By Greg Wright
MBA, CFE, CFP®, CLU, ChFC
Certified Fraud Examiner
Certified Financial Planner™
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| 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.
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| (screenshot) |
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
[i] http://www.aicpa.org/InterestAreas/ForensicAndValuation/Membership/DownloadableDocuments/accounting-firmscpas.pdf
UPDATE:
UPDATE:
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.”
UPDATE:
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.
UPDATE:
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."
