YNOT – Friendfinder Networks, formerly known as Penthouse Media Group, has filed a lawsuit claiming an accounting firm that prepared financial statements underlying the 2007 merger of adult-industry giants Penthouse and Various Inc. “overlooked” massive European tax debts that stand to cost the company more $50 million dollars.According to court documents filed in Palm Beach County, Fla., in preparation for acquiring Various—operator of a number of adult-themed social networks, among other things—Penthouse employed accounting firm Grant Thompson to outline the assets and liabilities of the target. The acquisition seemed logical to Penthouse, considering it recently had expanded its online presence through the acquisition of Friendfinder’s network of mainstream and alternative matchmaking sites. However, the $500-million Various deal began to look significantly tarnished after completion when Friendfinder-nee-Penthouse discovered Grant Thompson omitted from the financial analysis an $83-million tax debt Various owed the European Union.
The debt dates back to 2003, when the EU imposed a value-added tax (VAT) on electronic services provided to residents of some European countries. Various neglected to pay the encumbrance, accruing a substantial debt that remains unresolved, Friendfinder noted in its complaint. The company calls Grant Thornton’s actions “accounting malpractice.”
According to documents Friendfinder filed with the court, the company has reduced its tax liability to $38 million, partially through a settlement with Various Inc.’s previous owners. However, legal and accounting fees have pushed the damages above $50 million. Even worse, Friendfinder’s planned initial public stock offering has been delayed by the financial snarl.
Grant Thompson calls the allegations scapegoating — an attempt by Friendfinder to explain why the Various acquisition has not performed as Friendfinder hoped.
“Management appears to be inappropriately passing off responsibility for an acquisition that may not have met their expectations,” a Grant Thompson spokesperson told CourthouseNews.com.
In the span of a few short weeks, Grant Thornton has found itself in the crosshairs of more than one former client. A writ filed in Hong Kong accuses the company of vicarious liability in a $10.3-million fraud allegedly perpetrated by former managing partner Gabriel Azedo. Several of the firm’s Asian clients have filed civil claims alleging Azedo embezzled funds he told them to deposit in non-existent trust accounts bearing Grant Thornton’s name. In addition, Grant Thornton is engaged in a very public pissing match with Overstock.com regarding possible accounting irregularities in Overstock’s first-quarter 2009 financial reports. The reports left Overstock, a publicly traded company, at odds with the U.S. Securities and Exchange Commission.
