By Greg Wright
MBA, CFE, CFP®, CLU, ChFC
Certified Fraud Examiner
Certified Financial Planner™
|William Wendling, Jr.|
The Veros Partners accounting business was quietly sold to Veros insiders by Receiver William E. Wendling, Jr.
Was it sold at a fair price? Did the price represent an open market value? Were the terms in the best interest of its shareholders, investors and clients?
According to court papers, the terms of the sale were based on a Valuation Report[i] Mr. Wendling has provided the public with over a hundred documents and exhibits – except for a written valuation report.
Why won’t he respond to requests for a copy of the written valuation report?
Maybe it is because Mr. Wendling never ordered a written appraisal. According to emails from Judge Poindexter’s staff, a written appraisal was never sent to the court.
You may recall that, in April 2015, the SEC announced charges against Veros Partners, its president and two associates for making “Ponzi scheme payments to investors.”[ii] The courts issued an asset freeze order and appointed Wendling as the Receiver. Fraud Stupid has previously written about Veros.
In July 2015, Veros asked the court to allow it to “enter into two asset sale transactions – one with Trueblaze, LLC and one with MW Banks Consulting.”[iii]
According to the Indiana Secretary of State’s office, Trueblaze was established by Adam Decker on May 27, 2015, and MW Banks was formed on June 5, 2015. Both organizations appears to be owned by Veros insiders. Mr. Decker appears to remain employed by Veros; Amber Banks left Veros on August 15, 2015.
Here are the terms of the sale taken from court papers dated October 5, 2015:[iv]
Trueblaze Offer: $215,000 for: (a) rights to provide business planning and strategy consulting, accounting and finance, individual tax services, business tax planning and compliance, bookkeeping and bill pay services, and start-up planning services to certain Veros consulting clients, including all files and records of those clients; (b) the goodwill of Veros’ business consulting and accounting business, and Veros Dental’s proprietary systems, tools, and trademarks, URL, telephone number, and internal operational manuals, administrative tools, forms, processes and systems and the perpetual right to use each of them; (c) certain office equipment, furniture and fixtures, and computer hardware and software; (d) all rights of Veros under the restrictive covenant agreements entered into between Veros and Veros employees listed on a schedule; and (e) office supplies of Veros used in the business.
MW Banks Offer: $90,000 for: (a) Veros’ client relationships with certain consulting clients and prospective clients, and all documents and information related to those clients; (b) certain office equipment and office supplies; (c) a prepaid Indianapolis District Central Society golf outing sponsorship; and (d) Veros’ relationship and position in the dental South Side Study Club.
Perhaps potentially troubling to Veros clients may be a stipulation that the purchaser has the right to enforce the non-compete agreements between Veros and its former employees. We are approaching year-end tax season and its complexity. The enforcement of non-compete agreements could force hundreds of dentists to find new accountants unfamiliar with their business, dig out old tax files for their new CPAs, and change those sensitive professional relationships.
However, you may recall that after the fall of Anderson in the aftermath of the Enron scandal, many of its accountants went on to continue working with the same clients but at different firms. A former Andersen CPA, Robert Lowe Jr., was later quoted in the New York Times, “I have the same relationships I’ve had for 20-plus years.” Apparently Andersen’s accountants were not curtailed by non-compete agreements.
Shortly after the offers from Trueblaze and MW Banks were published on Wendling’s website and Pacer, on October 26, 2015, the sale was approved.
Was Veros’ accounting business offered to other accounting firms? There is no evidence in Receiver Wendling’s papers that Veros asset selling price represented an open market value. Why not?
Below is a screenshot clipping from Mr. Wendling’s interim report dated Oct. 30, 2015.
Based on a “Google” search of the subject, accounting firms appear to have a ready market. “Great buyer demand….difficult industry to grow organically.”[vi] The Journal of Accountancy article, “How to value a CPA firm for sale.” [vii] may be an appropriate place to start. Another might be the AICPA article on the valuation of Accounting Firms by Eddy Parker, ABV.[viii]
Using rules of thumb in these and other published sources, and based on public knowledge of Veros, one might easily arrive at a much higher amount than was paid by Trueblaze and MW Banks.
I’m not faulting the former Veros employees at Trueblaze and MW Banks for negotiating a good deal for themselves. I am asking Mr. Wendling to explain why a detailed valuation report apparently was never ordered and why Veros’ assets were not apparently offered for sale to others.
[i] Veros Motion to Modify Preliminary injunction to Sell Assets, Page 6, Document 135; http://www.ckplaw.com/wp-content/uploads/2015/05/135_2015-10-05_Order_on_Veros_Motion_to_Modify_Preliminary_Injunction_Sell_Assets.pdf
[i] U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 23246 / April 24, 2015
[i] Veros Motion Doc 135, p. 3
[i] Veros Motion Doc 135, p. 3-4
[i] Receivers 2nd Interim Report, http://www.ckplaw.com/wp-content/uploads/2015/05/143_2015-10-30-Receivers_2nd_Interim_Report.pdf
[i] AICPA article on accounting firm valuations, http://www.aicpa.org/InterestAreas/ForensicAndValuation/Membership/DownloadableDocuments/accounting-firmscpas.pdf
4:00 PM 11/25/2015 comments from William Wendling:
“I am happy to point out a few issues that may help you understand the transaction that you somehow believe is nefarious. First, I am not the Receiver over the entire Veros operations. Specifically, I have some supervisory authority, but I do not have control over there ordinary bookkeeping and tax preparation business, which was the asset being sold. However, when Veros wanted to modify the agreed order relating to a freeze of its assets the SEC object for the reasons stated on it filing with the court. There was a hearing about the modification request before the Judge and after the parties argued their position as to who should get the money resulting from the sale of these assets the court wanted to know about the value. There was a discussion about the value and the court turned to the Receiver and asked me to report back to her if the value offered was fair. So I requested Blue & Company to help me determine whether the price offered was reasonable. Blue & Company reviewed numerous Veros financial documents and interviewed the prospective purchasers etc. I participated in most of those discussions. Keep in mind that at this time Veros was losing clients right and left. They were loosing employees. Yes some had non compete and confidentiality contracts, but under the circumstances there are good legal arguments that could negate those contracts.
So when Blue came up with its analysis it showed that the sales price was most likely much higher than what those assets were worth. So, as requested by the court I filed my response that the price was acceptable. Not because it was close to the low side, but because it was considerably more than the high side. After I filed my response about the value I participated in two conference calls with the court and the parties wherein my findings were discussed. The court and parties were satisfied my statement that the value was acceptable.
One other safe guard that the price was right stems from the fact that the bank perceives these assets as being covered by its lien on Veros assets. So the bank is not interested seeing those assets sold on the cheap since it intends to get the money. My guess is that the bank arrived at the same conclusion that I did. The assets were being sold for more they were worth.
I am not sure why you perceive any of this as being nefarious or devious, but your entitled to your opinion.”
7:16 PM 11/25/2015 clarification comments from William Wendling:
I would change my statement to the extent that the assets were being sold at the high side of their value. I did not mean to say that the were sold higher than the value, although some could argue that they were. Again, the amount paid was considerable as it relates to the condition of the assets at the time of sale. Neither the party buying the asset nor the party receiving the value of the sale, the bank or the SEC, not Veros, took exception to my report to the court that the sale price was in the range of acceptability.
8:27 PM 11/25/2015 -- COMMENTS FROM GREG WRIGHT
Based on the most recent information from Mr. Wendling, my suspicion has been confirmed that a written Valuation Report was never constructed and the Veros Partners asset sale price did not represent an "open market value."