Jones Lang LaSalle


GMH Audit Committee Launches ‘Tone at the Top’ Investigation
By Marita Thomas
Last updated: March 13, 2006 11:52am
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NEWTOWN SQUARE, PA-Following a letter from GMH Communities Trust’s CFO Bradley Harris alleging "among other things, a ‘tone at the top’ problem with company management," the company’s audit committee initiated an investigation and postponed fourth-quarter and year-end 2005 earnings results. It has hired Ballard Sparr Andrews & Ingersoll as independent legal counsel and FTI, a Baltimore-based specialist in forensic and litigation counseling, to assist in the investigation along with Ernst & Young, its independent accounting firm.

Calls to Harris were referred to Joseph Macchione, GMH’s internal general counsel, who tells GlobeSt.com that Harris "followed precisely the company’s code of ethics." The letter "is not public information," he says. According to a GMH statement, an (internal) investigation into the matters raised by Harris revealed "evidence of several material weaknesses in the company’s internal control over financial reporting." They include "the overall number, magnitude and nature of adjustments to accounting entries," identified during preparation of 2005 results. The "weakness" also included "behavior of key executives that placed significant pressure on, or otherwise affected, various aspects of the company’s accounting function."

"It’s important to note," Macchione says, that the investigation didn't uncover any instance in which anyone intentionally instructed anyone to falsify financial information. "As the statement makes clear, none of the weaknesses materially affects the operating characteristics of the company’s student housing properties or military housing projects. The beauty of FTI," Macchione adds, "is that they will review all the numbers. We want to make sure all are scrubbed. We thought it was best to not rush. We’re shooting to file a 10-K as fast as possible and at that time, all of the information will be made public."

Meanwhile, Gary M. Holloway Sr., chairman and CEO of GMH, has told the board he is considering making an offer to buy the company. And, according to the GMH statement, the board has formed a special committee to consider and analyze "strategic and financial alternatives, including any offer that might be made by Holloway." It is discussing engaging Banc of America Securities as its financial advisor in this matter.

Within two hours of the GMH statement, shares of GCT plunged 25.7% to $12.50 a share on the NYSE, down from $16.83 a share at the close of trading on Friday, March 10, and down from a 52-week high of $17.10 a share on March 1. The early morning drop did not reach to the 52-week low of $11.30 a share, which occurred on March 29, 2005.