Tuesday, May 12, 2009
Even after the scandals involving Enron, Tyco, WorldCom and Xerox, some big-time auditors continue to be part of the problem instead of acting like the financial watchdogs they’re supposed to be. Two top 10 audit firms—BDO Seidman and McGladrey & Pullen—have been accused in lawsuits of faulty audits and approving the books of fraudulent businesses and investment funds.
BDO Seidman, the seventh-largest U.S. auditor (based on net revenue), finds itself involved in not one, not two, but three lawsuits against businesses that allegedly ripped off their clients. Disgraced financier J. Ezra Merkin, accused by his customers of swindling $2.4 billion in investments, used BDO Seidman, which vouched for the accuracy of Merkin’s accounting. The auditing firm did likewise for E.S. Bankest LLC, a Florida factoring company that went under after executives allegedly embezzled $170 million over nine years; Bankest insiders were eventually convicted of criminal charges. BDO Seidman also is contesting a lawsuit from the collapse of Le-Nature’s Inc., a Pennsylvania iced-tea producer that closed in 2006 after allegedly faking $240 million in revenue.
McGladrey & Pullen, the fifth-largest auditing firm in the country, is accused of helping loot Sentinel Management Group, a $1.4 billion investment fund that failed in August 2007. The firm was also caught up in the $3 billion Ponzi scheme purportedly masterminded by Minnesota entrepreneur Thomas J. Petters, who once owned Polaroid.
-Noel Brinkerhoff
Auditing the Audit Firms (by A.C. Thompson and Jake Bernstein, ProPublica)
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