@NCCapitol

@NCCapitol

Accountant with school contracts accused of fraud, $10,000 strip club night

Posted February 17, 2020 6:00 a.m. EST
Updated February 18, 2020 10:28 a.m. EST

— An accountant whose firm audits Durham Public Schools' books, and whose separate consulting company has had contracts with some 50 other school systems, was hit with a $2 million fraud verdict last month and now faces a new lawsuit from his former business partners.

Leon L. Rives' accounting company also audited three insurance companies that were taken over last year by the state over liquidity concerns. They're owned by Greg Lindberg, who goes to trial this week on a federal bribery charge.

Among other things, Rives' former partners have accused him of pilfering hundreds of thousands of dollars from the firm and using it on trips to the Bahamas, Amsterdam and Disney World, plus private plane rentals, alimony payments and a $10,000 night at a Raleigh strip club.

Those accusations and others appear in a lawsuit filed this month by Jay Sharpe and Aaron Patel, former small percentage partners at Rives & Associates. Rives, in a statement forwarded by a Rives & Associates attorney, denied many of their accusations and several others he's faced in lawsuits over the last eight years.

In January, Rives and his company were ordered to pay more than $2 million to an Iredell County steel company of which he once owned a part. He was accused in that case of fraud, and his company of negligence, and the State Board of Certified Public Accountant Examiners is looking into the matter.

"We are well aware of that verdict, and we have a pending investigation," board staff attorney Frank Trainor said.

Rives and his firm were also sued in 2013 and accused of concealing a relationship with one company as they audited it ahead of purchase by another. Rives & Associates denied this in the lawsuit, and the case was settled in federal court about a year after it was filed.

In his statement Thursday, Rives called the accusation "utter baloney" and said "we have never heard of this, nor was this concept ever asserted." It's asserted on page 3 of the case's initial complaint.

Rives was also accused, in a nearly 7-year-old lawsuit from other former accounting partners, of recruiting government auditing clients into consulting contracts with another company, throwing the independence of those audits into question.

That lawsuit settled in 2018. It also accused Rives of calling clients while he was drunk – which he denies – and of a raucous night of sexual harassment and derisive comments as he bar hopped with one of his audit teams after they finished work at the Wake County Board of Education.

Rives & Associates was Wake County's auditor at the time, but the school system hasn't used the company in a couple of years, spokeswoman Lisa Luten said. The company still does audits for Durham Public Schools and a number of other North Carolina school systems, though Durham is considering a change in the wake of these allegations.

"We have worked with Rives and Associates since 2008," DPS spokeswoman Patricia Hollingsworth said in an email. "In any organization we work with, the tone at the top set by leadership is important. We are evaluating our options."

Rives & Associates is a family firm with four locations in North Carolina and its headquarters in Lexington. Rives' father founded it, and Leon L. Rives II joined the firm in about 2003.

The younger Rives did an interview last November where he said the firm has employees in Pakistan and that it was planning expansions in the Cayman Islands and potentially Bermuda.

"We're always looking to move and shake a little bit and have a little fun along the way," he said.

The younger Rives was a founding partner for School Efficiency Consultants, a firm that tweaked its name last year and filed new paperwork with the Secretary of State's Office, turning into School Efficiency Consulting.

One of its other founding partners, Hank Hurd, is a former chief financial officer for the state Department of Public Instruction, and he said last week that Rives is now a silent partner and that the company is "working now with our attorneys to examine that relationship going forward. ... to terminate that relationship."

One of the allegations against Rives in 2013 was that he used firm time to start the second business and that he used relationships with auditing clients to win contracts for School Efficiency Consultants. Several of the roughly 50 North Carolina school systems SEC lists as clients on its website have also used Rives & Associates for their yearly audits.

Hurd said Rives has "not been active in any of our engagements for 10 years."

"[He's] given us no clients," he said. "We generate our own."

Spot checks turned up overlaps with several schools systems, including Durham, which is in the midst of a contract with School Efficiency Consulting for "management advisory services."

Wayne County also has current arrangements with both companies. Yadkin County has used Rives & Associates since the 2006-07 school year, and it had a contract with SEC in 2011.

"We've been satisfied with the job Rives & Associates has done," Superintendent Todd Martin said. "They've done a thorough accounting for us."

In recent years Rives & Associates audited a trio of insurance companies owned by Lindberg, a wealthy North Carolina businessman. Their names: Colorado Bankers Life Insurance, Southland National Insurance Corporation and Bankers Life Insurance Company.

Lindberg became the state's largest political donor in late 2017 and early 2018, then he got indicted by the U.S. Attorney's Office, accused of trying to bribe state Insurance Commissioner Mike Causey. Several months later, Causey's department took over all three insurance companies and a Lindberg-owned reinsurance company called Southland National Reinsurance Corporation, citing liquidity concerns.

Lindberg pleaded not guilty on the bribery charge, and his federal trial starts Tuesday in Charlotte.

Rives & Associates has declined to comment on Lindberg and his companies, other than to say through an attorney that the firm "continues to work and cooperate with regulators in service to all of its clients."

Rives has given small amounts to North Carolina political campaigns going back to 2010, but he seemed to get more interested in previous Insurance Commissioner Wayne Goodwin and Lt. Gov. Dan Forest when Lindberg threw fundraisers for them.

Lindberg held a fundraiser for Goodwin in February 2016, and Rives donated $5,000 that month. Lindberg threw one for Forest in August 2017, and Rives gave $2,500, campaign finance records show.

It was Rives' first donation to Forest, though he'd given Goodwin $250 in 2010.

Rives said in his statement that the latest lawsuit, filed by former accounting firm partners, will be settled soon with the plaintiffs "paying us a significant amount of money."

Their attorneys didn't return messages seeking a response.

The suit makes a litany of allegations, including that Rives made more than $500,000 in improper credit card purchases and withdrawals from the firm's bank accounts. The lawsuit says he purchased a plane through the firm without approval from the other partners in 2014.

It says he repeatedly kept partners, who owned small percentages in the firm, in the dark about the lawsuit filed by Steel Tube. That lawsuit yielded the $2 million verdict against Rives and the firm last year.

The new suit also alleges that Rives accessed two partners' emails without their knowledge in 2018, and it says he likely did so because they were talking to Rives' brother about having him removed as managing partner.

The lawsuit says the partners repeatedly brought issues to the attention of Rives' father, but he didn't take action. It accuses both men of various actions that "have resulted in Rives & Associates filing tax returns that contain false information."

Rives denied this in his statement.

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