Guest Post by Charles Seavey
[Ed. Note: I found this article in a LinkedIn industry group. With the author's permission, it is reposted here. Charles Seavey is a lawyer, consultant and writer. He is one of the few folks who writes more articles than I do!
Recently I was asked why we post so many articles on accounting malpractice and audit fraud when we also represent accounting firms. Here is probably the best place to answer that question.
We do represent accountants and are proud of our affiliation with the CPAmerica organization of independent accounting firms. Just like some of the banks which have become "too big to fail" (or "too big to care" as we like to say), however, some of the huge accounting firms have become too large to be independent.
Because there are so many conflicts of interest that plague the accounting industry giants, we simply don't rely on their opinions anymore. That's not to say they do not employ some great people (one of our best tax lawyers is a PriceWaterhouse alumnus).
We support the independent accounting firms and also the highest standards in both the accounting and legal profession. That means we will continue to represent accountants and accept clients with claims against those that have failed to meet those high standards. Enough of my comments, let me share Charles' thoughts.]
Autonomy and the “willful shock” that accompanies the strategic termination of willful blindness
Deloitte, KPMG, Barclays, Goldman Sachs, Citi, UBS, BofA and JP Morgan. These were the “experts” involved in HP’s acquisition of Autonomy.
As the FT puts it, “It is astonishing that this army of number-crunchers — and HP’s board — could have approved a deal of this size only to claim, after the fact, that the target was manipulating its revenue accounting on a grand scale. But this is what HP alleges.”
A source of even greater astonishment is the fact that James Chanos, the short-seller, made a speech at around the time of the Autonomy acquisition in which he strongly recommended that investors short HP’s shares precisely because Autonomy’s accounting was a fraudulent disaster.
Chanos was able to come to this conclusion easily and without the detailed information available to the aforementioned “experts.” Hmm.
The truth is that the “experts” did not come to the same conclusion because they are not experts, do not do the work of experts and do not view themselves as experts. They instead view themselves as players in a game, as manipulators of muppets, as stretchers of rules, as cookers of books — as ninjas of the grey area.
The goal of the game is to get rich. And pointing out that Autonomy was cooking its books would not have the effect of generating fees, that’s for sure. Instead, it would have the opposite effect of killing the nearly $1 billion orgy of layered fee upon service upon commission upon fee that would flow from a $11 billion acquisition.
The whole system — from the HP board to the Autonomy “roll-up” to the investment banks to the auditors to the deal lawyers — was sick. The system has once again — as in Enron and the mortgage fraud — been revealed in this Autonomy scandal to be nothing more, in many cases, than a corrupt scam.
But no, instead we are supposed to buy that HP is shocked — shocked! — to discover accounting fraud on the part of Autonomy. Well, if you’ll permit me to coin a new phrase, I think that Meg Whitman, the HP board, and its army of 300 experts are experiencing “willfull shock,” which is the sort of shock that accompanies the strategic termination of willful blindness.