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Alex Sink was on Sykes board when state, investors sued

TALLAHASSEE – Democrat Alex Sink says the big difference between her and Republican rival Rick Scott in the governor's race is that she has "never been associated with any whiff of scandal, corruption or cheating the government."

But a decade ago, Sink sat on the board of a Tampa-based call-center operator, Sykes Enterprises, a company sued by Florida's state investment fund and by thousands of shareholders for giving them "knowingly inflated'' financial information.

In court records, Sykes said it was the victim of vague and complicated accounting rules, but the company ultimately settled the 10,000-member class-action lawsuit in 2000 for $30 million.

Sink, now Florida's chief financial officer, says the Sykes civil lawsuit issue pales in comparison to Scott's business scandal at Columbia/HCA. The hospital chain, which Scott founded and ran, was the target of a criminal probe that ultimately resulted in a record $1.7 billion Medicare fraud fine in 1997.

"He built a company based on unethical practices and cheating the government," she said. "There's no comparison at all between me and Rick Scott."

Sink and others involved in the Sykes case blame outside auditors for the problems that cropped up. Though she sat on Sykes audit committee, Sink said she was unaware the auditors were booking revenues in such a way that exaggerated Sykes revenues so that it could borrow against its stock to acquire more companies.

Scott refused to comment about the Sykes matter, saying he didn't have enough information. But his campaign said there are strong parallels between Sink's time on Sykes board and her role since 2007 as state CFO on Florida's State Board of Administration – the state's investment board. The board was among the shareholders to join the 2000 lawsuit against Sykes.

"I don't know what's more troubling: that Sink claimed not to know what was happening while on the auditing board, or that she didn't bother to look," said Brian Burgess, a Scott spokesman, in a written statement. "Either way, this raises even more questions about her competence and integrity, especially in light of the recent revelations about lack of oversight at the SBA."

Scott has made the SBA and its recent and large investment losses a central issue in the campaign against Sink.

As a member of the Sykes two-member audit committee, Sink said she relied on the company's independent accounting firm Price Waterhouse Coopers "to be sure the financials of the company are reported correctly'' and knew of no problems with financial records.

Sink was named to the company's board in 1997, when she was president of Bank of America's Florida operations. She left in 2001, one year after retiring from the bank.

According to the company's proxy statement to shareholders, the primary role of the board's auditing committee was to select the outside auditor, review the company's financial policies and approve its financial statements.

But questions about Sykes accounting practices cropped up April 19, 1999, when the independent Center for Financial Research and Analysis issued a public report challenging Sykes for improperly recording revenue from a $10 million software deal. Three days later, the company issued a press release defending its practices.

The company later changed its position after Sykes replaced Price Waterhouse Coopers with another outside auditing firm, Ernst & Young, which recommended the company restate its earnings on its 1998 and 1999 financial reports.

"I agreed with them when I heard their reasoning and supported their recommendation," Sink said. "As I recall, there was tremendous pushback on the part of management."

Indeed, when Sykes Enterprises revealed the full extent to which it had restated its earnings, its stock price plunged from over $50 a share to about $5 a share – a $500 million drop in market value.

"They did the right thing which was restate their earnings," Sink said. "It's simple. There's nothing nefarious or complicated or secret about this."

Just as Sink blames auditors for problems at Sykes, so Scott has blamed auditors for the fraud at his hospital company.

But Sink points out that Scott also ignored warnings in company financial statements that cautioned against offering financial incentives to physicians, a practice that resulted in fines worth $30 million.

Sykes also withstood an inquiry, which went nowhere, by the Securities and Exchange Commission, according to the SBA lawsuit filed on its behalf by its attorney, Michael J. Pucillo.

Pucillo described the lawsuit as a "pretty dry accounting issue." He said that Sykes managers and the auditors knew of problems, but "the information never reached the board of directors level." Pucillo said he didn't know that Sink sat on the Sykes board in the first place. Sink was not named as a defendant in the suit.

John Sykes, founder and former CEO of Sykes Enterprises who was named in the lawsuit, lays no blame on Sink – or his executive staff. The company was subject to a new set of federal accounting rules and the company's auditors interpreted them differently than regulators, he said.

"No single member, or group of members, of Sykes Board of Directors or Executive Management, was aware of this different interpretation at the time," he said, in a statement.

Sykes, a Republican, has contributed at least $444,200 to Republicans since 1996, and also gave to Sink's campaign and to her husband, Bill McBride, in his failed 2002 run for governor. Sykes and his companies have contributed $2,500 to Sink since 2005 and, along with his wife, contributed $1,000 to McBride.

Sykes said in a statement that the company settled the lawsuit because of "the misdirection of resources and business focus the lawsuit caused'' and bemoaned that the issue has resurfaced. Florida, which lost $825,000 with Sykes, received $17,700 as its share of the settlement.

"It is unfortunate," he said, "to think that an action that occurred 11 years ago that has settled in the best interest of the shareholders and clients, is being brought up at this time because of politics."

Marc Caputo can be reached at mcaputo@MiamiHerald.com.

Alex Sink was on Sykes board when state, investors sued 10/02/10 [Last modified: Sunday, October 3, 2010 12:27pm]
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