Professional Rogues

This post originally appeared at on August 26, 2009. I’ve added updates and additions where available.

Insider trading. Fraud. Money laundering. Falsifying documents. Embezzlement. Tax shelter abuses.

Some say I’m too negative about the audit industry. Occasionally I’m accused of making things up.


Not only is everything I tell you true, but the truth of what these guys do is often stranger than fiction. Each day I can choose from a long list of incidents – egregious violations of personal and professional ethics and accounting standards as well as disregard for legal and regulatory compliance and lack of independence in thought and action.
Here’s a recent rogues’ gallery of some “professionals” not acting very “professionally.”

Insider trading

The Deloitte/Thomas Flanagan case is still pending. Flanagan is a Chicago-based Vice Chairman accused of trading on inside information from his Fortune 100 audit clients. Unfortunately, Deloitte has to sue him to break his partner agreement and is, therefore, forced to air a lot of dirty laundry. In particular, Deloitte has to explain of how Flanagan violated the firm’s independence policies more than 250 times. Mr. Flanagan is an old-fashioned kind of partner – he really is an owner of the firm.

This case was settled recently by the SEC.  Flanagan pays $1+ million Apparently, Deloitte gets off scott-free.  Here’s my post with an update.

Then there’s the EY partner sucked into an adultery/insider trading ring by an evil hussy who cruelly used him. He’s going to jail.

There’s an update on this one.  The guy went to jail but his troubles are not over. Cost $250k plus ignominy.

Fraud and money laundering
“Former” Price Waterhouse auditors S Gopalakrishnan and Talluri Srinivas are still in jail for their part in the PwC/Satyam case in India. They’re accused of complicity in the fraud and money laundering charges against Satyam management. Interestingly, both “professionals” remain members of the Institute of Chartered Accountants of India, although Gopalakrishnan was removed this week from some Committees.

Gopalakrishnan and Srinivas were bailed out. Two of their low level staff were sanctioned by the PCAOB because they refused to cooperate with the investigation.  The case is still pending, in spite of PwC’s attempts to get it dismissed in the US in favor of an Indian proceeding and conniving in India to get it dismissed completely because it is becoming tedious to them. In the meantime, partners keep leaving Price Waterhouse India to work for Deloitte.

Falsifying documents
Stephen J. Nardi was a partner and the Practice Office Assurance Director in the Philadelphia office of BDO Seidman. In anticipation of a QC inspection, Nardi directed a subordinate to retroactively initial and sign a client’s FY 2004 financial statement audit work papers indicating that she had performed a timely detailed review even though she was not involved with the engagement. Nardi also initialed work papers in August 2005 before providing them to the QC reviewers. Nardi backdated these approvals to dates preceding the issuance of the client’s audit report.

This case is interesting because it’s a prime example of what so many complain about in the big firms – the pressure to do things that are unethical or illegal because someone in a very high position controls your career. Mr. Nardi was the subject of a disciplinary proceeding by the PCAOB.

Mr. Nardi has recently been granted a termination to his bar by the PCAOB.


Fascinating story coming out of the UK this past week about a KPMG Director stealing almost $1 million US via expense reports in order to please his second wife. What about all those false expenses passed through to his clients? Is KPMG going to fix that?

And a few weeks ago, a Deloitte manager committed suicide after being convicted of embezzlement of more than $500k, again via false expense reports. Watkins used her company credit card to pay for personal items and was reimbursed for out-of-pocket “business” expenses. Watkins made up false invoices and bogus receipts.

Tax shelter abuses
Don’t get me started about the BDO Seidman partners, including a former CEO of the US firm, all convicted of tax shelter abuses…

The CEO was the same guy who was CEO when BDO Seidman was grossly negligent in its audit of Banco Espirito, resulting in a record $571 million judgment against the firm.

This is only a small slice of the scandal, stories and scoop in the big firms. When money and privilege are taken for granted, arrogance, hubris and plain old idiocy are often along for the ride.

10 replies
  1. @Deloitte
    @Deloitte says:

    At first glance this post seems like the person who wrote it has this vendetta against the companies mentioned, almost to the point where one might think that the writer was wronged by these people and now has their chance in the spotlight to get even, that was until I remembered the following lead off of the “You Can Quote Me On That” item on the homepage of re:theauditors:
    Francine McKenna, an ex-PWC director and a fierce critic of the “big four” accounting firms (PricewaterhouseCoopers, KPMG, Deloitte and Ernst & Young) . . .

    So, I ask, what can we learn from this post past the fact that there are some auditors, tax professionals, etc that are no better than just about any politician?

    At first I thought the comments of your first poster led me to believe that they were living in dreamland, when they started off with “So another words the audit industry is no different than other large companies. Who knew – I thought these were the boyscouts. The ethical standards for accountants is no higher than lawyers or doctors and it may in fact be lower some could argue.”

    That was until they pulled themselves awake with “Lets not be myopic. It’s all relative”.

    The reality is as an industry of ____ (I have no idea of the number of practicing professionals in this industry, so maybe FM can fill in the blank), though the effect can become tsunami in scope, isn’t the percentage of these incidents is miniscule in comparison?

  2. Tony Rezko
    Tony Rezko says:

    We should hold ourselves to a higher standard. And pillory those in our profession who do not. We get paid beaucoup bucks to hold others to those standards.

    Relativism can be dangerous. I’m glad someone is at least speaking up.

  3. ClownCollege
    ClownCollege says:

    Unfortunately, the thousands of stories of people doing the RIGHT thing, day after day after day, is far less sexy than the handful of stories of people doing wrong.

  4. Anonymous
    Anonymous says:

    The last time I checked (and I’m pretty sure I checked well), there’s absolutely nothing sexy about wrongdoers and those who do not fully uphold themselves to ethical standards. I’d rather have wrongdoings over-exposed than having it unchecked and unreported, and not having a single soul know anything about it – that to me would be more worrysome.

  5. Underwater
    Underwater says:

    @Clown College

    Next time a doctor messes up huge on your procedure or the procedure of a loved one and, God forbid, costs someone their life, just try and think about all the times they did things right…

    What people here have argued is that there is a systemic problem in the profession that allows for these colossal failures to occur. You can tell all the people who lost their life savings in the Enron/Anderson collapse and see if it provides them any solace that there are people out there trying to do right. I’m sure if each audit performed by a firm were properly scrutinized, you’d have a huge number of substandard audits coming out.

    If we follow your logic, we shouldn’t report the issues in any occupation (police brutality, politician corruption, pervasive issues in the healthcare system, etc) because there are many people who go to work everyday and do the right thing. It’s been mentioned before that information on the up side of the firms is out there and readily available, this forum is an avenue to tell another side of the story.

Trackbacks & Pingbacks

  1. […] partner, one with a very visible role, from the firm. The firm had” “been informed” about his “rogue” actions and  “regrets” the impact his actions may have […]

  2. […] of enforcement of these independence prohibitions is practically nil. Not only are the regulators loathe to single out a firm for large transgressions, they have limited time and budgets available to track them down at all, especially because of new […]

  3. […] and their partners are finally called to account. And I’ve recounted more than one instance of a sanctioned audit partner continuing to work at their firm and, in some cases, taking leadership positions at those firms […]

  4. Anonymous says:

    Twitter Trackbacks…

  5. […] & Young has its own inside trader case to go along with the ones we saw a few months ago and the rest of the SEC sanctions they’re collecting. A former Ernst & Young LLP partner was […]

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