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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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November 13, 2008 9:13 AM ET
(Crain’s Chicago Business)—Warren Buffett’s Berkshire Hathaway was among the clients of Thomas P. Flanagan, a former vice-chairman of Deloitte LLP in Chicago accused by the firm of improperly trading in the securities of auditing clients. In addition to the billionaire investor’s Omaha-based holding company, Mr. Flanagan’s client list included the Archdiocese of Chicago, Allstate Corp., Best Buy Co., Illinois Tool Works Inc., Middleby Corp., Sears Holdings Corp., USG Corp. and Walgreen Co. Deloitte sued Mr. Flanagan in Delaware court late last month, alleging he traded in the securities of at least 12 clients, seven of which he served as an advisory partner. News of the case is reverberating through corporate and civic Chicago, where Mr. Flanagan advised top business leaders and served on the boards of leading institutions such as the Lyric Opera of Chicago and the Museum of Science and Industry. Mr. Flanagan’s alleged misconduct also represents an embarrassment for New York-based Deloitte, the largest accounting firm in Chicago, with deep ties in the local business community. “Everyone is totally shocked, and Deloitte officials feel betrayed, astonished and angry,” says a person who serves as a director on the audit committee for one of the local companies that worked with Mr. Flanagan. “He was a very nice person who was professional, steady and reliable.” Mr. Flanagan, a 30-year Deloitte partner, resigned in September after the firm confronted him with its allegations. Deloitte’s lawsuit accuses him of “numerous trades of put and call options” related to securities of the twelve client companies between 2005 and 2008. The suit doesn’t name the clients, but Walgreen, Allstate and USG disclosed in recent filings that Deloitte notified them of trading in their securities by a “former advisory partner.” Spokespeople at Elgin-based Middleby and Glenview-based Illinois Tool Works confirm that Mr. Flanagan was an advisory partner on their accounts, but to their knowledge didn’t trade in their stocks. Berkshire didn’t return calls, and Sears declined to comment. Best Buy said it’s investigating whether Mr. Flanagan traded in its securities and will release its findings in an SEC filing. In a statement last week, Deloitte said it “condemns” Mr. Flanagan’s actions, calling them a “blatant violation of Deloitte’s strict and clearly stated policies for investments by partners and other professional personnel.” Deloitte declined to respond to specific questions about the case, but the lawsuit accuses Mr. Flanagan of fraud, breach of fiduciary duty and breach of contract for violating firm policies against holding financial stakes in client companies. The suit also alleges he concealed and lied to the firm about his trading activities. The lawsuit also indicates that a “regulatory agency” is investigating the matter. The specific violation under investigation wasn’t disclosed, but the conduct alleged carries the hallmark of trading on inside information, which is barred by the Securities Exchange Commission. For example, Mr. Flanagan is accused of trading in securities of Walgreen and Option Care Inc. a week before the drugstore chain announced its agreement to acquire Buffalo Grove-based Option Care. No government agency has accused Mr. Flanagan of wrongdoing, and the SEC declines to comment. Beyond the harm to its reputation, it’s not clear how the case will affect Deloitte. The Archdiocese of Chicago, Middleby and Illinois Tool Works say the incident won’t change their relationship with the firm. Walgreen, Allstate and USG said in SEC filings that Mr. Flanagan’s alleged misconduct didn’t compromise Deloitte’s ability to serve the companies as an independent auditor. In the lawsuit, Deloitte seeks to recover damages for compensation paid to Mr. Flanagan after his alleged misconduct began, and for expenses incurred in investigating the matter, but doesn’t put a dollar value on those costs. Mr. Flanagan didn’t return calls seeking comment. The allegations represent a dark turn in a career that began in 1971 at Deloitte predecessor Touche Ross. After the firms merged in 1989, he held top level management roles, including Midwest managing partner, before becoming vice chairman in 2003. In addition to resigning from Deloitte, he recently stepped down from the boards of the Lyric Opera, the Museum of Science and Industry, and the Boys and Girls Clubs of America. As an advisory partner he “regularly attended meetings of the audit committees of his clients,” according to the suit. His role appears to have been more that of a high-level counselor and relationship manager than a nitty-gritty auditor. That an accountant of such stature has been accused of violating clients’ trust comes as another blow to a profession still recovering from accounting scandals earlier in the decade that brought down Chicago-based Andersen LLP. He was one of the “most respected partners in any national firm,” says Allan Koltin, CEO of PDI Global Inc., a Chicago-based firm that serves as a consultant to the accounting industry. “It has left everyone asking why. This is a painful reminder that a track record is only as good as the next day, and in this case one wrongdoing can undo a 30-year career.”
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