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BEHIND THE NEWS: A spicy spat is under wraps: Judge seals auditor lawsuit

July 3, 2006

National Wine and Spirits Inc., Indianapolis' eighthlargest private company, in early June sued accounting giant Ernst & Young, charging "fraud and deception." But don't expect to peek into the court file to get the juicy details.

Marion Superior Court Judge S.K. Reid on June 20 granted National Wine's motion to seal the complaint. Court filings suggest the liquor distributor filed the motion at the behest of E&Y-which argued that because the dispute arose out of arbitration, and that process is confidential, the lawsuit should be, too.

But let's not give up too easily. A search of court records shows that, lo and behold, this isn't the first time National Wine has sued Ernst & Young, its former auditor. It also did so in late 2001.

That suit, which isn't under seal, accuses E&Y of negligence and breach of contract. It says the accounting firm employed inexperienced professionals who failed to use proper care. Over a three-year span, according to the suit, E&Y failed to report "fraud and illegal acts" that cost the company $4.1 million.

As you might guess, there's a link between that case and this one. The first suit fizzled in late 2002 when Judge Reid granted E&Y's motion routing the dispute to arbitration.

According to court papers, "events giving rise to [the latest lawsuit occurred] in June 2004 during the course of [that] arbitration."

That's vague, to be sure, but the parties involved aren't elaborating. Charles Perkins, an Ernst & Young spokesman at the company's New York headquarters, said only: "These allegations are totally false, and we will seek sanctions against the company if it decides to proceed with this action." Local attorneys for E&Y declined to comment. Attorneys for National Wine did not return calls.

The loss National Wine blames on E&Y isn't chump change for the 1,700-employee company, which earned $12.5 million on $687 million in revenue in its latest fiscal year. The 2001 suit makes clear National Wine is irked not only by the $4.1 million loss, but also by the fact it forked over nearly $1 million for E&Y's pricey services over a three-year span.

Regulatory filings show National Wine dismissed E&Y in December 2001, and hired Arthur Anderson LLP. Six months later, after Anderson was convicted of a felony charge of obstructing justice for shredding Enron Corp. documents, it fired Anderson and hired Deloitte & Touche.

Adesa auditor says adios

Here's a curious fact: Another big New York-based accounting firm, PricewaterhouseCoopers, is giving up client Adesa Corp., the fast-growing autoauction firm headquartered in Carmel. The publicly traded company, with nearly $1 billion in annual revenue, is the sort of customer accounting firms normally covet.

PricewaterhouseCoopers this spring told Adesa it would step down after it completed the company's 2005 audit, a Securities and Exchange Commission filing shows. The filing provides no reason, and John Quinn, managing partner of the accounting firm's Indianapolis office, declined to comment, saying that as a matter of policy he doesn't discuss client matters.

Adesa spokeswoman Julie Vincent called the departure cordial. She said her understanding is the accounting firm didn't feel it had the staff expertise in Adesa's industry to continue the assignment. Adesa is a unique bird-it's the nation's only stand-alone, publicly traded auto auction firm.

But by giving up the account, PricewaterhouseCoopers is forgoing millions of dollars. Over the past two years, Adesa paid the firm fees topping $5.8 million.

Adesa's new auditor is New Yorkbased KPMG.

Pay falls at Finish Line

Finish Line Inc. has hit some rough times-and top executives are feeling it in their wallets.

The Indianapolis-based company's newly filed proxy statement shows that in the fiscal year ended Feb. 25, CEO Alan Cohen collected salary and bonus of $603,234, down 42 percent from a year earlier.

Also feeling the pain were President Glenn Lyon and Chief Operating Officer Steven Schneider. Lyon's salary and bonus package was $451,221, down 36 percent, and Schneider's was $389,216, off 32 percent.

Shares of Finish Line, for years a high-flier, have slumped 34 percent since the start of 2005. The company recently reported that same-store sales for the quarter ending May 27 slid 7.2 percent.
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