MuniMae fires auditor after accounting woes


October 27, 2006|By Laura Smitherman | Laura Smitherman,Sun reporter

Municipal Mortgage & Equity LLC, the Baltimore company better known as MuniMae, said yesterday that it had dismissed Pricewater- houseCoopers LLP as its independent auditor, one month after the company revealed for the second time this year that it would be restating several years of earnings.

Michael L. Falcone, MuniMae's chief executive, said accounting errors resulted from work done with Pricewaterhouse. The audit firm reversed some of the company's accounting decisions that turned out to be correct. The accounting snafus have caused MuniMae to delay financial reporting until next year.

"We are all human. We have certainly been responsible for mistakes here, and PwC has been part of the team that has made some mistakes," Falcone said in an interview. "And we think it's time to move forward and get some fresh perspective. That's why we made this change. We don't want a third restatement."

MuniMae has overhauled its accounting department in recent years after management determined that its staff didn't have the necessary knowledge and experience. It also found that its accounting policies weren't clear.

The company doubled its accounting staff two years ago, and last year began beefing up the ranks of its senior accounting executives.

In recent months, MuniMae has begun a comprehensive review of its accounting across business segments and hired consultants to help. The company has hired KPMG LLP to replace Pricewaterhouse.

Pricewaterhouse spokeswoman Maggie O'Donovan-Bolton declined to comment, saying, "As a matter of policy we don't discuss the work we do for clients."

The problems with financial reporting arose as MuniMae's business grew in size and complexity. The real estate financier recently acquired a West Coast company that arranges financing for clean-energy projects. It now has more than $17 billion in assets under management.

MuniMae restated earnings in March, which resulted in a $23 million increase in earnings over several years. Last month, the company said it would again restate earnings from 2003 through the first quarter of this year.

Officials expect to file second- and third-quarter 2006 financial statements in March 2007, along with its fourth-quarter and annual reports.

MuniMae revealed this month an unrelated mistake over disclosure of the board's outside directors meeting without management.

Such meetings are designed to empower independent directors to be an effective check on management. The sessions are required under New York Stock Exchange rules and must be disclosed, along with the name of the person who chairs the sessions. MuniMae followed the rule but didn't disclose that it had.

Falcone said the accounting troubles are "not a matter of counting the cash," but rather about interpreting highly technical accounting rules. Falcone said the company's performance this year has been "strong" and that he expects to meet performance objectives.

The company also announced a 4 percent increase in its quarterly distribution, to 50.75 cents, payable Nov. 14 to shareholders Nov. 1.

MuniMae's shares, which have gained 15 percent in the past year, rose 12 cents yesterday to close at $28.45.

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