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Consulting Litigation and Regulation NewsWatch
Monadnock Research
This page contains recently published Monadnock Research content related to consulting client and firm litigation and regulatory issues.
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Ousted Yahoo! CEO Blames Heidrick & Struggles in Fake Education Credential Fiasco
Monadnock Research (Vol V, No 11) - 14 May 2012
Yahoo's CEO is the latest executive to get caught in a "falsified education credentials" (FEC) scandal. Scott Thompson, Yahoo!'s former CEO, resigned that position and his Board seat for undisclosed personal reasons after his attempt to blame Heidrick & Struggles backfired. Thompson's misconduct remains under investigation for making a false claim that he had a degree in Computer Science from a small Massachusetts-based institution. That school, Stonehill College, was not granting Computer Science degrees when Thompson graduated with a claimed dual Accounting/Computer Science major. Even after having the misrepresentation brought to his attention, Thompson attempted to down-play it by shifting blame to a junior associate at Heidrick & Struggles, the executive search firm that managed his 2004 placement at PayPal. Thompson allegedly claimed he was unaware of the bogus education claims in his bios since then, despite obvious evidence to the contrary in recent SEC filings. Heidrick & Struggles, who was not involved in Thompson's appointment at Yahoo!, took the extraordinary step of providing Yahoo!'s management with confidential information refuting Thompson's claims of its involvement in the FEC misstatement. The £200 million UK judgment against Hewlett Packard related to a former SHL Systemshouse/EDS employee's fake education assertions highlights the risks facing companies that do not properly vet even lower-level job candidates. (Research Note includes MR perspective, supporting documents and details on professional services litigation related to falsified education credentials.) (1,835 words) . . . More
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Hong Kong Proposes Regulatory Changes Making IPO Advisors Criminally Liable for Faulty Due Diligence
Monadnock Research (Vol V, No 10) - 9 May 2012
Hong Kong's security regulator has proposed changes that would extend criminal liability to IPO "sponsors" that knew, or should have known, that their clients were lying to investors during the initial public offering process. While the impact on sponsors is significant, it will also have implications for their services partners and client organizations. The proposed rule changes call for sponsors to be responsible for understanding all representations of their clients, even if the activities undertaken to achieve that are performed by others, including financial, management, legal, systems and valuation advisors, and other expert and non-expert third-parties. The Hong Kong Stock Exchange has been the largest IPO market in the world for the last three years. The surge in IPOs has fueled cases of firms rushing IPOs to market, even before the due diligence of dubious sponsors and advisors was completed. The proposal suggests steps to address that, and warns of a plan to step-up enforcement actions against consultancies, audit firms and law firms using existing statutes. This Research Note includes a summary of key implications for sponsors, service providers and client organizations seeking sources of capital in the Hong Kong market. Research includes a PDF of the proposed rules in full text. (4,000 words) . . . More
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Confidentiality Breach by Martin Marietta and its Advisors Halts Vulcan Hostile Takeover Bid
Monadnock Research (Vol V, No 9) - 9 May 2012
Martin Marietta Materials, and its M&A, PR and antitrust advisors, were found to have routinely violated the terms of confidentiality agreements signed with Vulcan Materials Company related to a proposed friendly merger that ultimately turned into an attempted hostile takeover. The controversial remedy issued by the Delaware Court is a 4-month "standstill" order that forecloses any reasonable possibility that Martin Marietta would be able to take control of Vulcan in a hostile bid for a year or more. This Research Note includes the 135 page opinion and summarizes key issues associated with the confidentiality breach, details on the advisors, and why the court took the extraordinary step of blocking a hostile takeover as a consequence for unethical acts in violation of contractual agreements, when an anticipated worst case scenario of monetary damages would have paled in comparison to the gains to be realized in Martin Marietta's hostile take-over of Vulcan. (1,085 words) . . . More
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Infosys Accused of Over-Billing Clients and Falsifying Documents in US Visa Manipulation Case
Monadnock Research (Vol V, No 8) - 16 April 2012
A civil lawsuit filed in US Federal court in Alabama against Infosys is about to turn into a nightmare for the firm, and likely for other India-headquartered consulting and IT service providers. Infosys stands accused of 6 civil charges by one of its consultants, associated with improperly using B-1 visas for workers coming into the US to work. The scheme alleged by Palmer was that for a foreign Infosys consultant to obtain a B-1 visa, an American employee of Infosys had to write a "welcome letter" fraudulently stating that the employee was coming to the US for meetings rather than to work on a client engagement. Palmer seeks compensatory and punitive damages on the charges. A US federal judge ruled against Infosys' request for arbitration in November 2011. The trial is scheduled to begin on 20 August, with a pre-trial conference scheduled for 20 July. Research Note includes copies of complaint against Infosys; Infosys response; and details on the allegations, the case, and claimed over-billing and client project labor import schemes presented by an Infosys consultant that would be of interest to customers of Infosys and to other off-shore service provider clients. (1,340 words) . . . More
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British Consultant's Death in China Now a Global Murder Investigation Involving Former Politburo Member, Family and Colleagues
Monadnock Research (Vol V, No 8) - 12 April 2012
Neil Heywood, a British national living in China and working as a consultant, was found dead in a Chongqing hotel room in November 2011. The chain of events since then has devolved into China's biggest scandal in decades. The death was originally reported to British authorities as heart failure due to excessive alcohol consumption. Chinese authorities cremated the body before an autopsy could be performed, and the leader of Chongqing's police force subsequently requested asylum in the US because he feared for his life after allegedly finding Heywood had been poisoned. Today, Bo Xilai, a prominent member of the Chinese Communist Party's inner-circle, has been relieved of all his official duties. His wife, Gu Kailai, formerly one of China's most well-known attorneys, is being detained as a suspect in Heywood's murder, along with Zhang Xiaojun, and orderly in her home. This Research Note explores the relationship and influence Heywood had with the family of one of China's most prominent political figures, and how the consulting work of Haywood and others at Hakluyt & Co., HL Consulting, and Horas Consultancy and Investment, factor into the investigation into his murder. It also presents the associated charges that carry the death penalty in China. (2,695 words) . . . More
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Saint Consulting Granted License to Kill Real Estate Development Projects by US Federal Court
Monadnock Research (Vol V, No 7) - 29 March 2012
A US Federal court in Illinois has dismissed all claims brought in a suit against the Saint Consulting Group and its retail client SuperValu. The verdict affirms the right of a consulting firm to work in concert with a client to block development of real estate projects that might also restrain competition, even if the tactics employed were admittedly "sneaky and underhanded". The charges involved two proposed commercial real estate developments in Illinois that were to be built by retail center developers Rubloff and McVickers. SuperValu wanted to block the proposed complexes because they included Wal-Mart and other large retail stores that would compete with its local retail operations that included Albertson's, Jewel-Osco, and Cub. Saint Consulting secretly helped SuperValu support the efforts of the proposed shopping center's neighbors to block the Rubloff development in city council and court proceedings that started in 2007. The clandestine actions of Saint and SuperValu were later disclosed in a Wall Street Journal report based on 3,000 leaked documents from a former Saint Consulting staffer. The consultancy advertises itself as protecting clients from unwanted competition, and touts its consultants as "Wal-Mart killers". The firm's questionable ethical tactics have made it past a significant legal hurdle, but challenges remain since the court allowed Rubloff to re-file the charges under certain conditions. Research Note presents an analysis of the client and firm implications of the court's findings, and the associated legal issues that include confidentiality, anti-trust, fraudulent conduct and conspiracy, tortious interference, abuse of process, common law fraud and conspiracy, inducement of breach of fiduciary duty, conversion, replevin and misappropriation of trade secrets. Includes copies of decision, complaint and various court filings. (1,570 words) . . . More
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A.T. Kearney Vice President and Partner Pleads Guilty to Engagement-Related Civil and Criminal Charges
Monadnock Research (Vol V, No 6) - 20 March 2012
A.T. Kearney consultant Sherif Mityas pleaded guilty on 15 March 2012 to insider trading and securities fraud charges associated with a stock transaction he made based on confidential client information from a Carlyle Group engagement. A.T. Kearney terminated Mityas, a former Vice President and Partner, after he admitted his guilt and accepted the plea deal. He was an executive within the firm's Consumer Products and Retail Practice, working as a retail and supply chain productivity improvement expert. A.T. Kearney says it cooperated fully in the investigation. Mityas will pay close to $80,000 in restitution; is banned from serving as an officer of any US public company; and will be sentenced on the criminal charges in July. Research Note contains full detail of the charges and settlement, copies of the SEC complaint; Criminal information filing; the Mityas Consent Agreement, and other associated documents. (900 words) . . . More
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Trial of Former McKinsey MD Delayed; Rajat Gupta Pleads Not Guilty to Additional Securities Fraud Charges
Monadnock Research (Vol V, No 3) - 10 Feb 2012
Former McKinsey & Company Managing Director, Rajat Gupta, pleaded not guilty to additional charges at his 7 February hearing on a superseding indictment involving additional securities fraud charges. The trial was delayed for 90 days, and is now on the docket of NY District Judge Rakoff for 21 May 2012. While prosecutors said at the hearing that they intended to file additional charges against Gupta in a subsequent indictment if the trial was delayed, Rakoff barred them from doing so. He will, however, allow additional allegations to be presented at trial as evidence if they contributed to the alleged fraud and conspiracy. Research Note includes copies of the original and previous criminal indictments and civil complaints; background details; and findings in associated cases. (2,050 words) . . . More
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Freddie Mac Consulting Contracts with Gingrich Group at Center of US Presidential Campaign Politics
Monadnock Research (Vol V, No 2) - 9 February 2012
The former consulting firm of US Republican Presidential candidate Newt Gingrich has released 1999 and 2006 contracts between Gingrich and US mortgage giant Freddie Mac (NYSE: FMCC). Gingrich relinquished ownership in his former consultancy in May 2010, after announcing his candidacy for US President. While Gingrich characterizes the work as strategy consulting, the Romney campaign has called it lobbying and influence peddling on behalf of Freddie Mac. Part of the scope of services in the 1999 agreement appears to support the Romney campaign's assertion. Research Note includes copies of the two agreements; a profile of the Gingrich Group; analysis of agreement terms; detail on fee structures; and potential impact of allegations against Gingrich, and by Gingrich against Romney's work at Bain and Bain Capital, on the presidential campaigns of the two former consulting firm leaders. (1,500 words) . . . More
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And in other news: AMCF, Deloitte, Empire Strategic Planning and Mercer
Monadnock Research - 8 February 2012
AMCF names finalists for its consulting project excellence awards. Deloitte and SAP court battle in California continues. Deloitte's former CEO, James Quigley, appointed trustee of IFRS Foundation. Deloitte enters strategic alliance with Salesforce.com. Former New York Senator and Empire Strategic Planning leader indicted for tax evasion and influence peddling. Mercer rebrands outside US as Mercer Marsh Benefits. (675 words) . . . More
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And in other news: Ernst & Young, Aon Hewitt, ECS and Navigant
Monadnock Research - 18 January 2012
Operational Risk & Regulation Magazine releases results of its 2011 consultancy rankings of the top 10 operational risk management consulting practices. Ernst & Young takes the top spot in anti-money laundering, corporate governance, regulation strategy, Basil II and III, treating customers fairly, fraud and financial crime prevention, and enterprise-wide compliance and risk management strategy. Aon Hewitt signs agreement with Birches Group to remarket compensation surveys. ECS acquires Paradigm Technologies. Navigant shareholder sues, claiming excessive executive compensation. (753 words) . . . More
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BDO Wins Arkansas Supreme Court Appeal to Arbitrate Fraud Allegations
Monadnock Research (Vol V, No 1) - 14 January 2012
BDO Seidman has won an appeal against Straits Steel & Wire, forcing the client's allegations of fraud to be heard by arbitrators and not the courts. The Arkansas Supreme Court decision reverses a ruling of the Sebastian County Circuit Court, which had denied a motion by BDO to compel arbitration against Straits Steel & Wire, Co. and its affiliates. The case involves tax consulting services and allegedly fraudulent tax shelters. BDO successfully argued on appeal that the circuit court erred in denying arbitration because it was the dispute resolution mechanism of choice in agreements signed by the parties. SSW attempted to get around the dispute resolution choice by claiming unconscionability of the alleged fraud. SSW claims breach of fiduciary duty, negligence and professional malpractice, negligent misrepresentation, disgorgement of excessive and illegal fees, fraudulent inducement, fraudulent concealment, fraud, civil conspiracy and breach of contract. Research Note includes Arkansas Supreme Court ruling and MR perspective on the inherent system bias of arbitration clauses in consulting agreements. (1,375 words) . . . More
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Expert Network Consultant Sentenced to 40 Months for Insider Trading Scheme
Monadnock Research - 21 December 2011
James Fleishman, a sales manager at expert network consultancy Primary Global Research (PGR), was sentenced in Manhattan Federal Court to 30 months in prison for his role in an insider trading scheme. Fleishman was found guilty of helping pass inside information about publicly traded companies to executives at several hedge funds so they could trade ahead of its public release. He had been convicted on 20 September 2011 after a three-week trial. Fleishman, 42, of Santa Clara, California, was also sentenced to two years of supervised release in addition to his prison term. (355 words) . . . More
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Lions Gate Sued for Non-Payment Under Terms of Performance-Based Consulting Agreement; Highlights Challenges Small Firms Face in Client Litigation
Monadnock Research (Vol IV, No 41) - 1 Dec 2011
MR - A small consulting firm based in Los Angeles, GBB Consulting, has sued Lions Gate Films over non-payment in a performance-based fee arrangement associated with Nicole Kidman's film, "Rabbit Hole". The suit, filed on 22 November 2011, alleges breach of contract. Kidman was nominated for an Oscar and won a Screen Actors Guild (SAG) award for her performance in the film. GBB claims it wasn't compensated for its services and role in helping to secure Kidman's award and nomination. While the claimed damages are only around $115,000, the case highlights the challenges many small firms face in working with larger organizations with significant resources in high-stakes engagements. Research Note includes a copy of the complaint and MR perspective on the consequences of playing hard-ball and cost-shifting to small and mid-market firms in the current economic environment. (740 words) . . . More
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Wellogix Prevails in Trade Secret Theft Case Against Accenture
Monadnock Research (Vol IV, No 38) - 2 Nov 2011
MR - Accenture will likely pay around $49 million in compensatory and punitive damages to a former software and services partner, Wellogix, in a trade secret theft and misappropriation case involving SAP and their client, British Petroleum. The court's latest order lowers a $94.38 million jury verdict against Accenture in May 2011. The Texas jury found that Accenture intentionally misappropriated trade secrets from Wellogix, and then knowingly copied, communicated and/or transmitted them without Wellogix's permission. Wellogix has asserted that the associated acts drove it out of the business of providing complex process procure to pay software and services to energy clients. This Monadnock Research Note includes case details; information on additional patent infringement actions involving energy sector clients; copies of complaints against Accenture, BP, and SAP; the Wellogix v. Accenture jury verdict; and various agreements that served as exhibits at trial. (450 words) . . . More
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Former McKinsey MD Indicted on Securities Fraud Charges
Monadnock Research (Vol IV, No 36) - 27 October 20
MR - Rajat Gupta, the former global Managing Director of McKinsey & Co., has been indicted on six criminal charges, and has also been charged civilly by the SEC, for allegedly communicating inside information about leading American publicly-traded companies to his friend and business colleague, Raj Rajaratnam. The SEC also filed new charges against Rajaratnam, found guilty on 14 securities fraud and conspiracy charges in May 2011. The charges against Gupta come just a few months after the US found it would likely not prevail in its former strategy to go after Gupta using a controversial SEC administrative action. That proceeding was simultaneously dropped in early August with Gupta's suit against the SEC for treating him differently than other defendants in associated litigation and criminal proceedings. This Research Note includes a copy of the criminal indictment and SEC complaint, as well as numerous previous associated filings and documents. (2,390 words) . . . More
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Oracle to Pay $199.5 Million to Settle Claims Involving Software and Support Services Procurement Violations
Monadnock Research - 11 October 2011
MR - Oracle has agreed to pay $199.5 million plus interest for failing to meet its General Services Administration (GSA) contractual obligations. The Oracle settlement is the largest False Claims Act resolution ever obtained by the GSA. The agreement relates to a contract entered into with Oracle in 1998 to license software and technical support services to government entities through the GSA's MAS program. Former Oracle employee, Paul Frascella, will receive $40 million as his share of the recovery in the case. The settlement resolves his lawsuit filed on behalf of the US government under the whistle-blower provisions of the False Claims Act. In the US, private citizens can bring lawsuits on behalf of the US and will receive up to 25 percent of any recovery. (600 words) . . . More
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Global First-to-File Patent System Harmonization: Consulting Implications of "America Invents Act"
Monadnock Research (Vol IV, No 34) - 7 October 201
MR - The US "Leahy-Smith America Invents Act", H.R. 1249, was passed by the US Congress and Senate, and became law on 16 September 2011. The legislation harmonizes the first-to-file (FtF) patent systems of the world's largest economies, and at first glance poses little downside for the largest global corporations. It promises to be a revenue windfall for the US government at a time when it has never needed it more, as its US Patent and Trademark Office (USPTO) gears up for the onslaught of new filings. We believe, however, the implications of this shift from First-to-Invent to FtF will be profound. This Research Note discusses the impact on demand for consulting services; practice areas most affected; arguments for and against the legislation; global implications; and organizational sponsors. (2,335 words) . . . More
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US Armed Services Settles Dispute with CSC
Monadnock Research - 29 September 2011
MR - CSC has reached a definitive settlement with the US Government in its previously announced agreement to settle a dispute with the Armed Services Board of Contract Appeals. The settlement calls for the government to give CSC a lump cash payment of $277 million. CSC will also receive a five-year contract extension, including four base years and a one year option year. The contract, worth around $1 billion, calls for CSC to continue to support and expand the capabilities of the systems covered under the original contract, which had been scheduled to expire in December 2011. The settlement also calls for the government to receive expanded intellectual property rights. (260 words) . . . More
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Accenture Settles Rille Qui Tam Suit with US DOJ for $63.675 Million
Monadnock Research (Vol IV, No 29) - 18 Sept 2011
MR - Accenture has agreed with the U.S. Department of Justice to settle a whistle-blower suit filed in 2006 for $63.675 million. The Qi Tam lawsuit was originally filed by Rille and Roberts alleging that Accenture submitted false claims for payment under contracts with US federal agencies for IT consulting and services. The Justice Department characterizes the settlement as Accenture agreeing to resolve the claims that it received kickbacks for recommendations of hardware and software to the government, fraudulently inflating prices and rigging bids. Accenture continues to vigorously deny the allegations and says that the firm and the Justice Department have settled only to avoid the additional time, inconvenience and expense that would come with protracted litigation. The Accenture kickback allegations were part of a larger investigation of government technology vendors that has resulted in numerous settlements to date with firms that include IBM, PwC, CSC, Oracle, Hewlett-Packard, EMC, and Cisco. The total of the settlements paid by IBM, PwC, and CSC were around $6.5 million. That aggregated total was just a fraction of that paid by each of the firms that waited to settle. So there was clearly a significant premium charged to Accenture and the other firms that refused to address the risk early. Accenture's settlement, as well as that of Oracle, were in the range predicted by Monadnock Research in a September 2010 publication. This Research Note includes MR analysis and perspective on: the cost to firms of waiting to settle; why clients need to better understand firm partnerships, since acting in the client's best interest is often not in the firm's best interest; related case settlements and supporting documents, including complaints; and recommendations on what clients and firms should do to mitigate associated risk. (2 graphics, 1,950 words) . . . More
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U.S. Armed Services and CSC Agree to Settle Contract Dispute
Monadnock Research - 24 August 2011
MR - CSC has reached an agreement in principle with the US Government in a dispute related to contract claims. The case has been pending before the Armed Services Board of Contract Appeals. On 19 November 2010 the government and CSC entered into an non-binding agreement to stay the claims litigation and engage in mediation to resolve the claims and issues associated with the contract. Under the terms of the agreement, CSC would receive a lump sum upfront cash payment of $277 million and a five-year contract extension with an estimated value of $1 billion to continue to support and expand the capabilities of the systems covered by the original contract scheduled to expire in December 2011. CSC currently expects that the settlement will result in a non-cash pre-tax charge to earnings in its second fiscal quarter of approximately $250 million (270 words) . . . More
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SEC Dismisses Proceedings Against Former McKinsey Managing Director
Monadnock Research (Vol IV, No 25) - 4 August 2011
MR - The US Securities and Exchange Commission (SEC) has dismissed all of its proceedings against former McKinsey & Co. Managing Director, Rajat K. Gupta. Gupta had been global Managing Director of McKinsey for close to 10 years, retiring in 2007. The SEC instituted public administrative and cease-and-desist proceedings against Gupta on 1 March 2011. A few weeks later, Gupta filed a civil action against the SEC in New York challenging its institution of the proceedings. Gupta had been seeking a declaratory judgment in his suit. The primary issue claimed in it was that the SEC chose an Administrative action, rather than a civil suit, as it did against the 28 other defendants associated with Galleon. Gupta also alleged the SEC violated his statutory and due process rights, and denied his right to a jury trial. The SEC said that it was in the public interest to dismiss. Gupta has agreed to drop his suit as well. Research Note includes information on potential future charges and copies of associated documents. (825 words) . . . More
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And in other news: CACI, KPMG, Deloitte, Beacon Partners, Virtusa, Primary Global Research, and Broadband Research
Monadnock Research - 3 July 2011
(MR) CACI completes acquisition of Pagnia Technologies. Class action suit against KPMG alleges it "mommy tracked" female professionals. Pennsylvania Court rules in favor of Department of Public Welfare award to Deloitte. Beacon Partners acquires Healthcare Innovation Solutions. Virtusa acquires ALaS Consulting for $27.8 million. Former Flextronics exec and moonlighting consultant pleads guilty to conspiracy and securities fraud. (575 words) . . . More
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EC Commissioner Barnier Considers Prohibiting Auditors from Offering Consulting
Monadnock Research (Vol IV, N 21) - 1 July 2011
MR The EC Commissioner for Internal Market and Services, Michel Barnier, addressed a conference of the Federation of European Accountants on 30 June, and advocated for a number of auditor regulatory changes that could include a total ban on audit firms providing consulting services and mandated rotation of auditors. Barnier is the EC official responsible for the Internal Market and Services Directorate General and Office for Harmonization in the Internal Market. Speaking before the federation of European CPA's Barnier intimated that he believes the regulatory environment for auditors in Europe is deeply flawed and in need of reform. He proposes the EC focus on: auditor independence issues; opening of the audit services market; and a more integrated European auditor regulatory and certification environment. The issue of auditors offering consulting and advisory services was addressed in his remarks. He believes that a key factor that fuels excessive familiarity between auditors and their clients lies in providing too many consulting and non-audit advisory services. Barnier asks, "How can we view an auditor as independent when the firm also advises the client in the area of strategy?" Research Note includes translation and interpretation of key points from speech associated with consulting. (865 words) . . . More
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SAIC Subcontractors Indicted in $40+ million Alleged Fraud; SAIC Consultant Pleads Guilty in Scheme
Monadnock Research (Vol IV, N 20) - 1 July 2011
MR - Nine defendants have been indicted in connection with an elaborate scheme to defraud the City of New York on its CityTime project. The people named in the indictment are Mark Mazer, Gerard Denault, Padma Allen, Reddy Allen, Dimitriy Aronshtein, Svetlana Mazer, Larisa Medzon, and Anna Makovetskaya. The SAIC subcontractors allegedly complicit in the scheme, along with 2 SAIC employees and a New York Office of Payroll Administration staffer, are Technodyne LLC, D.A. Solutions, Inc. and Prime View, Inc. The contractors are alleged to have grossly over-billed for consultant time on the engagement, and to have employed a network of shell companies and bank accounts in the US and elsewhere to conceal more than $40 million in fraudulently-billed consulting fees. Mark Mazer was a city employee authorized to approve consultant invoices. SAIC employee, Carl Bell, a Chief Systems Engineer in the firm's New York Office, pled guilty to multiple charges in the fraud, and has admitted to receiving millions in kickbacks. Another SAIC employee, Gerard Denault, was charged and is out on bail. Ironically, CityTime, a project that endeavors to properly report time worked, has itself ballooned to 950% of its original budget due, in part, to fraudulently reported time. "IT contracts that involve hundreds of millions of dollars and multiple layers of consultants are a new frontier for fraud, and DOI has been at the forefront of exposing it," said Rose Gill Hearn, Commissioner, New Your City Department of Investigation. (updated 1-July-2011, Research Note includes allegation details, indictment and complaint - 2,975 words) . . . More
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And in other news: Accenture, CSC, Medtronic, Capgemini, Deloitte, and Philippine Airlines
Monadnock Research - 23 June 2011
MR - Accenture announces strong quarterly results; finalizes Nokia Symbian deal; S&P 500 to include ACN. CSC receives antitrust clearance to acquire iSOFT. Thomson Reuters acquires CorpSmart from Deloitte. Surgeons that failed to report Medtronic clinical trial complications in research received at least $62 million in consulting and other fees from the company. Capgemini in exclusive negotiations to acquire Prosodie. Judge rules in favor of Philippine Airlines in success fee dispute. Another expert network consultant found guilty of fraud for disclosing confidential information. (857 words) . . . More
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Three More Convictions in Professional Services Confidential Client Info Leak Cases; Cooperating Government Witness Dies in Apparent Suicide
Monadnock Research (Vol. IV, No. 17) - 15 June 11
MR - Former Galleon trader, Zvi Goffer, his brother Emanuel , and Michael Kimelman, a former colleague, have been convicted of multiple counts of securities fraud and conspiracy. According to prosecutors, the segment of the insider information network they uncovered was responsible for more than $20 million in known trading profits. This brings to 39 the total number of people that have been found guilty or pled guilty. Former Ropes & Gray attorney Brien Santarlas admitted during the proceedings that he and Arthur Cutillo, another lawyer at the firm, routinely scoured its intranet and offices for potential tips on confidential transactions and business information that could be conveyed to network contacts. A cooperating government witness, Ephraim Karpel, was found dead in his office on 28 May, the victim of an apparent suicide. FBI surveillance of Karpel, a former commodities trader, was played at the Goffer trial two days before his body was discovered in his New York office. The network of executives at professional services firms offered tips to hedge fund leaders and staff about confidential transactions and financial information that they were privy-to given the nature of their work as lawyers, consultants, and financial advisors. According to William R. Barzee, attorney for Zvi Goffer, in his closing arguments at trial, "It's the real world. Things get out." (Research Note includes copies of complaints and some FBI surveillance transcripts - 1,500 words) . . . More
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And in other news: Consulting Demand, BDO Censure, Pension Deficits, US M&A, Executives Lack Faith in Strategy, Sopra's Axway Spinoff, and CSC Institute
Monadnock Research - 10 June 2011
(MR) An Economist report discusses the rebound in consulting services, and the current shift from cost cutting to growth as the focus of engagements after the deepest consulting recession in decades. BDO financial advisory is censured by UK's Financial Services Authority for failures in its advisory role as a sponsor of Shore Capital Group. A recent Booz & Company survey of global executives found significant concerns and a lack of confidence in their own companies' growth and strategy efforts. US pension plan deficits increase by close to 18% in May 2011 According to Mercer research. Large transactions have fueled a 39% US M&A value increase in H1 2011 according to a PwC study. The Sopra Group board has approved the spinoff of Axway Software on the NYSE Euronext exchange in Paris. Accenture has named TBWA and Tag as advertising and production agencies. CSC has launched its Global Institute for Emerging Healthcare Practices to monitor worldwide healthcare trends, conduct studies, evaluate emerging best practices, and study potentially innovative uses of technology to improve productivity. (1,063 words) . . . More
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Former BDO and Jenkens & Gilchrist Senior Advisory Leaders Convicted in Fraudulent Tax Shelter Scheme
Monadnock Research (Vol. IV, No. 16) - 24 May 2011
MR - Paul Daugerdas, Donna Guerin, Denis Field, and David Parse were convicted in Manhattan federal court on 24 May for designing, marketing and implementing fraudulent tax shelters used by wealthy individuals to avoid paying taxes. Daugerdas, Guerin, and Field made a collective $130 million in profits from the 10-year scheme. They were convicted of conspiring to defraud the IRS and to evade taxes, and of corruptly endeavoring to obstruct and impede the internal revenue laws. They were also convicted on multiple counts of tax evasion related to the use of tax shelters, and of mail fraud. Field was the former CEO and Chairman of BDO Seidman. Daugerda was a lawyer and former head of the Chicago Office of the tax practice of the law firm, Jenkens & Gilchrist (J&G). Guerin was a tax attorney and shareholder at J&G's Chicago office. Parse was a former Deutsche Bank Broker. Five others previously pled guilty as co-conspirators in the scheme. Deutche Bank admitted to criminal complicity and agreed to pay a fine of more than $550 million in December 2010. Daugerdas, Guerin, Field, and Parse will be sentenced in October. Research Note includes original complaints. (1,580 words) . . . More
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Rajat Gupta and Anil Kumar Ran Side Consulting Business While Serving as McKinsey Senior Partners
Monadnock Research - 18 May 2011
MR - A Bloomberg report has found that former McKinsey Managing Director, Rajat Gupta, and former McKinsey senior partner and Director, Anil Kumar, were running a side consulting business while executives at McKinsey. McKinsey was apparently unaware they had set up the private consultancy, Mindspirit LLC, in the names of their wives, Anita Gupta and Malvika Kumar. The report also says Gupta privately advised former GE subsidiary, Genpact Ltd., before he had retired from the firm, receiving options that remain unexercised and have a current value of around $1.3 million. Some details of McKinsey's new policy on client confidentiality are starting to emerge. The firm now prohibits consultants, support staff, spouses, and their children from investing in the securities of McKinsey clients, as well as former clients going back five years and prospective clients where the firm is actively seeking engagement. Employees are reportedly required to submit to a policy compliance "test" and will receive their bonus only if they score 100 percent. (650 words) . . . More
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Managing Director of BDO Venezuela Arrested; Admits Guilt in Conspiracy to Obstruct U.S. SEC Ponzi Scheme Investigation
Monadnock Research - 12 May 2011
MR - The Managing Partner of BDO International's Venezuelan affiliate, Juan Carlos Guillen Zerpa, has pleaded guilty to one count of conspiracy to obstruct an official proceeding of the U.S. Securities and Exchange Commission (SEC). Guillen, now under house detention pending his July sentencing, was Managing Partner of BDO Guillen Martinez and Associates, BDO's Venezuelan audit and advisory services firm at the time of his 3 March arrest. Guillen pled guilty in a U.S. District court in Bridgeport, Conn. on 4 May. The charges relate to an SEC investigation of a ponzi scheme orchestrated by Francisco Illarramendi, who ran Michael Kenwood Asset Management. Guillen admitted to earning a $1 million fee to create a falsified asset verification for $275 million in missing funds. Guillen falsely asserted that the funds were not missing, and had been loaned to Venezuelan businesses. He faces a maximum of 20 years in prison and a fine of up to $2.5 million. (990 words) . . . More
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Rajaratnam Guilty of Securities Fraud and Conspiracy; Wiretaps of Conversations with Former McKinsey Leaders Proves Key
Monadnock Research (Vol IV, No 14) - 11 May 2011
MR - Galleon Management's former CEO, Raj Rajaratnam, has been found guilty on 14 counts of securities fraud and 5 counts of conspiracy. The 54 year-old faces a maximum sentence of 205 years in prison at his 29 July sentencing. Until then, he will be confined to his New York City residence, and was immediately fitted with a monitoring bracelet. Rajaratnam was convicted after an eight-week trial before U.S. District Judge Richard J. Holwell, which included jury complications that required substitution of one juror after more than a week of deliberations. The defense plans to appeal both the verdict and the introduction of U.S. FBI surveillance that included conversations with two high ranking former McKinsey executives, including its former global managing director, Rajat Gupta, and Anil Kumar, one of the firm's highest ranking principals and its first employee ever to be indicted since the firm's 1926 formation. Kumar testified at trial for the prosecution. His testimony proved instrumental in convicting Rajaratnam. Gupta continues to deny allegations against him for allegedly leaking confidential information about Goldman Sachs, and other publicly traded companies. (Research Note includes associated complaints and case materials, 1,270 words) . . . More
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SEC Fines Satyam $10 Million for Fraud; PCAOB and SEC Sanction PwC $7.5 Million for Not Detecting It
Monadnock Research (Vol IV No 12) - 6 Apr 2011
MR - Mahindra Satyam has agreed to pay a $10 million penalty to settle charges with the U.S. Securities and Exchange Commission (SEC) over its predecessor entity, India consultancy and IT service provider Satyam Computer Services, and its fraudulent overstatements of revenue, income, and cash by more than $1 billion over five years. The Public Company Accounting Oversight Board (PCAOB) settled its disciplinary order against five PricewaterhouseCoopers (PwC) affiliated firms based in India, which included a $1.5 million penalty against two of those entities. The PwC entities violated rules and standards in connection with the audit of Satyam. The PCAOB penalty is in addition to the $6 million penalty imposed by the SEC against the PwC affiliates. The sanction is the largest-ever civil penalty issued by the PCAOB, and the largest regulatory penalty imposed by the SEC and PCAOB against any registered foreign accounting firm. Associated investigations have been ongoing since 7 January 2009, when Satyam's Chairman and Founder, Ramalinga Raju, admitted to perpetrating the fraud. Research Note includes 6 SEC and PCAOB orders. (2,500 words) . . . More
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