In “All the President’s Men,” it was Deep Throat who said, “Follow the money.”
Larry Johnson, a highly successful forensic accountant, does just that.
In a good year, the 65-year-old Loudoun County numbers sleuth earns a couple million dollars chasing the cash behind big scandals, such as those involving Enron and Bernie Madoff.
In the accounting profession, Johnson’s job description is known as litigation support, which is a technical way of saying he helps lawyers prove their case and helps them debunk the other side’s arguments.
It is unglamorous but lucrative stuff. Johnson — a certified public accountant — charges between $500 and $600 an hour. His firm, which is called Veris Consulting, grosses more than $15 million a year, allowing him to live the life of a country squire, sort of. He routinely gets offers from suitors to buy the firm, which probably is worth millions.
His Reston staff of 70 number crunchers does pretty well, too. Accountants fresh out of college start at $60,000 a year. Seasoned people can earn six-figure salaries.
“I’m good,” said the entrepreneur, whose real talent lies not in research but in making cryptic financial transactions understandable to judges and juries.
When investment bank Credit Suisse First Boston wanted to convince a judge it was not culpable in the Enron debacle, it hired Johnson. He and his financial investigators followed the money trail. Credit Suisse won.
He worked for the defense of one of the families that had invested hundreds of millions of dollars over several decades in Madoff’s Ponzi scheme. When a court-appointed trustee wanted the family to give back the earnings, Johnson helped the family reach a compromise that significantly reduced the trustee’s take.
Occasionally Johnson loses.
For five days on behalf of a big accounting firm, he provided testimony that involved lots of complicated math. The jury ruled against Johnson’s client, resulting in a $150 million payout. But even that had a silver lining: The opposing attorneys hired him for their future cases.
Johnson is flashy, especially for a buttoned-down profession such as accounting.
He owns 100 thoroughbred racehorses that he keeps on his 275-acre farm in Loudoun County, not far from Middleburg. He built his own racetrack. He also has a home on Florida’s Gold Coast.
Although the horse-racing business barely breaks even after expenses, the Prince George’s County native follows his ponies to upscale habitats like Saratoga Race Course in New York, Gulfstream Park in South Florida and Keeneland in Lexington, Ky.
His biggest home run, however, was far from the swells. Strike the Moon nailed a $400,000 purse in the relatively downscale environs of Charles T own, W.Va.
Johnson attended DeMatha Catholic High School, dreaming of being a basketball star. When he stopped growing, he transferred to Northwestern High School in Hyattsville. He studied accounting at the University of Maryland at College Park, where he graduated in 1968. He worked summers for $2.40 an hour installing elevators, thanks to his father, who was a construction supervisor for Otis Elevators.
The union tried to entice him into becoming an elevator repairman for the then-ungodly sum of $9 an hour, but Johnson said no thanks. “The first time I stood up 150 feet, looking down an elevator shaft, I thought, ‘Man, I’m glad I’m going back to college,’ ” he said.
After college, Johnson was hired by the big accounting firm Ernst & Ernst, now known as Ernst & Young, starting at $9,300 a year. He was named partner in 10 years, boosting his compensation to $100,000.
Johnson specialized in the insurance end of accounting, responsible for such major accounts as Bethesda-based auto insurance giant Geico, Acacia Life Insurance and the Washington Metro system.
He stayed with Ernst & Ernst 18 years, but he quit just before his 40th birthday because he was tired of the bureaucracy.
Johnson’s idea was to form a small, boutique practice and hire accountants fresh out of college. That way, he could create his own culture that specialized in a few industries, rather than an all-service firm.
Talk about risky.
Johnson left Ernst & Ernst on April Fool’s Day 1986. He was 39 and had a daughter headed to college. He and a colleague formed Johnson Lambert & Co., half a block up Connecticut Avenue from his Ernst & Ernst offices. He purchased the office furniture at bankruptcy auctions.
Johnson said he had zero income and no clients in sight, but plenty of moxie. “If I was going to crash, I was going to do it with a Connecticut Avenue address,” he said.
His first client, however, wasn’t as high-profile as he envisioned.
His business partner, Debbie Lambert, went out to buy a car one day, and the car salesman, who hadn’t filed tax returns in four years, said he needed help with his taxes.
“I thought, ‘Oh my god, is this the business that we’re in?,’ ” Johnson recalls.
But like most entrepreneurs, he knew the path to success involved networking.
He joined several accounting industry associations, working his way onto several important professional committees that made rules and accounting standards, which are key to the profession. As his credibility grew, he continued to cultivate relationships with clients from his days at Ernst & Ernst. Soon Geico and Acacia followed him up Connecticut.
The turn toward forensic accounting started three years later, when a small Washington law firm representing a pension fund wanted to know whether the owner of the business was dipping into company funds for himself.
“I followed where the money went and where it had been to show whether the owner had treated the corporation as if it was his own money,” said Johnson, who had to give a deposition on his findings and testify in court.
He found that he liked the competition and intellectual challenge of testifying in court.
The forensic side of the business is now about $10 million of the company’s revenue, with the rest coming from consulting with small businesses and not-for-profit associations, and industry research projects.
Johnson owns 72 percent of the company, with the rest owned by employees. He collects a six-figure salary and big bonus if the company has a good year. His total compensation can reach $2 million or so. But some years, he only collects the salary. However, he said the firm has never lost money.
The nonconformist in him fosters an informal atmosphere where people get their own coffee and write their own reports; administration is kept to a minimum.
And when he is not appearing in court, he is spending 10 to 20 hours a week working on his racehorse business.
It goes without saying, the racehorse business is tax deductible.
For previous Value Added columns, go to postbusiness.com.