In the Matter of Huron Consulting Group, Inc., Gary L. Burge, CPA, and Wayne E. Lipski, CPA, Admin. Proc. No. 3-14958. On July 19, 2012, the SEC issued an administrative order finding that Huron Consulting Group Inc., a provider of financial and operational consulting services, and Burge and Lipski committed accounting violations that overstated the company’s income for several years. Huron, Burge – Huron’s former CFO and Treasurer, and Lipski – Huron’s former Controller and Chief Accounting Officer, failed to properly record compensation expense for redistributions of sales proceeds by the selling shareholders of four companies that Huron acquired. Due to the improper accounting, Huron’s financial statements for 2006 through 2008 and the first quarter of 2009 were materially misstated. Huron also failed to maintain effective internal controls to ensure the appropriate recording and reporting of those redistributions. From May 2005 through July 2008, Huron acquired ten consulting firms. The selling shareholders of some of the acquired firms received acquisition sales proceeds from Huron and subsequently redistributed a portion of them to other Huron employees and among themselves (“Redistributions”). Contrary to Generally Accepted Accounting Principles, Huron did not record compensation expense for these payments. According to Statement of Financial Accounting Standards No. 123R, Share-Based Payment, paragraph 11, for each of these Redistributions, Huron should have recorded compensation expense because the Redistributions were (1) contingent on the employees’ continued employment with Huron, (2) based on the achievement of personal performance measures, or (3) were not “clearly for a purpose other than compensation.” Because Huron failed to properly account for the Redistributions, Huron filed periodic reports with the Commission that overstated its pre-tax income by 3.70% for 2005, 6.09% for 2006, 30.45% for 2007, 68.59% for 2008, and 25.29% for the first quarter of 2009. In August 2009, Huron restated its financial statements for fiscal years 2006, 2007 and 2008 and the first quarter of 2009, reducing its net income by approximately $56 million.
The SEC’s order finds that Huron violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. The order finds that Burge and Lipski caused Huron’s violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13, and that they violated Rule 13b2-1.
In agreeing to settle the charges without admitting or denying the SEC’s findings, Huron consented to the SEC’s order imposing a $1 million penalty and requiring the company to cease and desist from committing or causing any violations or any future violations of the books and records and internal control provisions of the Exchange Act. Burge and Lipski, without admitting or denying the SEC’s findings, also consented to the order, which requires Burge to pay disgorgement of $147,763.12, prejudgment interest of $30,338.46, and a penalty of $50,000, and requires Lipski to pay disgorgement of $12,750, prejudgment interest of $3,584.94, and a penalty of $50,000. The order also requires Burge and Lipski to cease and desist from committing or causing any violations and any future violations of the books and records and internal control provisions of the Exchange Act.