Feldman criticized for hiring insider's accounting firm

BY JAMES BERNSTEIN | james.bernstein@newsday.com

5:13 PM EDT, April 16, 2008

Despite losing $7.8 million in the fourth quarter and cancelling a planned stock buyback, Feldman Mall Properties of Great Neck has hired a firm owned by one of its board members to oversee accounting and management functions for $350,000.

The real-estate investment trust said it had hired Brandywine Financial Services Corp. of Chadds Ford, Pa., to supervise operations, oversee property maintenance and development, lease administration, bookkeeping, accounting and other services.

Brandywine is owned by Bruce E. Moore, one of Feldman Mall's directors.

The move to hire Moore's company drew criticism, including from a corporate ethics expert.

Feldman Mall disclosed the decision to hire Brandywine in a filing with the Securities and Exchange Commission late Monday.

Feldman Mall owns seven shopping malls across the country. The closest to Long Island is the Colonie Mall in Albany.

The disclosures of a large quarterly loss and cancelling the $3 stock buyback ignited a selloff among investors Tuesday. Shares of Feldman Mall fell $1.04 or nearly 40 percent to $1.60 in heavy trading. Wednesday, the stock recovered some of the loss, rising 32 cents to $1.92.

Feldman Mall also said in its filing that it has agreed to pay Brandywine a fee equal to 1.5% of the company's gross revenue generated by its properties. It said it has also agreed to reimburse Brandywine for travel and other out-of-pocket expenses.

Company officials did not return calls yesterday seeking comment, and Moore could not be reached.

In a conference call late Tuesday afternoon, Feldman Mall officials defended the hiring, saying Brandywine's offer was the best of several accounting firms, and that the company would save more than $1 million a year through the hiring. The move replaces 10 Feldman employees.

But Nell Minow, editor of the Corporate Library, a business governance group in Portland, Me., said that the decision to hire Brandywine does not help Feldman Mall's image.

"It's not illegal," Minow said. "But it's frowned upon and it's much harder to do now than before Sarbanes Oxley," the 2002 federal business reform legislation passed after the scandals at Enron, Tyco, WorldCom and other companies. The legislation mandates strong corporate accounting controls.

"Most companies have scrubbed themselves clean of any related-party actions, like this one," said Minow, referring to Feldman Mall's hiring a board member to oversee accounting.

"It's a handful of red flags when the transaction has to do with accounting," Minow said. "It's one thing if you want to hire the CEO's wife to make book airplane reservations. But [accounting] is of one of the most crucial areas of oversight. I'm sure they feel they're saving money. But it's short-sighted of them to fail to think about how much this is costing them" in terms of their image with investors.