Thursday, November 20, 2008

I'll See You in Court

Finance-related lawsuits are booming, and criminal charges stemming from the housing and banking sector cataclysms may be coming down the pike. For some accountants, that's good news.

Litigation support has long been a recognized accounting niche. Now, corporations and financial institutions defending against private lawsuits, regulatory probes and indictments will have to ramp up their use of auditors and consultants with sophisitcated accounting skills.

Valuation work is a hot niche already, according to a recent JobsintheMoney story that cites RSM McGladrey and the New York search firm Careers on the Move. It looks to heat up still further, driven not only by litigation, but by tougher regulatory scrutiny and the heightened importance of fair-value accounting.

A potential lawsuit milestone came in October when Bank of America agreed to an $8 billion-plus collective settlement of homeowners' claims against Countrywide, the California-based mortgage lender that B of A acquired earlier in the year. That settlement, which investors in Countrywide mortgage securities also signed off on, provides for modifying the financial terms of potentially hundreds of thousands of individual mortgage loans.

That broad-based settlement "could set the stage for a deluge" of mortgage suits, wrote Andrew Jeffery on the Minyanville blog. The likeliest targets, he says, are two big banks whose subsidiaries wrote the most "option ARMs," a particularly toxic type of mortgage loan. They are JPMorgan Chase (current parent of Washington Mutual and Bear Stearns) and Wells Fargo (which bought Wachovia).

While suits over everything from predatory lending practices to balance-sheet writedowns will clearly propel demand for CPAs with specialized skills, related criminal cases against corporations and individuals will require accountants too – on both sides of the aisle.

The FBI is probing possible fraud related to sub-prime and other securities at 26 firms and the SEC has 50 open investigations, Bloomberg News reported last month. At least 12 former Lehman Brothers executives including Chief Executive Richard Fuld and CFO Erin Callan reportedly have received grand jury subpoenas. According to Bloomberg,

In the Lehman probes, investigators subpoenaed Ernst & Young LLP, Lehman's auditor; U.K.-based bank Barclays Plc, which bought its North American brokerage; and the New Jersey Division of Investments, which runs a pension fund that lost $115.6 million on a $180 million investment in Lehman's $6 billion stock sale in June, according to people familiar with the case.

Also subpoenaed were Putnam Investments LLC, the Boston- based mutual fund firm that oversees about $163 billion and bought Lehman bonds and shares; New York-based fund manager BlackRock Inc., a Lehman creditor; AIG; and New York-based C.V. Starr & Co., run by ex-AIG CEO Maurice Greenberg, according to the people familiar with the probes.

No comments: