An ambitious CPA seeks a rebound
Leon Rives II chose a different path in expanding his father’s CPA firm into a statewide player. It turned into a twisting road.
It was the cost of doing business. Leon Rives II had expensed $4,900 for wining and dining a prospect in California and, not long after, he picked up a $10,000 tab at a Raleigh strip club for a celebratory night of expensive liquor. “That client paid us tremendous fees, so I didn’t care what they did,” he shrugs.
Now, a couple years later, the leader of a four-office Tar Heel accounting firm is pacing inside the Davidson County jail in Lexington, surrounded by four unpainted brick walls and rows of double bunks. “These are guys who’d done real crimes — robberies, drugs, stealing,” he says during a telephone interview, describing his 80 roommates.
Don’t contact your children if you have been drinking, a divorce judge had instructed him, an order his former wife testified he violated when he picked the kids up at a Putt-Putt golf course in the Triad. He denies any wrongdoing, but the incident landed him in the pokey.
“My mother actually gave me a hug right before and testified I had not been drinking.” Nevertheless, the judge held him in contempt of court, so he went to jail, he says, as a matter of principle. He is appealing the case to the N.C. Judicial Standards Board.
“I walked in, and they said, ‘Here’s your orange jumpsuit, no socks, no other articles of clothing.’” One towel, one washcloth, one sheet.
His six-day confinement was related to the fallout from his acrimonious divorce in 2016. In late June, an N.C. Superior Court judge dismissed the contempt order, citing “that all parties wish to avoid the attendant notoriety of a contested matter. It had nothing to do with business-related problems that Rives has faced over the last six years. But the incident contributed to the loss of his professional license, a career nadir for Rives, 42, who was long called Little, his middle name, but now prefers Lynn.
Sixteen years ago, he set out to turn the Lexington-based accounting firm of Rives & Associates, founded by his father, W. Leon Rives, into a new kind of CPA establishment. His plan was to abide by the ironclad rules of the profession but with a razzle-dazzle that defies its stodgy reputation. “I wanted to grow a business with a team approach and have fun doing it,” he says. The firm’s marketing repeatedly stresses, “We’re different.”
In a recent interview, he thrusts a hand into the pocket of his dark open-collar suit and grins broadly. “Always looking to move and shake a little,” he says.
At its peak, Rives & Associates had seven partners, 50 employees and $7 million in annual revenue, with offices in Lexington, Charlotte, Greensboro and Raleigh. Its clients included billion-dollar insurance companies and dozens of N.C. school systems, charter schools and municipalities, including Wake County.
Rives also branched out, co-founding a company that he says landed contracts with about 75 N.C. public-school systems, about half of the state’s total. School Efficiency Consultants pledged to save school districts in Durham, Wayne and other counties lots of money by ferreting out inefficiencies in return for a cut of the savings.
Then, troubles started mounting. CPA Chris Chesson joined the firm in 2007 and gained a 20% stake. In 2012, he joined with two other former Rives partners to sue the father, son and company in Davidson County Superior Court, alleging breach of fiduciary duty. The case was settled out of court about five years later.
In 2014, an Illinois telecommunications company that had acquired a Lexington business for $16.5 million alleged the transaction relied on a Rives & Associates audit that was marred by irregularities. The matter was settled out of court later that year.
Another lawsuit alleged Rives and the company in 2014 used money from its billings for Statesville-based Steel Tube to buy a 50% stake in the steel business. An N.C. Business Court jury in December ordered a $2.2 million settlement that included liability and punitive damages. Rives is appealing and denies wrongdoing.
“I doubt we’ll ever see a penny of that,” says Janice Hatchell, secretary-treasurer of the tubing manufacturer. “At least we got the satisfaction that he was found guilty of all charges. He just doesn’t seem to know the difference between right and wrong.”
Meanwhile, two former partners allege Rives used company credit cards between October 2017 and January 2019 to spend $200,000 for vacations in Sweden, the Bahamas, Amsterdam and Disney World. That was in addition to $300,000 for personal legal fees and other uses, plus a share in a twin-engine Piper Navajo, a business plane last built in 1984. Rives is a pilot, though his certification has lapsed.
“It was our company,” Rives says. “So if we want to buy an airplane, we can buy an airplane.”
CPAs Jay Sharpe of Raleigh and Aaron Patel of Charlotte, who now have their own firm, once held a combined 3% stake in Rives & Associates. In a Wake County Superior Court lawsuit, they alleged that Rives’ spending and other actions violated partnership terms such as vetting major expenses with other stakeholders. The elder Rives declined requests to be interviewed.
Rives counters that the two former partners recently settled the dispute out of court, vindicating his actions. Rives & Associates is getting part of their earnings, he notes. Other issues were involved, Sharpe says. “Our reputations are one of our top assets, and if we lose those, we lose the ability to continue working in the industry,” he says. “We were terminated by a couple of clients and [got] a lot of inquiries from others. There were a lot of uncomfortable questions.”
Patel and Sharpe also contend Rives violated professional standards, citing an altercation at a Myrtle Beach, S.C., bar during a trade-association convention in August 2017. “I was there,” Sharpe says. “We had dinner and as we were walking out, there was some back and forth between him and a patron, and they had to be held back.”
Rives disputes the allegations. “They’ve said, ‘If you don’t give us everything we want, we’re going to attack your name.’”
Several years earlier, disgruntled partners complained he slighted Rives & Associates by devoting his time to School Efficiency Consultants instead of racking up billable hours for Rives & Associates. The consulting firm was chartered in 2011 with Rives listed as co-manager and registered agent.
While Rives says he hasn’t been involved with the school firm for many years, he notes publicity related to his legal problems prompted virtually all of its former clients to cancel contracts. Co-founder Hank Hurd, a former chief financial officer at the N.C. Department of Public Instruction, didn’t return calls seeking comment. The company’s website is no longer operative.
For personal and professional reasons, the jail stint might have been the final straw.
Two weeks after his incarceration, on March 17, the N.C. State Board of Certified Public Accountant Examiners revoked his license. The regulators cited the Business Court finding that he’d breached his financial duty as an officer of Steel Tube and improperly prepared its tax returns.
Rives criticizes the board for basing its ruling on newspaper reports without doing its own investigation and not allowing him to provide information about the purchase. He is asking the board to reinstate his license at a July meeting.
But there also were unspoken issues. “One thing I teach my students is you are representing the accounting profession in all your activities, not just in respect to your technical responsibilities and abilities,” says Jack Wilkerson, a Wake Forest University School of Business accounting professor. “You’re representing the profession even when you’re not dealing with clients.” The standards are, in fact, codified.
The code of ethics held by the state board and the 13,000-member N.C. Association of Certified Public Accountants says CPAs must “uphold the dignity and honor of the accounting profession and maintain high standards of personal conduct.”
Rives’ father and Diana Hardy are now listed as the sole partners of the firm, which has 40 employees.
Rives graduated from rural West Davidson High School and enrolled in UNC Charlotte’s Belk College of Business, earning degrees in finance and business administration in 2001. Numbers were in his genes.
He came home to Lexington, the Interstate 85 town of about 19,000 known for its barbecue restaurants. His father, who’d moved to Davidson County in the late 1970s, had been minding the ledgers of businesses for a generation. He was a sole proprietor with four employees. His son made five, and the junior Rives spent several years learning the ropes and itching to grow Rives & Associates.
“I realized I had the ability to communicate some complex accounting topics in a manner that anybody could understand them,” he says. “My dad helped me out an awful lot, and I really enjoyed helping people out with their accounting projects. I’m pretty good at it.” In 2004, they chartered Rives & Associates. His father, who wasn’t very interested in growth, loosened the reins.
“I wanted to reshape the manner in which CPA services are delivered and to deliver them with personality and insight as opposed to just putting numbers in boxes,” he says. “Twenty-five years ago, it took a smart guy like my dad to get the numbers in the right boxes of a financial statement, but the reality is a computer can do that for us now.”
Rives recruited partners and signed up clients with zest, benefiting from his firm’s ability to charge lower fees than bigger rivals with higher operating costs, he says. CPAs aren’t supposed to name clients, but Rives says “they range from multibillion-dollar life-insurance companies to the local independent contractor who pressure-washes decks.”
While its client base was broad, the firm honed a reputation for handling the specialized accounting needs of insurers. Among Rives’ clients were Colorado Bankers Life Insurance, Southland National Insurance and Bankers Life Insurance, some of the dozens of businesses owned by Triangle-based investor Greg Lindberg. The Yale University graduate started buying insurers in 2014 and quickly became the state’s biggest political donor, contributing more than $5 million to the campaigns of Lt. Gov. Dan Forest, former Insurance Commissioner Wayne Goodwin and others.
Lindberg’s aggressive politicking and flashy style — he paid $40 million for a 244-foot yacht called “Double Down” — caught the eye of the media and law enforcement. In March, he was convicted by a federal jury in Raleigh of attempting to bribe N.C. Insurance Commissioner Mike Causey in an alleged attempt to oust a commission staffer who was asking many questions about Lindberg’s enterprises. He is appealing and promoting a multimedia ad campaign contending he was entrapped by the FBI.
Colorado Bankers, Southland and Bankers Life are insolvent and have been taken over by regulators. Rives & Associates hasn’t been accused of impropriety related to Lindberg’s businesses.
Rives says his CPA firm landed the massive client because of its expertise in insurance accounting. Other bigger N.C. CPA firms also worked for Lindberg, he says. The two men aren’t close, he says. “I’ve talked to him by phone, at board meetings and so forth, but I wouldn’t say we’re friends.”
When Sharpe joined the business in January 2015, Rives & Associates was looking to expand its insurance clientele. He had worked as an assistant state auditor.
“I’m not 100% sure how we got the contracts. [Leon Rives II] handled that,” Sharpe says. “But I know we had to scramble to get educated in life insurance. We had to hire some folks with insurance experience, because we didn’t have the expertise in-house. Back then, he was more in charge of selling the firm, especially in the insurance industry, landing clients.”
Rives was not a big political giver, with campaign records showing contributions of less than $10,000 to the campaigns of Forest and Goodwin. But he knew how to draw attention to himself. He points to his feet, laughing. “I’ve been known to wear Rainbow flip-flops with my fancy suit,” he says. “What’s basically happened is, there’s embarrassment at me being in the public eye. I’m a different bird.”
Stripped of his license, the man who would break the mold can no long call himself a CPA.
“I am,” he says, “the chief visionary officer.” ■