See this WSJ Summary of the issues here, today, August 18, 2007. Better late than never…
As I suspected they would, the Justice Department has told H&R Block management to “go pound salt.” They should have hired me. I could have told them there was no merit in this complaint before they wasted their money on lawyers. Who are their lawyers anyway… Another example of why Breeden is needed. These guys are wasting their shareholders’ money. And, after all, these are the tax guys that didn’t handle their own tax issues correctly!
And they’ve also had the deal to scuttle their sub-prime mortgage business collapse because their credit line expired. Others are also coming due and their credit situation is deteriorating. Remember, cash flow issues are a result, not a cause in and of itself, of other financial issues, primarily lack of confidence by the lenders in a company that keeps getting itself into trouble… PwC decided to get out early for a change. They resigned. How could that have been a “planned transition?”. Was KPMG an “auditor in waiting?”
Letter appears to dismiss Block’s concerns about Breeden
Elbow jabbing is escalating in a contest between H&R Block Inc. and dissident shareholder Richard Breeden for three seats on Block’s board of directors.
An investment group led by Breeden, a former Securities and Exchange Commission chairman, released a letter late Thursday from U.S. Attorney Michael Garcia in New York. The letter appeared to dismiss Block’s concerns that Breeden’s election to the Kansas City firm’s board might compromise the ability of Block’s auditor, KMPG LLC, to independently evaluate the company’s finances for shareholders…
The Garcia letter, however, said that as a federal monitor, Breeden reports to the Justice Department, not to KPMG, and that, according to the agreement, he “shall not be treated for any purpose as an officer, agent or affiliate of KPMG.”
By the way, looks like Breeden has carved out a nice little niche, capitalizing on his SEC days, being an investigator and a monitor. And as we’ve seen with KPMG, he gets to stick around for a while, even after the formal issues are resolved. Later articles told me he’ll be in KPMG through 2008. There’s money in others’ pain.
Savvy management at H&R Block are trying to thwart Richard Breeden and his investor group from obtaining seats on their Board by playing the “independence” card. However, they miss the point of his role as a monitor for KPMG in relation to KPMG’s deferred prosecution agreement with the SEC on the tax shelter situation. Breeden must be completely independent of KPMG to serve in the Monitor role. In other words, he is about as far away from being an employee of the firm as one of the DOJ guys that prosecuted them.
Nice try H&R Block. However, I would have to agree that it would make for a very uncomfortable situation for Mr. Breeden, especially if he was to serve on H&R Block’s Audit Committee, which he may be qualified to do. If I were him, I would opt out of one or the other role. But if the case with KPMG is over, and they received their nolle presequi, then why is Breeden still there?
And it’s kind of funny that a tax preparation company would hire as their auditor a firm that has been under a consent decree by the SEC and IRS for violations in their own tax practice…
“H&R Block said Thursday that shareholder Richard Breeden’s role as a monitor for KPMG LLP creates a conflict that could threaten the company’s relationship with the auditor.
H&R Block said nominating Breeden or any of his associates would create “great expense and disruption” because it would force the tax preparer to hire a new independent auditor, according to a filing with the Securities and Exchange Commission.
“There is no conflict. He doesn’t work for KPMG and is in no position to direct business toward them,” said a source familiar with Breeden’s thinking on the matter. Representatives for H&R Block weren’t immediately available to comment.
Breeden, an SEC chairman from 1989 to 1993, has urged H&R Block shareholders to nominate himself and two other associates to the tax preparer’s board. Through his Greenwich, Conn.-based hedge fund, Breeden beneficially owns 1.86% of H&R Block’s shares.
In 2005, Breeden was asked to monitor KPMG after the accounting firm reached a $456 million settlement with the government over its role in devising questionable tax shelters. His role as monitor extends through September 2008.
Breeden’s role as monitor would give him far greater influence over KPMG than any other employee, and would destroy KPMG’s independence as an auditor if he or his associates were elected to H&R Block’s board, H&R Block said, citing SEC rules for auditor independence.
“Among the relationships specifically addressed in the SEC’s rules, a partner or professional employee of an audit firm cannot serve on the board of an audit client without destroying the audit firm’s independence,” H&R Block said in Thursday’s SEC filing.
The company wants shareholders to vote to ratify KPMG as its auditor at its annual meeting on Sept. 6.
H&R Block said it acknowledges that KPMG’s settlement with the government explains that Breeden isn’t an officer, employee or agent of KPMG. However, the company said it believes that “independence turns upon the reality of a relationship rather than its characterization in an agreement, particularly one entered into before Mr. Breeden launched his investment funds or acquired any shares of H&R Block stock.”
H&R Block said it has asked the Office of Chief Accountant of the SEC and the U.S. Attorney for the Southern District of New York to consider its concerns about Breeden’s relationship with KPMG. H&R Block shares traded Thursday morning at $20.63, down more than 2%.”