NEW YORK Huron Consulting Group Inc's (HURN.O) entire top management team is departing and the company will be forced to restate more than three years of results, slashing its profits by almost half, because of an accounting scandal.
Shares of the company, which says it provides consulting services to Fortune 500 companies and leading academic institutions, sank more than 57 percent in after-hours trading, wiping out more than half of its previous market value of almost $1 billion.
Huron replaced Chairman and CEO Gary Holdren, as well as Chief Financial Officer Gary Burge. He said Chief Accounting Officer Wayne Lipski will be leaving the company.
The restatements significantly raise the Chicago-based company's 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.
The worst year is 2008. Huron's earnings were slashed by more than three-quarters to only $10 million from $41 million.
The restatements are being made because Huron's board audit committee discovered that 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 are required 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."
Company officials were not immediately available to say why the payments were redistributed and who the recipients were.
"I am greatly disappointed and saddened by the need to restate Huron's earnings," said Holdren.
"My management team and I have continually strived to establish legal, accounting and corporate governance conventions that are above reproach."
The bad news didn't stop there.
Huron, which was among Fortune magazine's 2008 list of the 100 fastest-growing companies, also said that it is conducting a separate investigation into its allocation of chargeable hours in response to an inquiry from the U.S. Securities and Exchange Commission.
It said this could impact the timing when its revenue is recognized in its accounts, though it said that based on current information it doesn't expect this to result in a material adjustment to its results.
"I think it was a surprise. It's not good news for anybody and we are still trying to digest what it is," said Sean Jackson, an analyst at equity-research firm Avondale Partners.
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.
Holdren will be replaced by James Roth as CEO and by George Massaro as chairman, while James Rojas will become the company's new CFO. It did not name a new chief accounting officer.
Massaro said he was "committed to ensuring the highest standards of conduct and governance."
The company said it will not incur any severance expenses as a result of the management changes.
The company's shares collapsed to $18.85 in extended trading, after closing down 23 cents at $44.35 on Nasdaq.
(Reporting by Sweta Singh; Additional reporting by Antonita Madonna Devotta in Bangalore; Editing by Vinu Pilakkott, Martin Howell and Richard Chang)