Bloomberg reports, that E&Y was sued for “negligence, malpractice and breach of contract in connection with audits of financial statements over a five- year period,” which sounds like the standard fair in these matters. The pleasant surprise being the brevity of the suit. “The two-page filing doesn’t provide any details of the allegations against Ernst & Young,” which may cause you to wonder if it’s really just a one-page lawsuit (unthinkable, I know) with the second page simply stating, “This page is intentionally left blank.” Of course the downside here (aside from another lawsuit being lumped on the pile) is that E&Y’s lawyers won’t get a chance to rack up many billable hours just yet. Which is to say, there is no downside. [Bloomberg, Earlier]
I mean, you know how it is, when you lose $192 million. It’s a tough thing to forget. The Journal reports that the Garden State has renewed its lawsuit against E&Y saying “Those review reports were false, as E&Y knew or should have known that Lehman’s quarterly financial statements were not prepared in accordance with [GAAP].” When reached for comment, E&Y spokesman Charlie Perkins’s voice was barely audible on a nearly worn out tape recording, “Lehman’s demise was caused by the global financial crisis that impacted the entire financial sector, not by accounting or financial reporting issues.” Wouldn’t it be nice if Chuck had Nick DeSanto sing the statement? With a rock accompaniment? At least it would liven up this story again. [WSJ]
As we mentioned briefly, Deloitte has been sued for $7.6 billion by the bankruptcy trustee of Taylor, Bean & Whitaker and Ocala Funding, LLC. If you’ve never heard of Taylor, Bean & Whitaker then check out Jr. Deputy Accountant who’s been all over it since the Feds starting kicking down the doors. Long story short – TBW was a giant fraud perpetrated by its management, Colonial Bank owned a lot of TBW’s mortgages, Colonial failed, Bank of America bought up a bunch of the mortgages, Fannie Mae says they’re owed money, CHRIST, it’s a mess.
“Deloitte missed this fraud because it simply accepted management’s conflicting, incomplete and often last-minute explanations of highly-questionable transactions, even though those explanations made no sense and were flatly contradicted by documents in Deloitte’s possession,” one of the lawsuits says.
Of course Deloitte isn’t amused by this, as Deloitte spokesman Jonathan Gandal’s statement attests:
Gandal said the blame for the fraud and losses should rest squarely on Taylor Bean, Ocala Funding and Farkas. “The bizarre notion that his engines of theft are entitled to complain of injury from their own crimes and to sue the outside auditors they lied to defies common sense, not to mention the law,” Gandal said on behalf of Deloitte.
If this statement strikes you as a little confusing, then you’re not alone. First off, when Mr. Gandal is referring to the “the law” he’s probably referring to this. In less legalese, basically what Deloitte is saying is that Lee Farkas and his merry band of crooks are the ones responsible for this shitshow not the Green Dot and therefore, this whole thing is ludicrous. I mean, come on guys, what could a firm that just reported nearly $29 billion in revenue could possibly have done differently? Crooks are just far too smart far auditors. Just ask one.
As you probably remember, Countrywide Financial once owned a lot of shitty mortgages. This wasn’t clear to many of the company’s investors so when the things turned sour, lots of those investors lost boatloads of money and then Bank of America came in to pick up the scraps. KPMG was the auditor of Countrywide and the shareholders sued both companies because, gosh, that’s basically what happens when a bunch of money is lost for no good reason and you had a front row seat for the action. Accordingly, the two firms settled with CTW shareholders last year for $624 million. KPMG, for its part, chipped in $24 million. That’s rumored to be in the ballpark of what John Veihmeyer spends every year on Notre Dame gear, so the firm was probably thinking it got off pretty easy. Unfortunately, things are just getting started since other countries hadn’t had a chance to jump into the mix.
From Zero Hedge:
Norway’s Government Pension Fund, which is another name for its Sovereign Wealth Fund, has just announced it is suing Bank of America for mortgage fraud. Not only that but it is also going after Countrywide, obviously, but far more importantly, is also suing KPGM [sic], the auditor on the Countrywide transaction, and, drumroll, ole’ Agent Orange himself [That’s former Countrywide CEO Angelo Mozilo for those of you not up to speed].
So what, you say? Norway is just some Scandinavian wasteland with a lot of blondes and the occasional psychopath? Not the point!
[J]ust like the US lawsuit spigot opened ever so slowly at first, it is now gushing, and is absolutely certain that every company (ahem insolvent German banks) that ever bought a mortgage from Countrywide, Merrill and Bank of America will serve the local branch of the bank with a summons over the next month.
In other words, this little breakout may turn into a full-fledged epidemic.
Bank Of America’s Legal Woes Go Global After Norway’s Sovereign Wealth Fund Sues For Mortgage Fraud [ZH]
The Fund suing large bank in the U.S. for fraud [DN.NO (Beware, the translation is brutal)]
Ed. note: Our permanently ink-stained wench is still struggling with Internet connectivity after a small storm swept through the DC area, so we now present the following post that is republished with permission from Jr. Deputy Accountant.
A-ha! I hate to say I told you so (no I don’t) but, uh, I told you so.
In August of 2009, I caught PwC digging around on my site to find out more about the Colonial Bank failure, a failure which PwC itself oversaw and maybe just participated in (if indirectly, naturally). The year before Colonial’s epic failure, PwC auditors gave the bank the all clear.
“In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of The Colonial BancGroup, Inc. and its subsidiaries at December 31, 2008 and 2007 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America,” read the opinion.
Anyway, fast-forward two years and here we are:
Colonial Bancgroup Inc (CBCDQ.PK) and its trustee filed a lawsuit against former auditors PricewaterhouseCoopers LLC and Crowe Horwath LLP, charging them with accounting malpractice and professional negligence for not catching a fraud that led to the bank’s collapse.
The complaint was filed late on Wednesday in a Circuit Court in Montgomery County, Alabama.
It also accuses the auditors of breach of contract, saying that PwC’s independent audits of its financial statements violated generally accepted accounting standards and served to conceal the seven-year fraud that drained it of $1.8 billion and left it with hundreds of millions of dollars in worthless or nonexistent assets on its balance sheet.
Can someone please tell me why the PCAOB still has a job with this nonsense going on? Furthermore, why does PwC make $13 billion a year soaking its clients with audit fees? And why aren’t the people of the United States suing the shit out of these auditors too? Colonial was the 6th largest bank failure in U.S. history and cost taxpayers $3.8 billion.
Anyone else find it funny how they call the audit service arm “Assurance”? It has nothing to do with discovering fraud or giving investors actual peace of mind that the statements they are looking at are, in fact, prepared in accordance with GAAP. Rather it is a mafia-style pay-to-play protection ring that offers clean audit opinions in exchange for cash.
Vomit. All over Dennis Nally’s impeccably polished wingtips.
Maybe PwC should consider pulling up the stakes in Tampa:
A Muslim who was a PricewaterhouseCoopers senior manager was interviewed for an article about diversity in a company newsletter and then fired when he criticized his employer, his federal lawsuit says.
Issam Azziz, 37, w pany’s Tampa office, filed suit on Tuesday in U.S. District Court, alleging the company, now called PwC, discriminated against him because of his faith and race.
“What happened to me should not happen to any other person,” Azziz said in a news conference outside federal court. “They’ve gone out of their way to destroy my life.”
PwC has responded that “this lawsuit is without merit” (which I think is taught on the first day of Corporate Communications 101) and wouldn’t tell me much else but you get the feeling that this whole story is a bit of a dog and pony show. First of all, the press conference held by Mr. Azziz included appearances from his lawyer, Peter Helwig, the Tampa Chapter of Council on American-Islamic Relations and Ahmed Bedier, “a civil rights activist” which seems to indicate that this was a well oiled PR offensive. Secondly, this press conference occurred less than a week after PwC told Tampa and the State of Florida to shove their subsidies. You don’t have to be too clever to put that one together.
Anyway, you can watch clips of the conference here and here (no embed code, sorry). If you watch the video, Mr. Azziz alleges (through the words of Mr. Bedier) that the company’s “fraternity mentality” that includes “overnight partying, binge drinking and gambling” feels a little hyperbolic but whatever. I spoke to Hassan Shibly, the CAIR representative that appeared with Mr. Azziz but he declined to go on the record. Peter Helwig has not yet returned my call.
The other little twist is that you get from the story is that Azziz claims that after he found another job, PwC got wind of it and were the ones behind his dismissal from that firm:
The lawsuit claims the company orchestrated his firing from a second firm that later hired him and has effectively blackballed him from getting any other job in his profession.
The company “retaliated against (Azziz) in reprisal for his opposition to (PwC’s) racial discrimination against persons who are Muslim or of Arab ethnicity,” the suit says.
Maybe I’m just not as paranoid as I used to be but a firm like PwC going out of its way to blackball one person seems like a stretch. I understand that this is Florida and I’m not a Muslim (i.e. they aren’t exactly popular with some people) but COME ON. PwC is far more interested in ruining the lives of its current employees – it’s called client service.
Suit accuses PricewaterhouseCoopers of discrimination against Arab-American [SPT]
PricewaterhouseCoopers discriminates, suit states [TBO]
PwC Decides It Doesn’t Want $1.1 Million in Free Money From Tampa After All
There Appears to Be Some Fuss About PwC Tapping $2 million in Subsidies Once They Spend $78 million and Hire 200 People
Poor BDO, they never get in the news. But hey, they do today!
Former BDO partner George Mark got off easy this week when U.S. District Judge Nora Barry Fischer said he didn’t deserve to go to jail thanks to his “extraordinary” charitable efforts and remorse for his actions. Mark’s tax evasion was uncovered during an investigation into Pennsylvania beverage company Le-Nature’s, who apparently specialized in nepotism, ass water and fraud.
Mark will instead serve two years of probation and pay a fine of $30,000.
A federal jury recently found Le-Nature’s former president Robert B. Lynn guilty of 10 counts of bank fraud, wire fraud and conspiracy. The jury found him not guilty on 10 additional fraud counts and deadlocked on five others, which left Senior U.S. District Judge Alan Bloch Jr. no other choice than to declare a mistrial on the remaining charges. The company’s CEO Gregory Podlucky and other company officers are facing prison for their part of a $37 million fraud.
While investigating Le-Nature’s ugly mess, the IRS found out that Mark declared fake travel expenses on his 2004, 2005 and 2006 tax returns for about $90,000. The IRS determined that Mark was living the gangsta lifestyle out in the Philly ‘burbs, rented an apartment in NYC, traveled a lot and owned a few luxury cars.
The U.S. attorney’s office had hoped the judge would come down with jail time in order to convince would-be tax cheats that this is serious business but the judge felt Mark’s volunteer efforts for Hope International and other charities was sufficient proof that he wasn’t all that bad of a guy, perhaps just a little misguided.
Back in 2008, 74 investors alleged fraud and negligent misrepresentation against Wachovia Capital Markets, Wachovia Securities and two accounting firms, Ernst & Young and BDO Seidman for their respective parts in the Le-Nature’s scam, in which company officers (mostly CEO Podlucky and his kin) would secure loans for business equipment only to turn around and use that money for things like, oh, sapphires and overpriced watches.
E&Y audited Le-Nature’s until BDO took over. “E&Y was aware that Podlucky could single-handedly influence or manipulate the company’s financial results …” charged the lawsuit. The company basically made up $240 million in revenue and BDO auditors declared the company’s financials were free of material misstatements. FAIL.
Anyway, congratulations to the former partner for, uh, being such a model human being. Or something.
U.S. District Judge Lynn Adelman has dismissed Grant Thornton as a defendant in a class-action shareholder lawsuit against GT, Koss Corp. and CEO Michael J. Koss, filed in January 2010 on behalf of plaintiff David Puskala and other Koss shareholders.
In his ruling, Adelman stated that the plaintiffs failed to make a case for GT’s epic failure to detect former Koss executive Sue Sachdeva’s $34 million embezzlement/hoarding scheme. Reasonable, considering GT auditors scared the crap out of old Sue, even though they were sticking newbies on the gig. “Fear was one thing. I thought it was imminent,” she said in a court deposition last year. “Their auditors, every time they walked in, I’d say, ‘This is it. They’re going to catch me.’” Shareholders’ issue – we assume – is that they didn’t. Year after year after year after year until 2009 rolled around and the whole house of cards came tumbling down.
The judge also dismissed claims of willful or reckless behavior against Michael Koss, saying “I conclude that the innocent explanations are more compelling than the inference of recklessness.” Meaning Mike couldn’t possibly have known Sue had been siphoning off millions in company money over a six year period, absent hanging out at her house and noticing all the fancy new shit she had strewn everywhere. And stashed in closets. And bursting out of her garage.
As for Grant Thornton, the judge wrote that the occurrence of fraud and failure to detect it doesn’t imply recklessness on the part of the accounting firm, but rather that the firm was negligent. While it is clear that Sachdeva used her position with Koss to bypass the company’s not-rock-solid internal controls, it is also believed that the controls were sufficient so as not to be obviously unreliable to a reasonable person (or auditor fresh out of accounting school). We’re looking forward to hearing how audit professors use this decision to emphasize the cavernous depth between “negligence” and “recklessness” on the part of auditors.
Sachdeva is still a defendant in the Puskala lawsuit and is currently serving 11 years for the fraud.
Grant Thornton dismissed from Koss shareholder lawsuit [Milwaukee Journal-Sentinel]
I don’t watch movies but coincidentally, I saw Crash and frankly it’s a miracle it made any money at all (not to mention three Academy Awards, but what do I know about movies?). That being said, L.A. Superior Court Judge Daniel Buckley has determined producer Bob Yari engaged in creative accounting, ruling that Yari did so as part of an intentional scheme to withhold money from director Paul Haggis, star Brendan Fraser and co-writer Bobby Moresco.
The plaintiffs’ suit alleged that Yari improperly withheld money owed to them for the 2005 film and while Buckley has ruled in their favor, the judge has not yet set a monetary reward for plaintiffs.
The judge was clear in his ruling (which can be read in its entirety at the Hollywood Reporter), calling out the defendants’ inability to correct blatant accounting mishaps and outright fraudulent practices:
Defendants breached the contracts with the plaintiffs by diverting funds to third parties; adopting bogus contractual interpretations; refusing to correct accounting errors in a timely manner; adopting inappropriate accounting procedures that were contrary to industry standards; and, ultimately, using all of these to avoid paying plaintiffs money due under contracts.
This isn’t the first trip to court for Yari, who was sued for $100,000 by Matt Dillon, who played a dickhead cop in the film. Dillon’s company, Matthias Productions, performed an audit in 2006 and found that executives “deliberately authorized [the production entity] to apply an incorrect formula for the calculation of [Dillon’s] contingent compensation” and therefore owed him a larger piece of the $98 million the film grossed worldwide.
FT Alphaville found this notable quote from District Judge Lewis Kaplan’s opinion (whole thing after the jump):
The TAC alleges that Lee told E&Y in June 2008 “that Lehman moved $50 billion of inventory off its balance sheet at quarter-end through Repo 105 transactions and that these assets returned to the balance sheet about a week later.” Assuming that is so, E&Y arguably was on 308 notice by June 2008 that Lehman had used Repo 105s to portray its net leverage more favorably than its financial position warranted, a circumstance that could well have resulted in the published balance sheet for that quarter being inconsistent with GAAP’s overall requirement of fair presentation. Accordingly, the TAC adequately alleges that E&Y misrepresented in the 2Q08 that it was “not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles” notwithstanding Lee’s disclosure to it.
“Lee” you may remember is Matthew Lee Lee, the Senior VP for Global Balance Sheet and Legal Entity Accounting who also said this about E&Y’s reaction to his warning on Repo 105:
They certainly didn’t support it. On the Repo 105 issue, they knew about it; they did not appear to know that the number was so large.
Last summer we told you about a lawsuit that was filed by a fired Tyco accounting manager who claimed that he was let go after he refused to sign off on expenses related to an epic party in the Bahamas that had “Mermaid Greeters,” “Costumed Pirates/Wenches” a tatt h “Limbo” and “fire” dancers and other, what some might call, “fun” or “awesome” things. The whole bash was going to run around $350,000 but Jeffrey Wiest wasn’t interested in being connected to another lavish party thrown by Tyco.
This is understandable because, as you well know, the AWESOME party in Tyco’s past was taped and it eventually wound up as evidence in a trial against Tyco Execs Dennis Kozlowski and Mark Swartz. Those two men are currently wards of the state and Tyco is, for AWESOME or worse, simply known as the company that threw the Roman Orgy Party:
Investors footed about half the bill for that affair, which was disguised as a shareholder meeting and is now widely known as the Tyco Roman Orgy.
The party featured such indulgences as an ice sculpture modeled after Michelangelo’s David urinating top-shelf vodka. Against this backdrop in 2008, Jeffrey Wiest said he “refused to process a payment [for] and sent a note to his management questioning the legitimacy of a $350,000 event being held at the Atlantis Resort in the Bahamas.”
“Wiest, as was virtually everyone else at Tyco and in the world, was cognizant of a similar party under Dennis Kozlowski’s management,” according to the manager’s July 2010 suit, first reported by Courthouse News. “He did not want to be any part of a repeat occurrence.”
As we mentioned, Wiest obviously had the foresight to conclude that news of a “Mermaid/Pirate/Wench Rape and Pillage Party” would not go over so well with anyone not in attendance and accordingly, refused to sign off on the expenses. Considering that there was “only one 1.5-hour business meeting during the entire five-day event,” it appears that Wiest made the right choice. However, Wiest claimed that the company started “investigating” him and shortly thereafter was told that his services were no longer needed.
“Mr. Wiest’s communications simply provided information and suggestions to ensure proper tax and accounting treatment of the Atlantis event expenses. As such, then, they did not rise to the level of ‘definitively and specifically’ conveying a reasonable belief that [a Sarbanes-Oxley crime] was taking place, notwithstanding Mr. Wiest’s conclusory assertion in the complaint that he had made ‘protected disclosures relating to fraudulent accounting practice, attempted shareholder fraud, and lack of compliance with United States Generally Accepted Accounting Principles.'”
Definitely a setback for Wiest who, it appears, won’t be recouping any lost income here and will forever have the reputation as a party pooper. And the latter could be a far worse fate.
Last month we told you about Patrice Lataillade, the former Marc Jacobs CFO who was fired, he claims, because he complained about all the porn floating around the office, mandatory pole dances forced upon employees and various other things. Lataillade has sued the company saying that after he complained about the rampant lewdness, he was later told that his services were no longer needed.
The company disputes this, saying that Lataillade was actually doing a little double-entry magic for about $20 million or so in order to earn himself a nicer bonus. Lataillade has now pulled a Chinese stunt of sorts, claiming that Deloitte said everything was hunky dory and that should convince anyone that doubts his CFO prowess:
Lataillade and his lawyers said that the company, which fired Lataillade last September, never had any trouble with his monitoring of its finances in his long tenure at Marc Jacobs International. His work was checked and rechecked not only by accountants for LVMH, the French luxury conglomerate that owns Marc Jacobs International, but also by the company’s accounting firm Deloitte and Touch [sic]. Lataillade claims he never heard a complaint about his performance, and that he was really fired for speaking out against sexual discrimination at work.
Last year we told you about Colin Tenner who was suing PwC on the grounds of disability discrimination. If you remember, back in 2009 Tenner was told his services were no longer needed after he took some sick time due to depression and severe stress that was a result of a client he was serving and his bosses inside P. Dubs. Tenner’s fellow partners allegedly weren’t impressed by this pansyness, as one partner said “real partners don’t get sick.”
While the judge in the tribunal said that some of these partners “were clearly at the end of the queue when tact and sensitivity were being handed out,” it wasn’t enough to constitute discrimination and Tenner’s suit was thrown out.
An industrial tribunal found that while there may have been a “macho culture within the firm”, it did not accept Mr Tenner had been discriminated against. […] [T]he tribunal said there was no evidence that any of the witnesses for PWC “showed any animosity, prejudice, or intolerance to disabled persons”.
In other words, they weren’t saying “that skitzo retard shouldn’t be calling in sick.” Apparently that’s what was needed here.
Yesterday we learned that the 9th Circuit Court of Appeals ruled in favor of PwC in the matter of Campbell v. PricewaterhouseCoopers, the wage and hour class-action lawsuit filed in California. It’s a pretty major win for P. Dubs and the decision remands the case back to district court for trial. I was skimming over the 9th Circuit’s Decision in case over at Leagle and found some interesting things that I thought were worth sharing including some details about the named-plaintiff’s performance. The following anecdote seems to support the firm’s argument that unlicensed associates must “exercise discretion and independent judgment” and if they don’t, they will be held responsible:
PwC […] argues Plaintiffs perform analytical work “integral” to PwC’s Attest services. To the extent Plaintiffs do not regularly exercise discretion and independent judgment during an audit engagement, PwC says they are failing to meet the firm’s expectations. PwC emphasizes the variety of duties performed by Plaintiffs during an engagement and claims the failure to perform those tasks adequately can have “significant consequences” for PwC’s clients. During one engagement, for example, named-plaintiff Campbell overlooked approximately $500,000 in the client’s unrecorded liabilities. This oversight, which Campbell himself described as a “serious error,” was ultimately discovered by another team member. The error required a late financial adjustment and made the client unhappy.
While working for PwC, Campbell and Sobek each received some criticism over their job performance. In addition to the mistake described above, Campbell earned a “Less Than Expected” rating during his 2006 annual performance review. Sobek received the same rating during her 2005 review. More generally, PwC alleges both named-plaintiffs consistently fell below the firm’s expectations for Attest associates.
Campbell was terminated by PwC in 2006 for poor performance. Sobek resigned from the firm that same year.
Obviously just because Jason Campbell and Sarah Sobek both had performance ratings of “Less Than Expected” and that Mr. Campbell was fired does not mean that all 2,000 members of the class-action were of similar ratings. Regardless, it’s an interesting little nugget of information that we were not previously aware.
The rest of the opinion is pretty analytical, labor law stuff, so if you’re into that, the whole thing is worth a read, otherwise you can discuss as you wish below.
The 9th U.S. Circuit Court of Appeals reversed [a lower court decision] on Wednesday, ruling that PwC is entitled to litigate whether the unlicensed accountants can be exempted from overtime laws. The 9th Circuit remanded the case back to a district court in Sacramento, Calif. for more proceedings.
So, no this isn’t over. The actual trial still hasn’t gone down but this is definitely a big win for PwC.
A firm spokesperson provided us with the following statement: “PwC is pleased that the Ninth Circuit supported its arguments in this important case. The firm greatly values these employees and considers their work an integral part of PwC’s success.” An attempt to reach counsel for the plaintiffs was not immediately returned. Will keep you updated with any new details as we learn them.
Campbell v. PricewaterhouseCoopers
Last week, we told you about Jonathan Weil’s latest scoop exposing a PCAOB issuer in an inspection report. The issuer in question was Motorola and it, once again, featured KPMG as the auditor on the receiving end of the Board’s criticism. It was also noted that PCAOB Chair Jim Doty mentioned this particular case (without naming names) in his speech at USC the previous week when he described “one large firm t am was aware that a significant contract was not signed until the early hours of the fourth quarter. Nevertheless, the audit partner allowed the company to book the transaction in the third quarter, which allowed the company to meet its earnings target.”
J Dubs put this all together in a nice little package, citing court documents from a class-action lawsuit in Chicago. What isn’t mentioned in Weil’s column but is spelled out in other court documents that we’ve reviewed is that KPMG and the Center of Audit Quality fought the release of the documents related to the PCAOB’s inspection report because they’re afraid that more lawsuits could result if issuers’ identities are made public.
The CAQ submitted an amicus curiae brief (in full on the next page) stating:
The supervisory model of regulation created by Sarbanes-Oxley and implemented by the PCAOB has thus far worked well and has improved the quality and reliability of audits of public companies. It has worked to the satisfaction of both the Board and the regulated community.
Yet, the CAQ argued that if the PCAOB inspection documents were released, “the [Sarbanes-Oxley] Act’s carefully supervisory model will be adversely affected.” That is, the confidentiality afforded to the communication between auditors and the PCAOB would be compromised and would allow Board information into the ‘hands of litigating lawyers.’ The CAQ declined to comment for this post, saying that they did not “have anything to add to the amicus brief.”
In her ruling denying KPMG’s motion (in full, on page 3) to squash the subpoena of the PCAOB documents, Judge Amy St. Eve cited KPMG’s argument that sounds very similar to the CAQ’s:
KPMG argues that “if litigants can compel production of materials related to the PCAOB’s confidential inspection process notwithstanding section 105(b)(5)(A), open and constructive engagement between the PCAOB and accounting firms could be chilled by the threat of increased civil litigation, and the statutory framework carefully crafted by Congress to improve the quality of public company audits could be frustrated.”
So basically auditors are afraid that if their super-special-secret discussions with the PCAOB are out there for all the world to see, they’ll get sued more often. But hasn’t suing audit firms already reached critical mass? Can they really fear more litigation? The only thing that keeps audit firms from being on the same level of litigation risk as tobacco companies is that they aren’t killing people.
Weil and those that agree with him argue that the PCAOB owes it to investors to name names in their inspection reports. To continue keeping issuers confidential protects them from legitimate criticism for shoddy accounting and perpetuating equally shoddy audits. Of course, if you’re an investor and that doesn’t bother you, then maybe you’re okay with auditors trying to stop the release of more information related to their work. Work that cost the investors in Motorola $244 million from 2000 to 2010.
A hospital in Winnipeg is suing Deloitte after an ATM scam went undiscovered for over ten years. Luckily some vigilant RN, janitor or cafeteria worker (it’s not clear from the article) noticed something amiss and alerted the proper authorities.
Police arrested a long-time hospital employee last year after she allegedly skimmed $1.5 million from automated teller machine (ATM) deposits between 2000 and 2010.
According to a lawsuit filed last week, the fraud was uncovered by hospital staff, not the auditor. The lawsuit accuses Deloitte & Touche of preparing financial statements not in accordance with “generally accepted accounting principles” and “materially misleading” the hospital about its financial position.
“MHC says that D & T owed it a duty in contract and owed it a duty of care not to act negligently or make negligent misrepresentations to MHC and to ensure that cash and liquid assets as reported in the financial statements were not materially misstated.”
According to the lawsuit, a former finance clerk deposited Worker’s Compensation Board cheques into the hospital operated ATM, understated the amount and pocketed the difference.
All this trouble and no one was even taken hostage. Not good, Green Dot.
Misericordia Health Centre files suit against auditor [Winnipeg Sun]
~Update includes KPMG statement.
Former KPMG Senior Manager Donna Kassman is suing the firm in the Southern District of New York. She worked for the firm for seventeen years, resigning in October 2010 after “relentless gender discrimination and harassment le, and it was clear that the Company had no interest in remedying the situation.”
Plaintiff Kassman alleges that KPMG engages in systemic discrimination against its female Managers, including but not limited to Managers, Senior Managers and Managing Directors. The lawsuit is intended to change KPMG’s discriminatory pay and promotion policies and practices, as well as its systemic failure to properly investigate and resolve complaints of discrimination and harassment. The Plaintiff is filing this action on behalf of a class of thousands of current and former female employees who have worked as Managers at KPMG from 2008 through the date of judgment.
Ms. Kassman and the class are represented by Janette Wipper, Siham Nurhussein, and Deepika Bains of Sanford Wittels & Heisler, LLP and they don’t spare the details:
Despite Plaintiff Kassman’s long tenure and stellar performance, KPMG refused to promote her along the partnership track. Ms. Kassman’s supervisors repeatedly told her throughout 2008 and 2009 that she was next in line for a promotion to Managing Director. Around the time Ms. Kassman was to be promoted, however, two male employees complained that she was “unapproachable” and “too direct,” thinly-veiled gender-based criticisms designed to derail her career advancement. Based on these unfounded, discriminatory comments, KPMG removed Ms. Kassman from the promotion track, subjected her to numerous hostile interrogations, and advised her to meet with a “coach” to work on her supposed issues. Instead of disciplining the two male employees for their campaign of harassment, KPMG rewarded them by putting them up for promotion.
KPMG’s female Managers are not only under-promoted, but underpaid as well. In one particularly egregious act of discrimination, KPMG slashed Ms. Kassman’s base salary by $20,000 while she was on maternity leave because she was paid “too much.” KPMG cited no business justification for slashing her salary. When Ms. Kassman complained about the salary cut, her male supervisor asserted that she did not need the money because she “ha[d] a nice engagement ring.”
“Unfortunately, Ms. Kassman’s story is completely representative of the treatment of women at KPMG,” Siham Nurhussein said. “Ms. Kassman repeatedly complained up the chain of command about the gender discrimination and harassment she was experiencing, and the Company reacted with neither surprise nor concern. Her supervising Partner told her matter-of-factly that her male colleague might have a problem working with women, and the Office of Ethics and Compliance told Ms. Kassman that men had ganged up on women at KPMG before. KPMG not only tolerates gender discrimination, but displays an active interest in perpetuating it.”
In addition to the systematic discrimination faced by female Managers at KPMG, female employees with children also face discrimination based on their status as caregivers and/or being pregnant. After she gave birth to her first child, Ms. Kassman’s career advancement at KPMG came to a screeching halt. Without any warning or provocation, KPMG abruptly cut her salary while she was on maternity leave and placed her on a Performance Improvement Plan upon her return to work. Ms. Kassman felt that she had no choice but to move to a “flexible” schedule, under which she retained all the responsibilities of a full-time employee, but was paid less. KPMG frequently touted Ms. Kassman as a role model for other working mothers, even though one of the Partners acknowledged that women on flexible schedules were “not going to get anywhere [at KPMG].”
An email to a KPMG spokeswoman was not immediately returned.
UPDATE: KPMG spokesman George Ledwith provided us with the following statement, “KPMG is recognized as a leader for its strong commitment to supporting women in the workplace. In fact, among the Big Four accounting firms, KPMG is tied with the highest percentage of women partners. We believe this lawsuit is entirely without merit.”
We’ll keep you updated with any developments.
Nearly two years after Texas financier Allen Stanford was indicted in an alleged massive Ponzi scheme, investors have just filed a $10 billion proposed class action suit against his auditor—the giant accounting firm BDO.
The suit—filed Thursday in federal court in Dallas—says BDO did not only aid and abet the $7 billion dollar fraud…it was a “co-conspirator.” “BDO’s cozy relationship with the Stanford Financial Group was steeped in conflicts of interest and required ongoing deceptive and duplicitous manipulation of the facts to allow the Ponzi scheme’s exponential growth for over a decade,” the complaint says. “The result of this deception is the loss of thousands of investors’ life savings.” [CNBC]
Before you start ringing up the lawyers, you should know what this guy’s head pain was caused by something that Doug Shulman has very little control over.
A New Orleans resident has filed a lawsuit against the Internal Revenue Service after a portable office wall fell and struck him in the head. Willie B. Jolliff, Jr. filed suit against Internal Revenue Services, East Skelly and Jones, Lang, LaSalle Americas Inc. on May 16 in federal court in New Orleans.
According to the lawsuit, Jolliff was hurt by the wall on May 15, 2010, resulting in headaches and a neck injury.
The IRS is accused of negligence by failing to maintain a safe environment for office visitors, failing to properly maintain and secure the portable office wall and failing to warn of a potentially dangerous condition.
IRS customer claims headaches in personal injury suit [Louisiana Record]
BDO is trying to put the E.S. Bankest/Banco Espirito mess behind it by submitting a “confidential agreement” to settle its litigation with the bankruptcy estate of E.S. Bankest, according to the South Florida Business Journal.
It sounds as though this could be put to rest as the bankruptcy trustee Barry Mukamal is quoted as saying, “I’m satisfied that this settlement is in the best interests of the estate,” although the creditors have to give the stamp approval as well. What’s not immediately clear from the article is to what extent Banco Espirito is involved in this settlement, the only mention being “”Lisbon-based Banco Espírito Santo and the estate of E.S. Bankest sued BDO Seidman regarding more than $140 million lost to a financial scheme run by former officers of E.S. Bankest.” I shot an email over to Steven Thomas who has represented Banco Espirito to sort this out and his spokesperson replied with the following statement, “BDO USA, LLP has entered into confidential settlement agreements with Banco Espirito Santo and Barry Mukamal, the bankruptcy trustee of E.S. Bankest, L.C., pursuant to which the lawsuits against BDO have been resolved.”
So when I asked if the re-trial was still on, I was simply referred back to the statement which kindasorta makes it sound as though this whole thing is over. But it still isn’t clear to me. Can anyone make sense of this? In the meantime, if I get to the bottom of this riddle, I’ll post an update.
Last week Navistar International Corp. sued Deloitte for $500 million alleging “fraud, fraudulent concealment, breach of contract and malpractice” on audits from 2002 to 2005. That, in and of itself, isn’t too unusual. What is pretty fun (not fun in a “man, the circus is fun” kind of way but in “you’ve gotta love this stuff” kind of way) is when a company comes right out and says that Deloitte lied about its competency to provide audit services.