Another Explosive BDO Lawsuit Counterclaim Accuses the Firm of Inflating Revenue, ESOP
Tomfoolery
TLDR ChatGPT summary: BDO USA filed a lawsuit accusing a former leader, Phuoc Vin Phan, of leaving to join Ankura Consulting and taking BDO team members and confidential information with him. BDO claims this was part of an Ankura plan to poach its Healthcare TAS practice. Phan denies the allegations, stating BDO’s workplace environment pushed him and others to leave, and counters that BDO fostered a culture of secrecy and intimidation. His counterclaim also alleges that BDO misled partners during an ESOP transaction, pressured employees to inflate revenue, and withheld owed funds. The case sheds light on broader dissatisfaction and leadership issues at BDO.
Let’s preface this entire article by saying both the original BDO lawsuit and the counterclaim embedded below are allegations at this point in time.
In March, we reported on BDO USA suing its former healthcare transaction advisory team national practice leader after said former leader Phuoc Vin Phan dipped out to go work for Ankura Consulting and allegedly sniped several of his team members on the way out. BDO’s lawsuit alleged that Ankura “set its sights on stealing the BDO Healthcare TAS practice rather than building a practice of its own from the ground up” and that it would use Phan to accomplish that goal.
Here’s a quick excerpt from BDO’s lawsuit:
As part of this scheme, while still a partner of BDO, Phan solicited at least seven of the 11 full-time employees in the Healthcare TAS practice—all of whom reported directly to him—to leave their employment with BDO and join Ankura. His conduct violated his fiduciary duty to BDO as well as the plain terms of his former partnership and employment agreements with BDO. These were all duties and commitments Ankura knew about.
Phan’s egregious misconduct did not end there. On his way out the door from BDO to Ankura, he stole or attempted to steal voluminous quantities of BDO’s confidential information and trade secrets as well as the confidential information of multiple BDO clients, with the goal of taking all of that information to Ankura and using it in his new job for the benefit of Ankura.
Three of the employees Phan solicited to leave BDO and join Ankura also stole or attempted to steal BDO’s confidential information and trade secrets and that of its clients and to take that information for Ankura. Two of them, Thomas Bradey (“Bradey”) and Mitchell Thomas (“Thomas”), were successful in their theft. They transferred substantial quantities of BDO’s confidential information and trade secrets to Ankura for Ankura’s financial gain.
All remain employed by Ankura today. Ankura, with Phan’s assistance, has stolen BDO’s Healthcare TAS practice. BDO now seeks a verdict that will require Ankura and Phan to pay for what they have stolen and to compensate BDO for the collateral harm their tortious conduct has caused.
That lawsuit filed in the United States District Court for the Eastern District of Virginia is embedded here if you want to give it a read: BDO Lawsuit Alleges a Defector Took the Team With Him When He Jumped Ship to Another Firm
Phan has now had a chance to respond officially and just like a different but similar lawsuit in which BDO sued a former partner who is now leading the National Private Equity & Asset Management Tax Practice at Armanino, he’s dropped some explosive claims against his former firm.
To refresh, these were the accusations levied by the former partner and Armanino defector Caleb Crandell in his counterclaim filed in the same court but different lawsuit in April:
BDO refused to repay Crandell his capital of $151k but reported the proceeds in his income tax form
BDO leadership made false and misleading statements to get the ESOP vote to pass
BDO misled the partnership that there was no private equity transaction
BDO delayed partner retirements and reactivated retired partners to garner sufficient votes
BDO didn’t allow partners sufficient time to sign new employment agreements
BDO forced Crandell to inflate revenue to prop up the firm’s valuation ahead of an ESOP deal that was only announced to the partnership a week ahead of any voting in Orlando
BDO refused to promote high performing directors, prompting them to look elsewhere
Now let’s see what Phan had to say in his counterclaim. Big thanks to the tipster who slipped us this.
Firstly, Phan denies most of BDO’s allegations other than the basic ones that relate to his employment as Healthcare Transaction Advisory Services National Practice Leader and that members of his former team do in fact work at Ankura. The counterclaim also says that many of BDO’s allegations do not relate or pertain to Phan, therefore no response is required. This goes on for 40 pages, we don’t need to go through it all.
Let’s get to the juicy bits. The preliminary statement of Phan’s counterclaim says:
BDO’s lawsuit against Phan is only the latest in a series of lawsuits brought by BDO against former employees who dared to exercise their right to leave the hostile and distrustful work environment at BDO and seek employment elsewhere. Indeed, many partners have been unexpectedly terminated or left without explanation, contributing to many other partners and employees leaving BDO for more stable and favorable employment. Rather than attempt to retain employees by working to improve its deteriorating and hostile culture – characterized by well-placed distrust over management’s intentions and the direction of the firm – BDO’s only retention strategy appears to be comprised entirely of intimidation and litigation. By filing this lawsuit, BDO now seeks to falsely represent itself as a victim, when it is anything but. By this counterclaim, Phan seeks to hold BDO to account for its false promises and improper conduct.
After enduring years of unfulfilled promises and a culture that was increasingly hostile towards its own employees, Phan decided to explore alternative employment options at other professional services firms – he interviewed with no fewer than three firms, including Ankura. Despite the fact that exploring better employment opportunities is something employees across the country do every day, and something that Phan was permitted to do under the terms of his employment agreement, BDO’s response was to threaten, punish and seek vengeance.
As part of its vendetta against Phan for having the temerity to seek employment elsewhere, BDO also seeks to punish Phan for other employees who likewise exercised their right to leave the BDO TAS practice. In its lawsuit, BDO insinuates that Phan and the other employees that left were outliers, and that but-for some kind of malfeasance they could not possibly have decided to leave BDO. This narrative is completely divorced from reality. The truth is that BDO, through its managing partner and a small circle of confidants, carefully fostered a culture of secrecy, fear, deceit, and retaliation over a period of years. They deliberately created a workplace environment where lawsuits like this one were broadcast to the firm during periodic partner calls as an unsubtle warning to those who might seek to leave – do so at your peril knowing that BDO will come after you. There is no mystery why Phan, and so many of his colleagues, decided to leave.
Indeed, around the time that Phan decided to look for other opportunities, there were several high-level departures among key employees at BDO, including the heads of BDO’s other major practice groups: Stephanie Giammarco (Head of Advisory Practice), Tony Alfonso (Head of Valuation) and Timothy Mohr (Head of Forensics Practice). Other partner departures followed as well.
Relevant article published here on October 28, 2022: Some High Level Folks Have Abruptly Left BDO and No One Seems to Know Why (UPDATE) — this article is referenced in Phan’s counterclaim (“The anxiety surrounding the leadership turmoil at BDO was not contained within its walls – there was rank speculation within the industry about what was happening (or not
happening) at BDO.”)
In early June 2023, the BDO partners received a calendar invite for a partnership call. During this call, Berson presented a plan to convert the legal structure of the firm from a partnership to a professional services corporation. Under this plan, the partnership would convert from BDO USA, LLP to BDO USA, P.A. Berson expressed that this was solely a tax mitigation strategy.
On that same call, several partners asked whether this plan had to do with a private equity or other kind of transaction. BDO leadership said the conversion was purely for purposes of reducing partner income taxes and that there was no private equity or any related transaction on the table, further misleading Phan and the partnership.
As part of the conversion, many partners expressed concern about changing their titles from “Partner” to “Principal.” Leadership informed the partnership that they could keep the “Partner” titles. This later proved to be another falsehood, as once the conversion occurred on or about July 1, 2023, the former partnership was told they were required to refer to themselves as “Principals” only.
BDO’s most recent “partner promotion” press release from October 1 contains 60 people promoted to principal and zero partners.
But here’s the most explosive allegation. Phan claims that in the months leading up to the ESOP transaction, “he was pressured to inflate revenue to increase the firm’s valuation for the transaction by manipulating and/or misattributing client ‘Credits.'”
Credits are either prepayments (e.g., retainer amounts) or amounts paid more than the actual worked performed that either must be refunded to the client or applied against future work. Phan was improperly pressured to recognize Credits as revenue to artificially boost revenue numbers. This is particularly troubling given that BDO serves as the independent auditor of many public and private companies.
On or about August 3, 2023, BDO held a partnership call where leadership presented the ESOP transaction, whereby the partners would sell 42% of firm equity to an ESOP.
On the call, Berson explained that the valuation of the firm for the ESOP deal was based on trailing twelve-months performance and a “very conservative” growth projection. However, given the nature and methods of historical organic growth of the firm, there were legitimate questions about the basis and validity of the projections. Those questions went unanswered.
It’s worth noting here that BDO has not issued a press release announcing revenue this year. The last revenue press release the firm put out was in July 2023. The ESOP was announced in August of that year.
Only Berson and BDO’s Board of Directors, all of whom stood to significantly benefit personally from the ESOP transaction, had input into the projections and assumptions that drove the valuation for the ESOP transaction.
On the same August 3rd partnership call, Berson informed the partnership that there would be a meeting in Orlando, Florida the week of August 9, 2023, to vote on the ESOP transaction, giving the partners only one week to evaluate the personal and professional implications of the transaction.
At the Orlando meeting, despite prior representations that private equity was not involved, representatives from the involved investment bank and private equity lender thanked Berson personally for partnering with them over the last 15 months to complete the transaction.
Upon information and belief, BDO had misrepresented to their partnership the purpose of the ESOP transaction and corporate conversion. Over the span of two years, Berson and BDO leadership covertly hatched a scheme to enrich themselves at the expense of their partners and employees by mortgaging the future of the firm for their sole personal benefit. Upon information and belief, Berson personally collected many tens of millions of dollars from the transaction.
The counterclaim once again cites Going Concern here. A partner we spoke to at length just before the transaction was announced — who insisted on anonymity due to fear of retribution from the firm — told us Wayne Berson stood to make $25-30 million from this deal though as far as we know the official numbers have never been disclosed externally.
Financial Times
published this story on August 13: “
BDO partners in line for windfall after $1.3bn debt deal with Apollo Global Management
.”
Like Crandell, Phan claims BDO owes him money. “Following BDO’s conversion from a partnership to a corporation, Phan entered a promissory note with BDO dated July 1, 2023,” says the counterclaim. “To date, BDO owes Phan $39,997 pursuant to the Promissory Note. BDO has refused to pay Phan the $39,997 owed under the Promissory Note.” He also says BDO owes him $8,127.77 in expenses reimbursement, expenses BDO says are improper.
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