As ABC Learning Centres remains suspended from trade on the ASX, CEO and founder Eddy Groves has come out swinging, claiming that ABC’s woes lie at the foot of former auditors, Pitcher Partners, and not the company itself. Groves told the Australian Financial Review that “our past auditors looked at it one way and we accepted our auditors’ advice and our new auditors are looking at it in a different way and the company will take their advice.”

Of course, cynics may claim that the alleged “errors” committed by former auditor, Pitcher Partners, may have been somewhat helpful to Groves and ABC — allowing the struggling childcare company a string of profit increases and to raise substantial amounts of equity (which was later lost on an ill-fated US expansion and an unprofitable Australian/New Zealand business).

Other funds raised by ABC were used to pay house-broker, Austock (a company in which Groves owns 5,000,000 shares) fees of more than $26 million in 2006-2007. ABC also used funds raised from banks and shareholders to pay the company of Eddie’s brother-in-law, Frank Zullo, $74 million in 2006 for renovation work.

According to The Courier Mail, ABC also loaned as much as $9 million to a gentleman called Stan Sheehan to purchase childcare centers for Gold Coast company, Childcare Providers. The Courier Mail also noted that Childcare Centres repaid ABC’s generosity by sponsoring Groves’ Brisbane Bullets basketball team.

So while Pitcher Partners were the alleged villain, it seems that Groves and Co. were the beneficiaries of its errors.

That’s not how Eddie saw it though, with the former richest Australian under 40 telling The Financial Review that:

I’ve always believed fully in this company, I didn’t just take it for a ride and take shares and think this is good. I bought tens of millions of dollars worth of shares at $7…

I have lost that whole shareholding and I am still here to make sure that we rake this to where it needs to go because of the responsibility I feel for shareholders, the banks, the staff and the families.

Groves claims are questionable, or perhaps he is just forgetful. On 18 March 2005, Eddie and Le Neve Groves sold 1.1 million ABC shares (collecting more than $6 million). Later that year, on 16 December 2005, Eddie and Le Neve sold a further 4.7 million ABC shares for a very tidy $7.00 per share, netting more than $32.8 million.

So while Eddie claims to have “fully believed” in ABC and “bought tens of millions of dollars worth of shares”, he was also feverishly disposing of shares, almost $40 million worth. Groves’ subsequent purchases of ABC Learning shares were presumably done using borrowing funds at the same time.

What did Groves use the $40 million money for? Perhaps it helped fund the purchase of his multi-million dollar Gold Coast property portfolio, which is believed to have been at least partially liquidated, or his shareholding in Austock, which was once worth more than $10 million.

In Groves’ defence however, his actions weren’t as egregious as those of Enron executives who furiously sold shares while telling employees all was well. It appears that Groves legitimately believed in ABC Learning (and still does). It’s just a shame for Eddie and ABC shareholders that the belief was, and remains, completely unwarranted.