May 23, 2014
SEC: Accountant Bet Client’s Money at Client’s Casino
"Auditor independence is critical to the integrity of the financial reporting process," but hoo boy is it boring. It's the idea that, if an accounting firm signs off on a company's financial statements, it must keep itself utterly pristine and uncontaminated by any other contact with that company. The specifics are tricky, and, accountants being accountants, they tend to break the rules in stunningly dull ways, such as "providing prohibited non-audit services such as bookkeeping and expert services to affiliates of companies whose books they were auditing." They love accounting so much that they do forbidden bookkeeping!
That's not even the best part; the best part is:1
On December 16, 2009, Adams drew markers, $110,000 of which remained outstanding. On January 13, 2010, D&T removed Adams from the Casino Gaming Issuer 2009 audit engagement, for reasons that were not based on his use of casino markers. Adams subsequently defaulted on the $110,000 of outstanding markers that he drew on December 16, 2009.
It's an enumerated violation of auditor independence to have "Any loan (including any margin loan) to or from an audit client," but never mind that! Adams took $110,000 from his client and never gave it back! (Allegedly! It's a neither-admit-nor-deny sort of settlement.) That seems like some sort of ... I don't know, conflict of interest? Bad idea?
Also, I mean, he retired from Deloitte as a senior partner in May 2010, after 36 years there.2 The fact that he couldn't afford to pay back the $110,000 in gambling debts that he incurred in one day at his client's casino is, in itself, troubling.
I cannot emphasize enough that he was the chief risk officer of Deloitte. Normally you want your chief risk officer to be a boring,anonymous sort who tries to steer clear of risk. If your chief risk officer borrows six-figure sums from clients to bet -- and lose -- on blackjack, and then lies about it and refuses to pay back the money, then ... I don't know. There's no then. That's just amazing. James T. Adams, I salute you. You ended your accounting career in pretty much the most outrageous possible way. You know, for an accountant.
1 The SEC doesn't name the "Casino Gaming Issuer," but it does say that it filed a 10-K on March 9, 2010. A Bloomberg CFS search suggests that it was probably Harrah's (now Caesars).
Incidentally. This is sort of terrible, but I can kind of understand it? I spent some time lightly covering gaming clients and pretty much every meeting occurred at a casino. Adams' role as "advisory partner" on the audit was basically glad-handing the audit committee, not ticking and tying numbers; if you think of him as a relationship guy in the gaming space then it seems natural that he'd spend a lot of time hanging out in casinos and probably playing a few hands or rolls or whatever.
And then maybe losing a bit of money, as one does. And then the next thing you know, etc. etc.
2 So his two-year suspension from practicing public accounting doesn't seem particularly onerous. And the SEC doesn't seem to be fining either him or Deloitte for this violation, or even making him pay the client back.
http://www.thinkadvisor.com/2014/05/23/sec-accountant-bet-clients-money-at-clients-casino?t=risk-management
So you might expect that a senior partner and chief risk officer at Deloitte LLP would find a particularly arcane and nerdy way to violate auditor independence rules but nope nope nope nope nope:
More On Legal & Compliance
from The Advisor's Professional Library- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- The New and Improved Form ADV Whether an RIA is describing its investment strategy in advertisements or in the new Form ADV Part 2, it is important the firm articulates material risks faced by advisory clients and avoids language that might be construed as a guarantee.
That's not even the best part; the best part is:1
On December 16, 2009, Adams drew markers, $110,000 of which remained outstanding. On January 13, 2010, D&T removed Adams from the Casino Gaming Issuer 2009 audit engagement, for reasons that were not based on his use of casino markers. Adams subsequently defaulted on the $110,000 of outstanding markers that he drew on December 16, 2009.
It's an enumerated violation of auditor independence to have "Any loan (including any margin loan) to or from an audit client," but never mind that! Adams took $110,000 from his client and never gave it back! (Allegedly! It's a neither-admit-nor-deny sort of settlement.) That seems like some sort of ... I don't know, conflict of interest? Bad idea?
Also, I mean, he retired from Deloitte as a senior partner in May 2010, after 36 years there.2 The fact that he couldn't afford to pay back the $110,000 in gambling debts that he incurred in one day at his client's casino is, in itself, troubling.
I cannot emphasize enough that he was the chief risk officer of Deloitte. Normally you want your chief risk officer to be a boring,anonymous sort who tries to steer clear of risk. If your chief risk officer borrows six-figure sums from clients to bet -- and lose -- on blackjack, and then lies about it and refuses to pay back the money, then ... I don't know. There's no then. That's just amazing. James T. Adams, I salute you. You ended your accounting career in pretty much the most outrageous possible way. You know, for an accountant.
1 The SEC doesn't name the "Casino Gaming Issuer," but it does say that it filed a 10-K on March 9, 2010. A Bloomberg CFS search suggests that it was probably Harrah's (now Caesars).
Incidentally. This is sort of terrible, but I can kind of understand it? I spent some time lightly covering gaming clients and pretty much every meeting occurred at a casino. Adams' role as "advisory partner" on the audit was basically glad-handing the audit committee, not ticking and tying numbers; if you think of him as a relationship guy in the gaming space then it seems natural that he'd spend a lot of time hanging out in casinos and probably playing a few hands or rolls or whatever.
And then maybe losing a bit of money, as one does. And then the next thing you know, etc. etc.
2 So his two-year suspension from practicing public accounting doesn't seem particularly onerous. And the SEC doesn't seem to be fining either him or Deloitte for this violation, or even making him pay the client back.
http://www.thinkadvisor.com/2014/05/23/sec-accountant-bet-clients-money-at-clients-casino?t=risk-management
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