FriendFinder Networks Sues Beleaguered Accounting Firm

BOCA RATON, Fla.—FriendFinder Networks (FFN) has reportedly filed a $50 million lawsuit against its accounting firm, Grant Thornton, alleging accounting malpractice for what it says is the firm’s failure to account for taxes owed the European Union.

“In early 2007, Penthouse Media was contemplating the acquisition of Various Inc., which runs the swingers' Web site,” Courthouse News Service reported Wednesday. “The porn industry giant hired accountants at Grant Thornton to outline the assets and liabilities of Various in a broad-based financial review, according to Friendfinder's complaint in Palm Beach County Court.”

Penthouse bought Various for $500 million in December 2007, but Friendfinder alleges that its huge tax debt wasn't factored into the price. It claims accountants at Grant Thornton neglected to note more than $80 million in online service taxes that Various owed the European Union, and that the tax exposure was nowhere to be found in Grant Thornton's final report.

“In 2003, the EU implemented a blanket value-added tax on foreign online and electronic services that reach end users in certain European countries,” said Courthouse News. “Various didn't pay the taxes and accrued a sizeable debt that never was resolved.”

Marc Bell, CEO and president of FriendFinder Networks, returned a call from AVN with a “polite no comment.”

A Grant Thornton spokesperson replied to an AVN query with the following comment: "We have not been served with a Complaint in this matter.  Management appears to be inappropriately passing off responsibility for an acquisition that may not have met their expectations."

“In its accounting malpractice complaint against Grant Thornton, Friendfinder claims that when the legal expenses are counted, the damage exceeds $50 million,” says Courthouse News. “Friendfinder also says its public stock offering has been delayed by entanglements arising from the debt.”

Even without the FriendFinder lawsuit, this has not been a great week for Grant Thornton. On Monday, CNN International reported on a fraud allegation involving its Hong Kong division.

“Grant Thornton Hong Kong and the accountant's international network face potentially damaging fresh claims regarding their responsibility in an alleged multimillion-dollar fraud committed by a former managing partner in the city,” CNN reported. “According to allegations made in a new writ filed in Hong Kong last Friday, seen by the Financial Times, Grant Thornton HK and Grant Thornton International are "vicariously liable" for a $10.3m fraud allegedly committed by Gabriel Azedo, whose whereabouts are unknown.”

On Wednesday, Silicon Alley Insider reported on yet another feud involving Grant Thornton, this time with former client

“The pissing match between Overstock CEO Patrick Byrne and his former accounting firm continues,” wrote Henry Blodget. ”Last week, in a very unusual move, Byrne announced that he had fired Grant Thornton because the firm had changed its mind about how Overstock should account for a $785,000 payment that boosted the company's bottom line in Q1.” The two companies then exchanged accusations that the other was lying.