And Now There Is Fire

Back in November of 2014 I published a blog about an issue Barrett Business Systems seemingly had titled “I See Smoke On Mount BBSI”. Well it smoldered for a good while and now there is fire.

BBSI has been informed by staff at the San Francisco office of the Division of Enforcement of the Securities and Exchange Commission (“SEC”) that it has obtained a Formal Order of Investigation in connection with its review of the Company’s accounting practices with regard to its workers’ compensation reserves. The Company is cooperating fully with the SEC staff in providing the requested information.

The Seattle Times reported today that after a lengthy investigation by independent accounting firm Moss Adams has indicated “that an illegal act has or may have occurred”. BBSI flinched first last Wednesday by firing James D. Miller the Chief Financial Officer and Vice President of Finance, causing BBSI stock to drop 33% last Thursday. They also stated that their financial statements since 2012 “Should not be relied upon”. Elsewhere in its regulatory filings Barrett says $85 million in 2014 worker’s comp expenses was misclassified from the second quarter to the third; $3 million in payroll taxes need to be shifted from 2014 to 2013 due to an error resulting from a change in software; and so on.

Nasdaq in January gave Barrett an extension until April 26th to file its overdue Sept. 30 and year-end financial statements, but there is rumblings that they will not be able to meet that deadline. This would trigger Nasdaq to begin the delisting process. Needless to say, all of this has started a mad rush by law firms and investors to begin litigation for stock manipulation, not to mention this may effect reserve levels of their workers compensation program, an item that has been under scrutiny for some time.

Break out the marshmallows.