September 24, 2020

Big 4 Lawsuits: Wirecard Investors vs. EY, Australian Tax Office vs. PwC, Carillion vs. KPMG

Here’s a round-up of lawsuits filed against Big 4 firms in Germany, Australia, and the United Kingdom.

Ernst & Young Sued Over Wirecard as Accounting Woes Add Up [Bloomberg]
Wirecard’s longtime auditor EY is being sued just days after the payment processing company’s headquarters were raided as part of a market-manipulation probe.

The German lawsuit alleges that EY failed to flag that 1 billion euros ($1.1 billion) in assets were improperly booked on Wirecard’s 2018 accounts, Wolfgang Schirp, a lawyer who filed the lawsuit on behalf of Wirecard investors, said in a statement on June 8.

Munich prosecutors on June 5 raided Wirecard’s offices in a market-manipulation probe prompted by German financial watchdog Bafin. They are reviewing whether Wirecard gave “misleading signals” to the markets in March and April. Wirecard on March 12 and April 22 had issued market releases about a special report from KPMG into its accounting and business practices.

We mentioned in an accounting fraud round-up last month that before the special report was published, Wirecard kept saying that KPMG had found nothing fishy about its accounting practices. KPMG said in the report that there definitely were shortfalls in Wirecard’s internal organization and governance, but the auditors couldn’t verify the genuineness of sales and profits from third parties at the heart of the accounting fraud allegations.

ATO launches legal action against accounting giant PwC, meat processor JBS [Sydney Morning Herald]
The Australian Tax Office is taking legal action against PwC and meat processing firm JBS in an escalation of its ongoing conflict with the Big 4 firm over tax avoidance.

The ATO filed paperwork in federal court on June 2 for a lawsuit against PwC and three other respondents—Brazilian meat processing company JBS Australia and subsidiaries JBS Holdco and Flora Green.

The legal action comes after ATO failed to prosecute PwC last year for its alleged role in assisting Swiss mining group Glencore in moving $30 billion of international shares into offshore tax structures.

The tax avoidance plan was allegedly designed by PwC Australia as an accounting maneuver, but much of the documentation was carried out by law firms—notably King & Wood Mallesons in Australia—which enabled Glencore to claim legal professional privilege.

Carillion Loses Big to Get KPMG Documents Ahead of U.K. Lawsuit [Bloomberg]
Out-of-business U.K. contractor Carillion was denied key KPMG documents to prepare for a 250 million-pound ($314 million) negligence lawsuit against the Big 4 firm.

As we mentioned in a Big 4 lawsuit round-up last month, Rebecca Sabben-Clare QC, counsel for Carillion, said KPMG’s refusal to hand over those papers impeded her client’s ability to finalize its claim.

Sabben-Clare said there is already “exceptional” evidence before the court that warrants early disclosure of the additional documents, which are connected to the accounting of contract revenue and goodwill. The liquidators say the working papers, covering nine sample contracts, will help their expert evaluate whether KPMG could be held responsible for misstatements in the accounts.

However, a London judge on June 3 dismissed the request made by the company’s administrators, saying “Carillion should simply get on with the case in the usual way, by setting out the case in a pleading.”

Carillion fell into liquidation in 2018 after the U.K. government refused to bail it out, putting almost 3,000 people out of jobs and leaving 30,000 suppliers and subcontractors with 2 billion pounds in unpaid bills. It was one of the biggest corporate casualties in British history.

Administrators liquidating the company’s assets believe KPMG’s auditing was negligent in relation to its long-term construction contracts and goodwill between 2014 and 2016. Carillion put KPMG on notice that it may seek even more than the 250 million pounds identified so far, according to court filings.

Related article:

Big 4 Lawsuits: FDIC vs. EY, Investors vs. Mattel and PwC, Carillion vs. KPMG

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