, FNM.N which eventually led the SEC to
charge Fannie Mae with fraud.
In 2007, Huron was named among BusinessWeek's hot growth
companies and last year was ranked on a Fortune list of 100
fastest-growing U.S. companies.
To be sure, the scandal could turn out to be a
misunderstanding or a "colossal mistake," said David Becher, an
associate professor of finance at Drexel University in
Philadelphia, and a fellow in the university's corporate
But the fact that senior Huron executives resigned may lead
to concerns that executives were trying to manipulate earnings
by making it seem like they paid less then they really did for
the companies they acquired, he said.
"They bill themselves as (experts who) help people get
through these difficult regulatory environment post-Sarbanes
Oxley," said Becher, in reference to the corporate governance
and accounting law passed after the Enron scandal. "You'd think
they would know."
The linked collapses of Enron and Andersen convinced
regulators more scrutiny of corporate accounting was needed,
with added outside controls. But such controls are inadequate,
Becher said, if individuals decide to commit fraud.
"The controls were there, and when they caught it they did
the right thing, but time will tell what was going on," Becher
said. "Why didn't the board know before then? How was it able
to go on for three-and-a-half years? Why didn't the auditors
(Reporting by Nick Zieminski, editing by Leslie Gevirtz)