Liberty Tax, Inc. (NASDAQ:TAX) – KPMG LLP Resigns as Independent Accounting Firm
Kehoe Law Firm, P.C. is investigating whether Liberty Tax and certain of its officers or directors engaged in securities fraud or other unlawful business practices.
On December 11, 2017, Liberty Tax, Inc. issued a press release disclosing that KPMG LLP resigned as the independent registered public accounting firm of Liberty Tax and that Liberty Tax will delay the filing of its Quarterly Report on Form 10-Q for the quarter ended October 31, 2017.
According to Liberty Tax’s Form 8-K, dated December 11, 2017 (Liberty Tax_Form 8-K):
KPMG expressed to the Audit Committee and [Liberty Tax] management its concern that the actions of former Chief Executive Officer John T. Hewitt . . . have created an inappropriate tone at the top which leads to ineffective entity level controls over the organization. Prior to the termination of Mr. Hewitt’s employment as Chief Executive Officer of the Company on September 5, 2017, the Audit Committee oversaw an investigation of allegations of misconduct by Mr. Hewitt. In particular, KPMG noted that Mr. Hewitt took actions to replace two independent members of the Board around the time information relating to this investigation appeared in media reports. KPMG also noted that following the replacement by Mr. Hewitt of two Class B directors, the chair of the Audit Committee retired from the Board, the Company’s Chief Financial Officer announced her intention to resign from the Company, and another independent member of the Board announced that he would not stand for reelection at the Company’s next annual meeting. Further, KPMG was made aware that following his termination as Chief Executive Officer, Mr. Hewitt may have continued to interact with franchisees and area developers of the Company. Although Mr. Hewitt stated to KPMG during a meeting on November 9, 2017 that he would not reinsert himself into the management of the Company, in light of Mr. Hewitt’s actions and his ability to control the Board as the sole holder of the Class B common stock, KPMG informed the Audit Committee and management that it has concerns regarding the Company’s internal control over financial reporting as related to integrity and tone at the top and such matters should be evaluated as potential material weaknesses. [Emphasis Added]
Specifically, KPMG informed the Audit Committee and management that Mr. Hewitt’s past and continued involvement in the Company’s business and operations, including his continued interactions with franchisees and area developers of the Company, has led it to no longer be able to rely on management’s representations, and therefore has caused KPMG to be unwilling to be associated with the Company’s consolidated financial statements. In notifying the Company of its resignation, KPMG advised the Audit Committee and management that it is not aware of any information that cause it to question the integrity of current management, but rather that the structural arrangement by which Mr. Hewitt controls the Company is the cause of KPMG’s concerns. KPMG also noted that because certain information known to the Board regarding the reasons that the Board terminated Mr. Hewitt as Chief Executive Officer had not been disclosed to the current Chief Executive Officer and Chief Financial Officer, KPMG was uncertain as to whether it could continue to rely on management’s representations. [Emphasis Added]
On this news, the share price of Liberty Tax fell sharply during intraday trading on December 11, 2017.
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Kehoe Law Firm, P.C. is a multidisciplinary, plaintiff–side law firm dedicated to protecting investors and consumers from corporate fraud, negligence, and other wrongdoing. Driven by a strong and principled sense of social responsibility and obtaining justice for the aggrieved, Kehoe Law Firm, P.C. represents plaintiffs seeking to recover investment losses resulting from securities fraud, breaches of fiduciary duty, corporate wrongdoing or malfeasance, those harmed by anticompetitive practices, and consumers victimized by fraud, false claims, deception or data breaches. Together, the partners of Kehoe Law Firm, P.C. have spent more than 30 years prosecuting precedent-setting securities and financial fraud cases in federal and state courts on behalf of institutional and individual clients.