This is increasingly looking like the worst of times for professional services firms.
Management consultants were more than a little shaken when the investigation into alleged insider trading at Galleon ensnared a former McKinsey director.
Accountants cringed at the revelations of Ernst & Young-sanctioned financial wizardry à la Repo 105 at Lehman Brothers.
As for auditors, they have had to contend with, among other things, the Satyam debacle in India and a whopping fine in the UK.
And it gets worse. On Wednesday, the SEC said it settled with a former Deloitte and Touche partner and his son regarding allegations of “insider trading in the securities of several of the firm’s audit clients”.
According to the statement:
The SEC alleges that Thomas P. Flanagan of Chicago traded in the securities of Deloitte clients, often while serving as a liaison between those companies’ management teams and Deloitte’s audit engagement teams. In this role, Flanagan had access to advance earnings results and other nonpublic information from Deloitte’s audit engagements with Best Buy, Sears, and Walgreens as well as the firm’s consulting engagement with Motorola. Flanagan made trades in the securities of these and other companies while in possession of the confidential information, and also tipped his son Patrick T. Flanagan who then traded on the basis of the nonpublic information.
The Flanagans agreed to pay more than $1.1 million to settle the SEC’s charges.
The complaint filed by the regulator alleged that Flanagan senior netted more than $430,000 in profits from trading in “the securities of multiple Deloitte clients on the basis of inside information”.
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 Flangan. Worth reading.
Related links:
Evil speculators vs Mickey Mouse – FT Alphaville
Welcome to the brave new world of insider trading investigations – FT Alphaville
SEC Charges Pequot Capital and CEO Samberg with insider trading – FT Alphaville