September 25, 2022

Accounting News Roundup: PwC Settles With Madoff Feeder Fund Investors; Audits and Russian Roulette; Shooting Down Merger Lawsuits | 01.07.16

PwC in $55 million settlement with Madoff feeder fund investors [Reuters]
PwC audited Fairfield Greenwich Group, the largest feeder fund for Bernie Madoff's Ponzi scheme. Fairfield investors said P. Dubs "fail[ed] to exercise reasonable care and act[ed] negligently in auditing the financial statements of the Fairfield Sentry, Fairfield Sigma, Fairfield Lambda and Greenwich Sentry funds from 2002 to 2007." That timing is interesting because that means PwC was there until the bitter end, yet they didn't admit to any wrongdoing. Perhaps that's technically true, although I'm sure Harry Markopolos would just say that it's a shame that incompetence isn't a crime.

20 Years of Litigation Reform for Accounting Firms [AT]
There's precisely nothing new in this column about audit firm impunity other than this:

Dec. 22, 2015, marked the 20th anniversary of the enactment of the Private Securities Litigation Reform Act. Enacted at the behest of accounting firms, the PSLRA was crafted to immunize accountants from securities fraud liability. The result over the last two decades has been a substantial erosion in the ability of investors to hold accounting firms accountable.

Okay, so it's only been a couple of decades of impunity. This leads to lower quality audits, evidenced by the number of deficiencies in PCAOB inspection reports etc. etc.: 

In plain English, one in four audits can’t be trusted. While a 73 or 74 percent success rate may sound good, think of it this way: You have better odds playing a game of Russian roulette.

And while that's a little melodramatic, it's not inaccurate. 

The Judge Who Shoots Down Merger Lawsuits [WSJ]
Wow, lots of litigation news today.  But I especially enjoyed this profile of Vice Chancellor J. Travis Laster of the Delaware Chancery Court who has started shooting down "disclosure only" pacts filed after a merger is announced:

In July, Mr. Laster rejected a settlement over the sale of Aeroflex Holdings Corp. after finding the plaintiffs’ lawyers, who were seeking $875,000, had done “nothing, zip, zero” for investors.

In October, he shot down a settlement related to Hewlett-Packard Co.’s purchase of Aruba Networks Inc. The pact would have given Aruba shareholders no additional money, despite the plaintiffs’ original claim that the deal was underpriced, while earning their lawyers a $387,500 fee. In an unusual rebuke from the bench, Mr. Laster dismissed the case and said it typified a “pseudo-litigation” system where lawyers follow “the path to getting paid.”

You also may remember that Laster gave Grant Thornton a piece of his mind last July when he learned that the firm copied a report from PwC and screwed up a bunch of work in order to satisfy a client.

In other news:

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