CHICAGO (Reuters) - Huron Consulting Group Inc (HURN.O), which helps clients dodge accounting pitfalls and stay on the right side of the law, faced its own corporate meltdown on Monday sparked by a bookkeeping scandal that wiped nearly $660 million from its market value since Friday.
Chicago-based Huron, which rose in 2002 from the ashes of collapsed accounting giant Arthur Andersen, said late on Friday that its entire top management team would leave the company and that it would restate more than three years of results.
The company’s earnings for that period would be slashed almost in half because it had misreported costs related to acquisitions.
“As a professional services company with a relatively high amount of debt, it is not implausible to argue that this event causes the company to languish for an extended period of time or eventually unravel,” said Timothy McHugh, an analyst at William Blair & Company, which owns 2.54 percent of Huron’s shares according to Reuters Knowledge.
Huron stock closed down 69.13 percent at $13.69 on Nasdaq.
Huron’s audit committee discovered shareholders of four businesses that Huron acquired between 2005 and 2007 redistributed portions of their acquisition-related payments among themselves and to certain Huron employees who were not identified.
“There’s nothing illegal in doing that, but you have account for it differently,” said Sean Jackson, managing director at Avondale Partners.
Huron’s website says the company helps its clients “comply with complex regulations.”
“They either totally misled people or it was oversight,” Jackson said. “If it’s fraud, that would seem to be a little worse.”
In a statement on Monday, the company said the employees who received the payments were client-serving and administrative staff of the acquired businesses. The employee payments were not “kickbacks” to management, the company said.
Company officials declined further comment on Monday.
Several Huron employees, filing out of a downtown Chicago office building for lunch, declined to speak to a Reuters reporter requesting interviews outside.
One employee, however, said: “My practice is not going to be affected by this.”
Huron, which provides consulting services to Fortune 500 companies and academic institutions, on Friday replaced Chairman and Chief Executive Gary Holdren as well as Chief Financial Officer Gary Burge. The company also said Chief Accounting Officer Wayne Lipski will be leaving the company.
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.” Baird cut Huron to “underperform” from “neutral.”
Oppenheimer analyst Scott Schneeberger said: “The damage to Huron’s reputation will likely be significant.” Oppenheimer cut Huron to “underperform.”
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 on Fortune magazine’s 2008 list of the 100 fastest-growing U.S. companies, said it 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.
Additional reporting by Nick Zieminski in New York; Nick Carey and Ian Sherr in Chicago; and Supantha Mukherjee in Bangalore; Editing by Steve Orlofsky