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E&Y Drops Avanex, Too

Light Reading
News Analysis
Light Reading
9/24/2004

It turns out CoSine Communications Inc. (Nasdaq: COSN) isn't the only company to lose an auditor lately.

In an SEC filing yesterday, Avanex Corp. (Nasdaq: AVNX) revealed that Ernst & Young will resign as the company's auditor. The resignation takes effect once Avanex files its earnings statement for the quarter ending Sept. 30.

Ernst & Young quit as CoSine's auditor early this month (see CoSine: E&Y Says Bye-Bye). As in CoSine's case, no reasons were given for the Avanex departure. The SEC filing says the two didn't have any disagreements over Avanex's financial statements, nor had Ernst & Young uncovered anything that it felt needed reporting to the SEC.

Avanex received its Dear John letter on Sept. 17, according to the SEC filing. Avanex didn't announce the breakup until yesterday, when Ernst & Young filed its confirmation letter with the SEC.

Avanex stock fell 10 cents (4.4%) to $2.14 yesterday as word got around about the SEC filing. The stock was down another 14 cents (6.5%) to $2.00 this morning.

Yesterday also saw Ernst & Young receive a three-year probation from California regulators. The Avanex and CoSine resignations came before that decision, of course, so it's unclear whether the issues are related, or whether Ernst & Young will continue its spree of resignations.

Ernst & Young's probation stems from its 1990s work with PeopleSoft Inc. (Nasdaq: PSFT). Ernst & Young's now defunct consulting arm had been drumming up business in a joint venture with PeopleSoft -- but this was happening at the same time Ernst & Young was auditing PeopleSoft's books, an accounting no-no. Since April, the SEC has barred Ernst & Young from picking up new publicly traded U.S. clients.

— Craig Matsumoto, Senior Editor, Light Reading

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