Next Tier Or Next To Fail?
There are three firms in the US that I routinely refer to as the “next tier”. I pay them some respect by not using the term “2nd tier”. I think that sounds worse. But, it’s been well documented that the gulf between the Big 4 and this group,
Grant Thornton,
BDO Seidman, and
McGladrey and Pullen
…is so large that it can not be traversed with words and good thoughts alone.
This blog has documented the challenges BDO Seidman is facing with its Banco Espiritu Santo litigation. The jury award is more than the firm has and it’s hanging on by the thread of ongoing appeals of this verdict and the fact that they take so long to wind through the courts.
Grant Thornton is front and center in the Parmalat litigation and the target of the Refco litigation. In Refco, GT was the first audit firm in the current round of litigation to be specifically cited by a bankruptcy trustee’s report as “sue-able”. KPMG is just a bigger firm and the New Century case is sexier due to its subprime connection.
But the Refco litigation is big and bad and has a direct Arthur Andersen connection, rather than just the spiritual one many are finding in the New Century case.
McGladrey and Pullen LLP has an “alternative practice structure” with its former consulting business RSM McGladrey, which is a wholly owned subsidiary of H&R Block, another infamous organization for its lack of integrity in its financial dealings.
“In the summer of 1999, McGladrey & Pullen sold its non-attest assets and business to H&R Block, Inc. RSM McGladrey Inc. was established as an indirect, wholly owned subsidiary of the Block organization. Today, RSM McGladrey provides accounting, tax and business consulting services. To ensure independence, McGladrey & Pullen was maintained as a separate entity offering audit and attest services. McGladrey & Pullen is owned and managed by McGladrey & Pullen partners, independent of RSM McGladrey. The two companies now practice from nearly 100 offices and have more than 8,000 employees.”
McGladrey and Pullen, LLP, the audit firm (are you still with me?) has a huge suit facing them as a result of another Chicago failure, Sentinel Management Group. As in New Century and Refco, the judgement in the court of public opinion is swifter due to the “quick by comparison to litigation” issuance of a bankruptcy trustee report skewering them.
Can anyone still say we should count on the “next tier” firms to step up to the plate and somehow take some of the heat and some of the burden off the Big 4 in the event of an incapacity of one of them?
Pleeeeeeeeeeeeeeeeeeeeeease………………
One thing I would say is that Grant Thornton was named with other accounting firms, a law firm, and a few banks. I believe this case becomes one of joint and several liability (correct me if I am wrong). The Refco case will be litigated for a very long time. Even if the plaintiff wins, I doubt Grant Thornton will have to foot the $2 billion.