McKenna Cited By The Financial Times Re: Deloitte’s Flanagan
The SEC’s charges against Deloitte’s former Vice Chairman Tom Flanagan were settled on August 4th. The complaint, filed in a District Court in Chicago where Mr. Flanagan resides, details what the SEC could prove, within a reasonable amount of time. There were many more instances of illegal and unethical activity alleged by Deloitte in their own suit against Flanagan, filed in response to the calls Deloitte received from clients in late 2008 when the SEC started investigating strange trading activity by Flanagan in those audit clients.
Deloitte, apparently, will not be charged because they are such model auditor citizens, according to the SEC and a Wall Street Journal columnist.
The story has been around since late 2008 but the traditional business media stood up and took notice only when the SEC showed their cards. Insider trading by an “accountant” makes good copy. Unfortunately, there were few examples of original or in-depth reporting on the subject now that it was deemed “important”.
The Financial Times’ FT Alphaville and Stacy-Marie Ishmael provided one bright spot. She ties the case together with some other recent scandals and was kind enough to point out my original coverage in November 2008 that broke the story.
Why did Flanagan do it?
Inquiring minds want to know…
Flanagan had access to “market moving” information about earnings, sales figures and an acquisition, the SEC claimed.
As for those Deloitte clients? According to the SEC, they included Best Buy, Motorola, Walgreens and Sears.
Flanagan, 62, spent more than half his life at either Deloitte or its predecessor firms, according to the complaint. So much for company loyalty. Moreover, $430,000 doesn’t seem like much for a senior Deloitte employee, so we have to wonder – why did he do it?
As at pixel time, the Flanagans could not be reached for comment, and Deloitte’s Midwest office did not return calls seeking comment.
UPDATE: Francine McKenna, something of an uber-blogger on all matters re: auditors, flagged a post she wrote in 2008 about Flanagan. Worth reading.
no doubt FM would want the death penalty for flanagan and for deloitte to be liquidated. seems clear that flanagan cut a deal to avoid jail time and or additional legal costs. if FM is unhappy with the resuts concerning flanagan, then a complaint should be lodged to the sec. who knows what happened to flanagan’s thinking – i can only assume that he became somewhat insane because his compensation was very high at his level, which would influence his pension from deloitte. with respect to deloitte, it is clear they cooperated fully, as evidenced by the signifcant lawsuit filed and that i don’t believe deloitte ever defended his actions. with firms that have thousands of partners, there will be some bad apples in the bunch. flanagan happens to be a somehwat public matter, but there are others across the big four that exist.
My beef is not with Flanagan. He’s been pinched in the way that will probably hurt him the most – a monetary fine. Since they did prove insider trading, criminal charges may still be coming. But I doubt it. My beef is with the SEC letting Deloitte off the hook. The SEC knows what I think. They’re reading this blog every day. Deloitte may have “cooperated” in the prosecution of Flanagan via their lawsuit and with the SEC but that was to assuage their clients who they had to pay off and to get their own tail out of trouble. Flanagan was no “bad apple” in a bunch. He was a Vice Chairman, a senior guy with lots of years and lots of authority both literal and figurative. It’s very, very bad in my book and I will keep bringing it up.
Yes, Milton. Just because Francine wrote an article about the shameless actions of Flanagan, it must mean that she wants the death penalty from him. Judging by your logic (or lack thereof), you must of attended Deloitte University.
I spent 8 years at Deloitte and this saddens me more than just about anything else. It’s not about shoddy or sloppy work. We can all do better, some of us more so than others. But this is Deloitte leaders saying one thing and doing another, in the most cynical and shameless way possible.
There’s an underlying theme of the firms saying one thing and doing another that emerges all over this site. “We’re global — until you try and treat us as such”. “We are bound by high ethical standards — until you finally catch us”
“One bad apple”? Have you got a bridge I can buy?
Not that I want my employer in a lot of hot water (wouldn’t help me much), but why does Deloitte get off the hook? The independence setup can ask more robust questions and send more Outlook reminders, but ultimately, it is an honor system. They ought to audit the indepedence reps or, for big shots like Flanagan, run a search of shareholders at the larger public companies (my understanding is this is how the companies caught Flanagan). No, it isn’t perfect, any more than a financial statement audit, but that is no excuse not to do the job properly.