Top Lawsuits Against Auditors

Big Four auditors have been hit with lawsuits stemming from their role in the credit crisis, though they have won dismissal or settled some key cases. Below are some of the major lawsuits and their status.

• AMERICAN INTERNATIONAL GROUP – PricewaterhouseCoopers in October 2010 won a key ruling in the New York Court of Appeals, which affirmed the auditor’s “in pari delicto,” or equal fault, defense against a lawsuit brought by the Teachers’ Retirement System of Louisiana. Citing the New York ruling, the Delaware Supreme Court dismissed the lawsuit against PwC on Jan. 3. The case is Teachers’ Retirement System of Louisiana et al v. PricewaterhouseCoopers LLP, Delaware Court of Chancery, No. 454-2009.

• PwC still faces a lawsuit filed by former AIG employee Wanda Mimms earlier this month in federal court alleging negligence in its audits of AIG. The case was brought as a derivative action on behalf of the AIG Incentive Savings Plan. The case is Mimms v. PricewaterhouseCoopers LLP et al, U.S. District Court, Southern District of New York, No 11-00030.

• FANNIE MAE – Deloitte & Touche LLP in September 2010 won dismissal of a federal securities lawsuit brought by Fannie Mae stock investors alleging they were misled about the mortgage financier’s subprime mortgage risk. The judge ruled Fannie Mae had made many disclosures about its subprime risks and found no fraudulent intent by Deloitte. The case is In re: Fannie Mae 2008 Securities Litigation, U.S. District Court, Southern District of New York, No. 09-md-02013.

• BEAR STEARNS – Bruce Sherman, chief executive of Private Capital Management LP and once one of Bear Stearns’ largest investors, in September 2009 sued two Bear Stearns executives and auditor Deloitte to recover losses from an alleged valuation fraud. Sherman accused the company and its auditors of overstating the value of mortgage, asset-backed and derivative securities. The case is Sherman v. Bear Stearns Companies Inc. et al, U.S. District Court, Southern District of New York 2009-cv-08161.

• COUNTRYWIDE – KPMG in May 2010 agreed to pay $24 million to resolve class-action litigation brought by several pension funds, including the New York State Common Retirement Fund, for its audits of Countrywide Financial Corp, the troubled home lender that is now part of Bank of America Corp. The case is In re: Countrywide Financial Corp Securities Litigation, U.S. District Court, Central District of California, No. 07-05295.

• LEHMAN – Then-New York Attorney General Andrew Cuomo in December sued Ernst & Young over allegations it helped hide Lehman Brothers’ financial problems before its September 2008 bankruptcy. The civil fraud case accuses Ernst of standing by while Lehman used accounting gimmickry to mask its shaky finances. Ernst & Young has said the claims have no factual or legal basis and it intends to defend itself in court. The case is New York v. Ernst & Young LLP, New York County Supreme Court, No 451586/2010. Ernst has filed to move the case to federal court, where the case is New York v. Ernst & Young LLP, U.S. District Court, Southern District of New York, No. 11-00384.

• WASHINGTON MUTUAL – Deloitte & Touche is a defendant in a 2008 lawsuit alleging it failed to comply with generally accepted auditing standards or disclose that the bank was originating high-risk loans and had inadequate provisions for loan losses. Ontario Teachers Pension Plan Board is lead plaintiff. The case In Re: Washington Mutual Securities Litigation, U.S. District Court, Western District of Washington, No 2008-md-01919.

(Reporting by Dena Aubin, editing by Matthew Lewis)