DALLAS - Eighteen former Ernst & Young LLP arbitrage professionals will open the doors Monday to their new firm, Pinnacle Arbitrage Compliance LLC, which, in addition to its Dallas headquarters, will have offices in Phoenix and Memphis.
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Pinnacle will provide services such as arbitrage rebate calculations, yield restriction analyses, spending exception testing, cash flow analyses, variable-rate bond yield optimization calculations, and refund request filings.
The new firm, billed as one of the largest independent providers of arbitrage compliance services in the nation, is being founded on the heels Ernst & Young's decision to exit the service line effective today.
"It makes more sense for us to move forward as an independent company," said Terence Burke, Pinnacle's president and chief executive officer. "The internal costs that the Sarbanes-Oxley Act added to public accounting are quite high, and all of that cost trickles down to the services we offer. Since the clients we serve are primarily governmental agencies and 501(c)3s, the right solution appeared to be to break ties."
Burke said Sarbanes-Oxley requires public accounting firms to document independence throughout an accounting process, adding "tremendous" cost.
"We eliminate a lot of that overhead by being independent," he aid. "This really was an overhead issue."
Although Burke left Ernst & Young Oct. 31 to set up the new firm, the remainder of the team will wrap up at the accounting giant tomorrow.
"I left early to get our clients to come over to the new firm," Burke said. "So far, the clients I have contacted have been very positive -- they say that they know our people and they know our years of experience. They're not afraid at all of losing the big firm name."
Burke said he believes the company will benefit from the Pinnacle team's years of experience. He is a 22-year veteran in the arbitrage compliance field, most recently as the head of Ernst & Young's arbitrage compliance services group.
Previously, Burke developed the arbitrage rebate compliance services and local government investment pool services for First Southwest Co. during his 13 years with that firm, where he served as the president of its investment advisory subsidiary.
In 2001, Burke was appointed by U.S. Treasury Secretary Paul O'Neill to serve as one of the first members of the Internal Revenue Services' advisory committee for tax-exempt and government entities, which provides recommendations relating to tax-exempt bond issuers, employee retirement plans, charities, and federal, state, local, and Indian tribal governments. Burke sat on the panel for four years and was vice chair of the government entities subcommittee for 2004 to 2005.
In addition to Burke, the company has three other owners. Samantha Duke, a 19-year veteran of arbitrage compliance, will manage the Memphis office, and Robin Schlimgen, a 15-year veteran, will manage the Phoenix office. Both Duke and Schlimgen will be managing directors at the firm.
Cindy Jarman, the primary developer of custom software used to perform arbitrage calculations, will join the firm as both an owner and as director of information technology and operations manager.
"One unique thing about our firm is the level of experience our employees have," Burke said. "In a typical arbitrage compliance company, you typically have two or three people with long-term experience, with the rest of the team having just a few years of experience under their belts. Seven of our 18 employees have more than 10 years of experience, and all of us have worked together for a long time."
In addition to the owners, Brian Helming, a 13-year arbitrage compliance veteran, will join Burke in operating the Dallas office.
"The company is completely employee-owned," Burke said. "The benefit of that structure is that more people will be allowed to become owners in the future, as opposed to a public accounting firm, where you have to be a partner to be an owner."
Although all three offices will handle clients nationwide, Burke said Pinnacle would likely follow a similar practice to that followed by the team at Ernst & Young.
"The Memphis office will be available to serve clients on the East Coast, while Dallas will serve the Southwest and Phoenix will serve the West Coast," he said.
Employees from Ernst & Young's fourth arbitrage compliance office in Jacksonville, Fla., earlier this month announced that they would form Integrity Public Finance Consulting LLC, which will be a subsidiary of Bryant Miller Olive LLP.
Burke said his team opted to form a wholly independent company.
"We want to be an unbiased source available to issuers, financial advisers, attorneys, and bank corporate trust departments who need arbitrage compliance services for themselves or their clients," he said. With increased IRS scrutiny of arbitrage issues, Burke said arbitrage compliance will continue to be an important concern for issuers. (c) 2006 The Bond Buyer and SourceMedia, Inc. All rights reserved. http://www.bondbuyer.com http://www.sourcemedia.com
