Prof. Ronald Colombo Discusses Groupon’s Restatement

Ronald J. Colombo, Associate Dean for Academic Affairs and Professor of Law


The SEC will likely look into Groupon’s restate financials, perhaps leading to another stock drop, Fickes said. And the company’s auditors at Ernst & Young LLP will likely also find themselves in the hot seat. The auditors uncovered the latest accounting error, saying the company had a “material weakness in its internal controls.”

“In these situations, a lot of the blame rests with the auditors — unless Groupon is playing hiding the ball with its numbers, which I don’t think it is,” said Ronald J. Colombo, a professor at Hofstra Law School. “When you’re talking about such new companies with unusual business models, there’s no way auditors should be giving some of these companies a clean bill of health.”

Groupon’s troubles have not been limited to questionable accounting. It also took flak shortly after filing for its IPO on June 2 when it appeared to be mocking SEC rules governing the so-called quiet period, which bars company insiders and others from publicly offering the company’s stock other than through a written prospectus provided to the agency. The company posted a “guide” to the quiet period on its blog.

“During this sensitive time, it is the duty of the press to force the adolescent company through a series of brutal hazing rituals, designed to desensitize it to public criticism,” the blog post said. “This tough love helps the naively optimistic company to thicken its skin, atrophy its soul and finally grow up into a real corporation.”

The mistakes by Groupon should serve as a warning to other companies poised to go public, said Colombo and others. They need to avoid irking their regulators and make sure internal controls and accounting techniques will stand up to the increased scrutiny that follows an IPO. 

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