SEC probes Huron Consulting in wake of scandal
NEW YORK -- The Securities and Exchange Commission has launched a probe of Huron Consulting Group Inc. in the wake of an accounting scandal at the legal and financial advisory firm, the company said Tuesday.
In a regulatory filing, Chicago-based Huron Consulting said the SEC started an investigation into matters related to past acquisitions, and it is cooperating with the agency.
The investigation follows the company's announcement on July 31 that it will restate its financial results for 2006, 2007, 2008 and the first quarter of this year, following the discovery of suspect payments in relation to four companies it bought between 2005 and 2007. The restatements are expected to reduce earnings by $57 million across the affected periods.
At the same time, Huron ousted Chairman and CEO Gary Holdren, CFO Gary Burge and Chief Accounting Officer Wayne Lipski. Holdren had led Huron since it went public in 2004, and was part of the group of former Arthur Andersen LLP executives who started the company in 2002.
Huron shares slipped 33 cents, or 2.4 percent, to $13.21 in afternoon trading. The stock, which closed at $44.35 before the restatement was announcement, plunged last week amid a flurry of trading.
In its Tuesday filing, Huron said its board is also evaluating the impact of the restatement. It expects to identify one or more material weaknesses in internal controls in the ongoing review.
The purchase agreements for the four businesses in question included payments made at closing and, in some cases afterward, when the acquired units reached specific financial performance targets. The filing said the payments were subsequently redistributed by the sellers "among themselves and to other select employees" of Huron. Those employees were not named.
Daniel R. Leben, an analyst with Robert W. Baird & Co., said it is too early to tell how the scandal will effect Huron as an ongoing business, and kept an "Underperform," or "Sell" rating on the stock. "The key asset for any professional services firm is people and maintaining a highly distinguished a professional reputation in the marketplace," he wrote in a note to clients. "While we believe the management departures are a first step toward minimizing the reputational damage, it is unclear what the ultimate impact will be."
Management's top priorities must be damage control and keeping key personnel in place, he said. Staff retention is a major concern, he added, noting that managing directors already left several units this year prior to the scandal.
Huron said in the Tuesday filing the restatement issues are not expected to affect on how it serves its more than 700 active clients.
The consultant has played a role in many high-profile matters, including the ongoing bankruptcy of Chicago-based Sun-Times Media Group. It was involved in the 2006 bankruptcy of Northwest Airlines and the bankruptcy of United Airlines parent UAL Corp., and was a player in uncovering the 2006 accounting scandal at Fannie Mae.
Since disclosing the restatements, Huron has been hit with a bevy of class action lawsuits from shareholders claiming it and the ousted executives misled investors.