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KPMG faces $1 bn law-suit over reckless audits: report

KPMG faces $1 bn law-suit over reckless audits: report
PTI
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First Published: Fri, Apr 03 2009. 02 44 PM IST
Updated: Fri, Apr 03 2009. 02 44 PM IST
London: Accounting major KPMG is being sued for $1 billion in damages from a trustee of collapsed American lender New Century Financial Corporation and has been accused of conducting “reckless and grossly negligent audits”, a media report says.
Law firm Thomas, Alexander & Forrester LLP has filed two suits on behalf of the trustee -- one in California against KPMG LLP and another in New York against its parent, KPMG International, according to a report in The Guardian.
“Alan M Jacobs accuses KPMG of conducting ‘reckless and grossly negligent audits´ that failed to show the lender’s financial problems,” the report published online stated.
However, the auditing firm has denied any wrongdoings.
The lawsuits allege that KPMG LLP assisted in and certified “materially misstated financial statements”, and that KPMG’s international parent failed in its watchdog role and is responsible for “the severely reckless and grossly negligent acts of its agent”, the report pointed out.
New Century had been US’s second-biggest sub prime mortgage lender that mainly served people with poor credit histories but had to file for bankruptcy in April 2007.
The Guardian quoted a KPMG spokesman as saying that, “KPMG acted in accordance with professional standards in New Century, and we will vigorously defend our audit work. Any implication that the collapse of New Century was related to accounting issues ignores the reality of the global credit crisis. This was a business failure, not an accounting issue.”
Further, the lawsuits cite emails which allegedly show that specialists within KPMG had tried to point out errors in the company’s financial statements but were silenced by the KPMG partner in charge of the audits.
The lawsuit alleges this was “to protect KPMG’s business relationship with, and fees from, New Century”, the report stated.
The lawsuits were filed in the superior court of California in Los Angeles county and the US district court in the southern district of New York.
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First Published: Fri, Apr 03 2009. 02 44 PM IST