@Forbes: Did Deloitte Compromise Independence in the McClellan Insider Trading Scandal?

By • Dec 8th, 2010 • Category: The Big 4 And Consulting

Didn’t want to make you wait until Friday for this one. I usually write shorter pieces for Forbes and they don’t expect me to do original reporting – just opinion and analysis.  But once I started poking around here, I couldn’t quit.

The world of private equity, mergers and acquisitions advisory, and transaction services is a small one. Mix in troubled company restructuring, the turbo-charged atmosphere of Silicon Valley, and high tech, and the stew is a spicy mix of people and deals.

There’s no denying Deloitte, and their infamous partner Arnold McClellan, have strong and long relationships with private equity firms like Hellman & Friedman. In fact, seems to me that Hellman & Friedman had Mr. McClellan on speed dial. Or, rather, it was his “Deloitte colleagues” on the audit engagement, as the SEC’s complaint against Mr. McClellan implies, that called him every time H&F was thinking about an acquisition.

That relationship created some significant coin for McClellan, his practice, the Deloitte San Francisco office, and the firm.

What happens now?

I bet Deloitte is pulling out all the stops to salvage the relationship with H&F. When a private equity firm is forced by their “trusted advisor” to go public in a messy, sordid, and embarrassing way, steaks at Morton’s and vintage Bordeaux won’t save you.

I have more stories about how intense closeness between private equity firms and their advisors is bad for all of us. I also have strong opinions about the SEC and their lack of enforcement against Deloitte and their culture of non-compliance.

Stay tuned for a follow-up here at a later date.

Here’s an excerpt.  Please read the rest at Forbes.

M&A transactions are, naturally, confidential transactions. My strict interpretation of the McClellan deals says that Deloitte is not independent of their client McKesson with regard to their advice on the Per Se transaction. If Deloitte is the auditor of H&F also, they are not independent of H&F. McClellan and his Deloitte team were the go-to tax advisors on many of the H&F acquisitions, including the ones he is accused of trading on using inside information.

Why should an investor be concerned about Deloitte and McClellan’s exploitation of their confidential, trusted advisor, client relationship with McKesson, H&F, Avis Budget Group, Microsoft, and possibly others? Auditor independence rules exist to protect shareholders – to make sure the audit comes first.

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7 Responses »

  1. [...] light of recent insider tradng allegations against two senior partners at Deloitte, another partner at Ernst & Young, the audit failures at banks, and other serious cases Mr. [...]

  2. [...] faces more embarrassing news reports about the McClellan insider trading case after cleaning up the Flanagan insider trading case with the SEC this past [...]

  3. [...] Gupta did for clients, we have another senior Deloitte partner accused of insider trading, Arnold McClellan. He advised private equity firms about the tax implications of proposed acquisitions. The level of [...]

  4. [...] Gupta did for clients, we have another senior Deloitte partner accused of insider trading, Arnold McClellan. He advised private equity firms about the tax implications of proposed acquisitions. The level of [...]

  5. [...] Gupta did for clients, we have another senior Deloitte partner accused of insider trading, Arnold McClellan. He advised private equity firms about the tax implications of proposed acquisitions. The level of [...]

  6. [...] December of 2010 another Deloitte partner was accused of insider [...]

  7. [...] Deloitte tax partner Arnie McClellan’s wife “eavesdropped” on her husband’s phone calls where he discussed his client’s M&A targets and then called [...]

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