Higher Ed | Daily Report

Flickr photo by Chris Radcliff

A judge has denied a motion to dismiss a shareholders' lawsuit against a consulting company that has been hired by UCLA for several projects.

California Watch reported earlier this year that UCLA was paying Chicago-based Huron Consulting Group up to $240,000 to work with a university task force that aims to better deal with current and future budget deficits by adopting a restructuring plan. 

The university hired Huron despite the company's involvement in an accounting scandal. Huron revealed in an August 2009 filing that the Securities and Exchange Commission was investigating the consulting group because of accounting errors that forced Huron to restate its earnings for 2006, 2007, 2008 and the first quarter of 2009. The filing also said the company was facing six shareholder class-action complaints in relation to the restatement of earnings.

In response to one of those lawsuits, Huron had argued that the alleged improper accounting was nothing more than an innocent mistake in the application of complicated accounting rules.

But U.S. District Judge Elaine E. Bucklo called that argument misplaced in an opinion last week.

"To begin with, if anyone could have understood the requirements under GAAP (Generally Accepted Accounting Principles) for treating acquisition-related expenses as goodwill, it was defendants," Bucklo wrote.

"The inference that these extremely sophisticated accounting and financial professionals identified an accounting 'loophole,' which they knew to be improper, but believed could be papered over with side agreements, is at least as compelling as the inference that they innocently failed to appreciate that their accounting was inconsistent with GAAP."

According to a July 2009 SEC filing, the selling shareholders of the acquired businesses had an agreement among themselves to reallocate some of their payments to Huron employees – resulting in an overstatement of earnings to the tune of $57 million.

Huron has worked with UCLA on several previous projects, including an assessment of UCLA’s research administration infrastructure. 

UCLA spokesman Phil Hampton said the university had looked into the allegations of accounting improprieties at Huron before contracting with the company this year. The unit that was involved in the scandal is separate from the higher education unit that UCLA deals with, he said.

While Huron's headquarters sits 2,000 miles northeast of UCLA, the company's managing director, John R. Curry, has ties to the southern California campus. Curry served as UCLA's administrative vice chancellor and chief financial officer from 1993 to 1995, according to Huron's website.

Hampton said there has been no contact between Curry and university officials regarding the awarding and execution of this contract, which was not competitively bid.

"Huron was selected based on the strength of their performance under previous contracts with the university and their experience with higher education," Hampton said. "We're confident that appropriate processes were followed in letting the contract."