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MF Global Not Amused By PwC’s Threats for a Mistrial

Posted on by Caleb Newquist
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Yesterday, PwC asked the judge in its court battle with MF Global to prohibit the use of a “new theory of causation” or to declare a mistrial.

PwC filed the motion at midnight on Monday, so you can’t blame the plaintiffs if they felt caught off guard. Dan Fetterman, the lead attorney for the plaintiffs called it “a desperate motion you make when you’re losing.”

Today, the plaintiffs filed their response to the motion and it carries a very “Why didn’t you speak up, bro?” attitude.

From the introduction:

pwc-mf-global-trial-plaintiffs-new-causation

I’m no lawyer, but while I was reading PwC’s motion yesterday, it did occur to me that their timing seemed a little odd. Why didn’t they bark objections when MF Global lawyers were talking about the “new theory”?

MF Global’s attorneys believe it’s because PwC doesn’t like how things are going:

pwc-mf-global-trial-plaintiffs-new-causation-theory-2

The response goes on (seemingly exasperated) to spell out the details; the whole thing is linked below. At times, it’s a pretty entertaining read.

In the Reuters report from yesterday, Judge Victor Marrero called this “a complicated subject” which suggests that maybe it’s not as simple as MF Global makes it out to be. Stay tuned.

[Plaintiff Opp to Defendant Misc Motion]

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PwC Had Enough with Old Republic’s Sketchy Accounting

Accounting firms take a lot of grief for bending over backwards for their clients. They’re in the client service business after all and keeping them as happy as possible is priority numero uno (despite what you might hear). Considering this factoid, when an accounting firm decides to cut a client loose for a “disagreement” over an accounting practice, we feel that’s a pretty good reason for any future accounting firm to think long and hard before taking on said client (case in point: KPMG taking the Overstock.com audit).


PricewaterhouseCoopers notified Old Republic International Corp. on March 19th that they would be “declining to stand for re-election as Old Republic’s independent registered public accounting firm for 2010.” That’s nice SEC filing language for “We’re so grossed out by you that we refuse to audit you any more.”

The two firms disagreed about the accounting treatment of “certain mortgage guaranty reinsurance commutation transactions with captive reinsurers owned by lending institutions.” That description alone makes us nauseous. The gist from Old Republic’s 8-K filing:

Old Republic had concluded that, in accordance with traditional reinsurance accounting practices, funds received ($82.5 million) in excess of amounts owed to it by the captive reinsurers should be deferred and recognized in the income statements of the future periods during which the related claim costs were expected to occur. PwC believed that generally accepted accounting principles (“GAAP”) required that the $82.5 million be recognized immediately as income from a contract termination.

So you have “traditional accounting practices” versus almighty GAAP. The tradish accounting wasn’t good enough for PwC, so they brought the probelme to the attention of the audit committee. The AC ultimately decided…wait…that management was correct. Shocked? Us too. The disagreement was brought to light back in November and in a press release when the company said that the transactions in question “which resulted in little consequential effect on the pretax loss.”

Apparently PwC wouldn’t let it go and the Company called in the SEC to get their $0.02 on the matter. Lo and behold, the Commission sided with PwC. After a lot profanity-laced belly aching (that’s what we imagine, anyway) and sleepless nights for both OR’s accounting department and the PwC audit team (that’s not debatable), Old Republic filed the delayed 10-Q last month with restated financial statements.

After what was surely 5 or so months of pure hell, PwC figured that this was an awkward enough situation that a break up was warranted. This was probably the perfect opportunity for PwC to get out of this engagement. They figured Old Republic wasn’t going to change their less-than GAAP-y ways, the audit committee is obviously no help, and God knows you don’t want to get the SEC involved every single time there’s a disagreement. If you were to ask us, its seems like a pretty logical reaction.

Now the only question is, which audit firm picks up Old Republic? PwC will certainly have some interesting things to share with the firm that decides they’re up for this particular headache.

PricewaterhouseCoopers drops Old Republic [Chicago Breaking News/CT]
8-K [SEC.gov]

KPMG Recruiter Tries to Convince Some of PwC Advisory to Jump Ship

~ Post has been updated after initial publication, see below.

On Tuesday, we told that you KPMG was using the power of the Google search to try and woo anyone casually interested in “ey careers.” While this use of technological slight of hand by the firm is impressive, today comes word that at least one experienced recruiter within the House of Klynveld is taking a more direct approach:

Well it’s apparent that KPMG – or one of the initials – is desperate for advisory help. I know a ton of PWC peeps who received an email from this nuanced internal recruiter. This guy is spamming all of my colleagues.


From the sounds of it, our source is a little put off by this blatant attempt but for anyone looking for a new gig in the Chicago area, you may want to look this guy up:

FW: It is a great time to consider KPMG Advisory!!!

Hi [annoyed PwC advisory professional],
Your profile came up during our research efforts.

We are actively searching for top talent with Big 4 experience to join KPMG Advisory. In October 2009 we implemented a new structure for US Advisory to help us to better serve our client base and to drive more growth. We have been extremely successful with both of these goals and have a wide variety of opportunities across all of our Advisory Service Groups. I would love to speak with you about these opportunities and how they would be beneficial to you and align with your career goals.

Please let me know when you would have time for an initial conversation.

Finally, make your New Year a great one with a career at KPMG!

Best Regards,
Mike Madura
National Manager – KPMG Advisory Recruiting Research
Office: 312.665.3628
eFax: 312.896.9325
email: mmadura@kpmg.com

Our source also isn’t sure why a restructuring from October 2009 is being used as a selling point but then again, maybe it’s part of the reason KPMG had the highest growth in revenue last year? Feel free to discuss.

UPDATE: This just in, “I work in PwC’s Boston office in tax and many of my colleagues received this email today. Looks like KPMG is after tax too, not just advisory. Thought I would pass it along as a follow up to your earlier post.”

[annoyed PwC tax professional],
Your profile came up during our research efforts.

We are actively searching for top talent with Big 4 experience to join the KPMG Tax Practice.

We are currently experiencing rapid areas of growth across the United States in our Federal, International and State and Local tax divisions.

We are also looking for qualified individuals in our specialty and industry specific practices in M&A Tax, Valuations Services, Financial Services /Alternative Investment Management and Tax Controversy. With so much anticipated growth we can offer faster upward career mobility than what you are currently getting.

I would love to speak with you about these opportunities and how they would be beneficial to you.

KPMG is poised to significantly increase our revenue over the next few years, and we’d like to discuss how you, or someone you know, might align with our strategy!

Please let me know when you would have time for an initial 20 – 30 minute conversation.

Make your New Year a better tomorrow with a career at KPMG.