Week before last, I wrapped up a poll on “Next Firm to Collapse.” You can see the results here. Deloitte has as many suits as anybody else, as was reported recently to ACAP, but I hadn’t included them in the poll. There are others with more imminent issues.
Bloomberg reports today:
Bear Stearns Cos., two of its former managers, and auditor Deloitte & Touche are accused in an amended lawsuit seeking $1.5 billion in damages of engaging in fraud before the collapse of two hedge funds.
Two investors and the liquidators of two Cayman Islands funds filed an amended complaint that broadened the scope of an April 4 suit seeking $1 billion in damages. The defendants include Ralph Cioffi, 52, and Matthew Tannin, 46, who were indicted June 19 and accused of misleading investors about the hedge funds, which invested in subprime mortgages. The amended complaint, filed June 30, adds elements of the indictment, including e-mails in which Cioffi and Tannin discuss the declining financial position of the funds before they imploded in July 2007. The collapse of the funds helped trigger the credit market crisis last year and led to the acquisition of Bear Stearns in May by New York-based JPMorgan & Chase Co.
“The funds were doomed to fail, because the Bear Stearns defendants conceived, managed, and deceptively marketed them knowing that they would be viable so long as — but only so long as — the U.S. housing market continued to experience an unprecedented rise,” according to the amended complaint filed n federal court in Manhattan…
A spokeswoman for Deloitte, Deborah Harrington, said in an e-mailed statement that the amended complaint “is totally without merit” and the firm will defend it “vigorously.”
Deloitte certified a flawed model used by Bear Stearns to value assets in the funds’ portfolio and issued clean audit opinions about the funds, according to the complaint.
Deloitte “played a direct role” in the Bear Stearns scheme by “defrauding investors and aiding and abetting the Bear Stearns defendants in the financial and reporting improprieties related to the funds,” according to the complaint.
Bear Stearns was one of Deloitte’s “largest and most significant clients,” paying more than $20 million in fees last year, including $1 million to audit the collapsed hedge funds, according to the complaint…