Kpmg Was Sued

936 WordsMar 24, 20134 Pages
KPMG Sued by New Century Trustee Over Subprime Lender’s Demise By Sophia Pearson - April 2, 2009 00:36 EDT April 2 (Bloomberg) -- KPMG International, which oversees the fourth-largest U.S. accounting firm, was sued by the trustee for bankrupt subprime lender New Century Financial Corp. over claims it failed in its role as “gatekeeper.” Negligent audits and reviews by KPMG LLP, the U.S. member firm of KPMG International, led to New Century’s collapse, according to lawsuits filed yesterday in state court in Los Angeles and federal court in New York. The suits, filed against both KPMG International and KPMG LLP, seek at least $1 billion in damages. “Once an auditing firm lacks independence, then their audits aren’t worth the paper…show more content…
KPMG advised New Century to alter the way it calculated reserves for repurchasing mortgage loans that didn’t meet certain conditions, according to the Los Angeles complaint. New Century’s calculations for required reserves were wrong and violated generally accepted accounting principles, the complaint said. Mistakes in calculation grew to more than $300 million and repurchase requests soared to $8 billion once New Century’s true financial condition was known, the complaint said. The company could no longer borrow money to finance its lending business and collapsed owing billions. ‘Professional Standards’ “Any claim that we acquiesced to client demands is unsupportable,” Ginsburg said. “KPMG acted in accordance with professional standards in New Century, and we will vigorously defend our audit work.” Last year, a report by bankruptcy court examiner Michael J. Missal concluded KPMG could be accused of professional and negligent misrepresentation although the firm had possible legal defenses to such claims. The 581-page report, unsealed in March 2008, didn’t conclude that KPMG engaged in fraud. Thomas, the trustee’s attorney, won a $521.7 million verdict in a similar lawsuit brought by a Portuguese bank against BDO Seidman, the seventh-largest U.S. accounting firm. A jury found in August 2007 that the firm failed to detect a fraud leading to the collapse of a client of Banco Espirito Santo SA, Portugal’s
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