Fishy accounting

Whistle-blower Stephen Taufen claims state officials are ignoring an accounting scandal on the scale of Enron.

Floating the numbers? Stephen Taufen claims the company that owns this fishing vessel is "laughing at the IRS."

Floating the numbers? Stephen Taufen claims the company that owns this fishing vessel is "laughing at the IRS."

WHEN WASHINGTON Attorney General Christine Gregoire vowed in January to sue Enron over state pension funds that evaporated when the Houston-based energy company imploded, Stephen Taufen rolled his eyes. Taufen, once a “young tiger” for Japanese seafood companies—a hotshot accountant who could make numbers stack up when others couldn’t—says Gregoire and other Washington officials have a homegrown corporate accounting scandal right under their noses, but they won’t touch it.

Taufen says the corruption cost him his career. He became a whistle-blower for the Internal Revenue Service (IRS) after witnessing firsthand what he claims are fraudulent accounting practices in the seafood processing industry—a $3 billion business in the Puget Sound region—that cheat both fishermen and the U.S. government. In 1995, Taufen led the IRS to a $1.3 million claim against a major processor, UniSea, Inc., which has its corporate headquarters in Redmond; its parent company is Nippon Suisan Kaisha. Taufen says he’s been waiting seven years for state investigators to pursue his charges that the accountants hired by the company acted to conceal deliberate fraud and tried to discredit him.

Taufen went to work for UniSea in 1992, following a 15-year career with half a dozen other processors. He claims UniSea fired him because he refused to help hide taxable inventory from the IRS. Soon after his dismissal, he filed a claim with the Washington State Board of Accountancy against UniSea’s in-house accountants and the company’s outside auditing firm, Seattle’s Pratt and Chew. He says routine fraud in the industry will continue until authorities are willing to place sanctions against the accountants who aid and abet it. “They’re laughing at the IRS,” Taufen says of the seafood company executives who were once his bosses, “and guys like me can’t stay employed because we’re honest.”

These days, Taufen, 50, works odd jobs, lives in a three-room attic apartment, and drives an ’80s model Honda—a far cry from what his talent once promised. His crusade to expose the industry he once thrived in has consumed much of his life. His name is well-known by readers of fishing trade newspapers: Taufen regularly contributes essays attacking the trading practices of seafood processors; he says they have deliberately knocked the bottom out of fish prices and destroyed independent fishermen. Congressman Jim McDermott, a Democrat from Seattle, has consulted with Taufen on the ways seafood processors—which are nearly 100 percent foreign-owned—avoid U.S. taxes.

But Taufen’s campaign to stir government authorities against seafood processors has been a lonely and mostly fruitless one (though sources say the IRS is on the verge of rendering a judgment against a second Seattle seafood company). Partly, that’s because few can untangle the arcane accounting shenanigans he describes, let alone decide whether and how to stop them. “Do you understand what he’s saying?” asked Donivan Irby, an attorney in the state attorney general’s antitrust office who recently met with Taufen. “Because I’m not sure I understand. [Taufen] bounced around so much that it was hard to tell how he came to his conclusions.”

In conversations, Taufen windmills through facts so fast that listeners have to ask him to repeat and rerepeat himself. He seldom gives short answers to even basic questions. But he’s probably the most knowledgeable guide that investigators have to the inner workings of seafood companies.

David Harsila, president of the Alaska Independent Fishermen’s Marketing Association, says most fishermen can’t easily make the connection between the low fish prices that have sunk their industry and the financial trickery global corporations use against them. But Harsila says evidence is all around that prices are artificially manipulated by the buyers: A can of Alaskan sockeye salmon in a U.S. grocery store costs the same as a can of crab, yet the price fishermen receive for the salmon, whose market is controlled by a handful of processors, is about half that of crab. Harsila believes Taufen’s contention that processors hide their revenues to justify paying less for fish will eventually be proved right but says he’s one of the few who will speak up for Taufen. “He finds himself alone. Much of the fishing industry doesn’t want to rock the boat because of fear,” says Harsila.

Taufen is by no means the only voice alleging that seafood processors unfairly dominate raw fish markets. Since the 1976 Magnuson-Stevens Fisheries Conservation and Management Act drove foreign fishing fleets out of Alaskan fisheries, foreign companies—particularly from Japan, which is a major importer of Alaskan seafood—have bought out nearly every single processor in Alaska to maintain access to fish stocks. (The major processors all have headquarters in Seattle.) Fishermen filed a class-action antitrust lawsuit against those companies in 1995, alleging price-fixing. Two years before, the Alaska attorney general’s office had found strong evidence that processors were controlling prices. The fishermen are still waiting for the Alaska Supreme Court to decide whether it will hear the case.

For its part, the IRS has put the seafood industry under more intense scrutiny over the past decade, but its investigations are secretive and shed no public light on the industry. Taufen says IRS investigators have told him that the agency has tried to establish a seafood specialty division in Seattle, but has had difficulty hiring accounting experts because those accountants prefer to represent the companies against the IRS.

That’s why his complaint before the state Board of Accountancy could make a big difference, Taufen says. If the board publicly placed sanctions against the CPAs who Taufen claims aided UniSea in concealing taxable revenues, he says, the door would be opened for lawsuits that would drag accountants’ practices into a public courtroom. (Taufen sued UniSea in 1995 but says he ran out of money and had to accept a private settlement.)

Unfortunately, the particulars of Taufen’s case don’t make for a sexy read. Court documents from his 1995 lawsuit reveal that Taufen was assigned the task of putting an inventory of stray parts collected in a UniSea warehouse on the company’s books. Employees who worked under Taufen testified that they valued the inventory to be between $10 million and $15 million, but that company higher-ups told Taufen they didn’t want millions in taxable assets recorded on their books. Taufen stated that he was told to enter a one-penny value for many parts. When Taufen later led IRS investigators to UniSea, IRS documents show, the company argued that the penny values were justified because many parts were obsolete or part of lump-sum purchases. The IRS didn’t completely buy it: The agency forced the company to revalue the parts, and also found that UniSea had tried to write off $6 million in income for ship repairs it wasn’t actually liable for. UniSea cut the IRS a check and settled the dispute.

Harvey Chew, whose now-dissolved firm Pratt and Chew had served as UniSea’s longtime outside accountant, says the company’s bookkeeping problems were “not substantial.” “If any company gets examined by the IRS, I’ll bet 10-to-1 that you’re going to find something improper, because accounting is an inexact science. There are literally thousands of mistakes,” says Chew.

A UniSea spokesperson was not available for comment.

Taufen, however, says fudging on inventory is only the tip of the iceberg. And he’s not the only former UniSea employee to sue the company for fraud. A former vice president at UniSea, Larry Davison, won a quarter-million dollars from a 1991 case in which he charged that UniSea’s Japanese parent company was siphoning profits from the processor, undercutting his profit-sharing arrangement. In that case, Davison testified that he spied on technicians who miscalibrated shipping scales and witnessed company executives chastise sales managers pushing for large contracts with U.S. restaurants, saying they didn’t want to record domestic profits. He said the company’s accountants were aware of false revenue reporting.

For its part, the Board of Accountancy has apparently never done even preliminary follow-up on Taufen’s claim. Neither Taufen nor Davison— nor any witnesses who testified in their court cases—have been questioned by agency investigators. Executive director Dana McInturff says the agency has a very small staff and doesn’t prioritize claims already investigated by other agencies. The board won’t acknowledge whether it knows about the IRS settlement with UniSea.

Taufen says the board risks exposing itself to “incredible liability” if it doesn’t pursue his case. In the shadow of the Enron scandal, Taufen says, the state has no excuse for not putting big-business accounting under the microscope.

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