Tag: Settlements

KPMG Resolves Lawsuit with New Century

Francine McKenna reported briefly last week that KPMG settled the $1 billion lawsuit with the New Century Liquidating Trustee. Sure enough, we checked with Steven Thomas and he gave us the same statement:

“The New Century Liquidating Trustee and KPMG LLP have entered into a confidential settlement agreement, pursuant to which the lawsuits and arbitration against KPMG LLP and KPMG International have been resolved.”


Well! That’s some important news. We called up KPMG shortly after we read Francine’s post last week to see what they had to say about it and we were told that they’d get back to us. Unfortunately, we’re still waiting but we’re sure they’re excited, just taking the time to find the right words. Anyway, we’re here when you’ve perfected the prose. In the meantime, if you’d like to take a shot at what the response might be, pen it below.

We’ll pass along more details as they become available.

KPMG Chips in as Countrywide Picks up $600 Million in Settlement

Investors who lost money in King Oompa Loompa’s house of no hassle mortgages announced that they have reached a $624 million settlement with KPMG and Countrywide. Maybe that’s why the Kaptains of Klynveld were in such an optimistic mood.


KPMG’s share of the settlement was $24 million which hardly seems worth it. Think about it. Bank of America could probably cough up an extra $24 mil without any trouble and KPMG would probably be fine not cutting a check at all. It’s just like your friend that hassles with you over the check at, “My share was only $18.25.” Eventually you just tell them to f**k off and pay for the whole thing yourself.

BofA’s Countrywide in $624 mln lawsuit settlement [Reuters]

Ernst & Young Pays $8.5 Million to Settle Charges with SEC Over Bally Fraud

Thumbnail image for ey8ball.jpgSix current and former partners at Ernst & Young were charged, along with the firm, by the SEC late yesterday in relation to the audits the firm performed of Bally Total Fitness’ financial statements from 2001 to 2003.
Bally settled accounting fraud charges with the SEC in 2008 that were related to its financial statements from 1997 to 2003.
Because everyone and their dog was freaking out over Enron in screws to their clients to follow GAAP, E&Y had identified Bally as “one of E&Y’s riskiest 18 accounts and as the riskiest account in the Lake Michigan Area.”


Floyd Norris:

The firm forced Bally to stop recording revenue in an improper manner that allowed it to claim earnings earlier than was allowed by accounting rules.
But in doing that, the firm allowed Bally to not admit to having violated the rules in the past, an action that would have forced it to restate its accounts and admit that losses in previous years had been much larger.

Mr. Norris also reported that a source of his at the SEC has stated that “he knew of no previous enforcement cases in which a partner of a major firm was cited for his actions as head of a national office.”
The partner in this case is Randy G. Fletchall, the partner in charge of E&Y’s National Office. He along with Mark V. Sever, E&Y’s National Director of Area Professional Practice, and Kenneth W. Peterson, the Professional Practice Director for the Lake Michigan Area office are the current E&Y partners who settled the charges with the SEC.
The former partners include: Thomas D. Vogelsinger, the Area Managing Partner for E&Y’s Lake Michigan Area through October 2003, William J. Carpenter, the E&Y engagement partner for the 2003 audit, and John M. Kiss, the E&Y engagement partner for the 2001 and 2002 audits.
While the news of a current partner of such lofty heights is notable, an extra twist that isn’t being reported in the MSM comes from GC contributor, Francine McKenna, who tells us that Mr. Fletchall served as the former AICPA Chairman from 2007-2008 and Mr. Sever, a former chairman of the Accounting Standards Executive Committee:

What none of the stories that just hit tell you, though, is that at least two of the EY partners charged, Fletchall and Sever, held leadership positions with the AICPA in the past.
…
Did Mr. Fletchall get off with a slap on the wrist given his AICPA leadership position, AICPA PAC contributions and significant campaign contributions to Senator Christopher Dodd? Mr. Fletchall is used to telling the SEC what it should do. Quite used to it.

These are interesting questions that the SEC probably doesn’t want to address. The connection, in appearance, is shady and we can only speculate as to what happened during the negotiations of the settlement.
The Commission, remaining stoic, gave a standard issue boilerplate statement, saying:

“It is deeply disconcerting that partners, even at the highest levels of E&Y, failed to fulfill their basic obligations to the investing public by not conducting proper audits. This case is a sharp reminder to outside auditors that they must carry out their duties with due diligence. The $8.5 million settlement, one of the highest ever paid by an accounting firm, reflects the seriousness of their misconduct,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

So it appears E&Y is getting sent to their room here, despite the $8.5 million fine being “one of the highest ever paid by an accounting firm.”
The firm also agreed “to undertake measures to correct policies and practices relating to its violations, and agreed to cease and desist from violations of the securities laws.”
Were the AICPA connections enough to keep them out of really hot water? At the very least, it didn’t hurt anything. If you have any information regarding this story, get in touch with us, and we will update you with any developments.
SEC Charges Ernst & Young and Six Partners for Roles in Accounting Violations at Bally Total Fitness [SEC Press Release]
EY Settles SEC Charges Re: Bally’s Fraud-Lives To Audit Another Day [Re: The Auditors]
Ernst to Pay the S.E.C. $8.5 Million [Floyd Norris/NYT]

Deloitte, Grant Thornton Settle with Parmalat Investors

check.jpgU.S. Investors in Paramalat — the disturbingly long-life milk producer — have settled their lawsuit with Deloitte and Grant Thornton for $8.5 million and $6.5 million respectively.

Personally, if you make the decision to be associated with a company that consciously screws with the natural dairy production of a bovine, we’d say you’re on your own. However, this is America, where if you lose an asston of money on an investment (despite the morally ambiguous nature of said investment, not to mention the shiesty management), you sue.

The case was brought by several funds on behalf of thousands of investors who said they lost money from Parmalat’s multi-billion-dollar fraud.

“It is very rare that worldwide coordinating audit networks enter into settlements like what we have,” said James Sabella, a lawyer at Grant & Eisenhofer PA in New York representing the investors, in an interview.

Lead plaintiffs include Hermes Focus Asset Management Europe Ltd, Cattolica Partecipazioni SpA, Capital & Finance Asset Management, Societe Moderne des Terrassements Parisiens and Solotrat, court documents show.

We don’t know about the statement that settlements are “very rare”. The Big 4 has paid out nearly $6 billion in settlements since 1999 and settlements this year have included Deloitte/American Homes and E&Y/Akai.

Regardless, the good news for the investors is at least they got something. The bad news is that it was far less than the amount they claimed to have lost:

The U.S. equity investors believed they suffered $138.2 million of damages, but Sabella said their claims might have been reduced by earlier settlements. He also said taking their case to a jury could have been “full of difficulties.”

A Deloitte spokesperson declined to comment pending the approval of the settlement by Judge Lewis Kaplan. Grant Thornton did not immediately return our email requesting comment.

This latest development in the story that never ends Parmalat case is the first that we’ve reported that doesn’t involve the persistence of the company trying and failing and trying again to chase down banks and auditors for money related to the company’s bankruptcy in 2003. From the looks of it, we’ll be following these developments long into the next decade.

Ex-Parmalat auditors settle US investor lawsuit [Reuters]

Deloitte Settles American Homes Lawsuit

Barry Salzberg.jpgDeloitte becomes the first accounting firm, to our knowledge, to settle a sub-prime lawsuit by burying the hatchet with American Home Mortgage Corporation.
The total settlement was for $37.5 million of which Deloitte’s share was $4.75 million. We’re guessing that Barry Salzberg wasted more money on Rogaine last year.
We should mention that Deloitte and their fellow defendants decided to settle prior to the judge hearing their motions to dismiss the case. We thought this was a little strange so we decided to consult with some experts.
Their take was that the settlement seemed a little premature but made the points that 1) It’s often cheaper to settle early and B) if your company’s name is associated anything “sub-prime” you’re more or less responsible for the whole damn financial crisis.
Another Significant Subprime-Related Securities Lawsuit Settlement [The D&O Diary]