re: The Auditors » Parmalat

Deloitte and Litigation – Ya Win Some, Ya Lose Some

Francine — Fri, 20 Jun 2008 15:45:00 +0000

Deloitte is in the news for some significant litigation issues.

First the winner.

This ruling, I think, will have a big impact on the auditor subprime cases to come. Many of these cases, when it comes to the auditors liability, will be based on whether auditors should have been more diligent, thorough, and hard on banks and mortgage companies with regard to their valuation models and estimates for loan losses and reserves.

Were any of the banks or mortgage companies already insolvent or in a “deepening insolvency” and the mistakes, negligence or outright “aiding and abetting” on the part of the auditors to prop them up by holding off on “going concern” or other negative opinions only prolonged the eventual misery to investors’ detriment?

Deloitte Is Protected in “Insolvency” Ruling
A Pennsylvania judge says that a firm that improperly keeps a company out of bankruptcy may not be liable, unless it is negligent in other ways, too.

A recent Pennsylvania Court ruling favoring Deloitte & Touche seems to restrict a company’s ability to win a case against an accountantcy for actions that lead to the company’s “deepening insolvency,” unless the accountant is negligent in other ways as well.

The issue arose in a lawsuit that Reliance Insurance Co. filed in the state’s Commonwealth Court against Deloitte & Touche, over allegations that the accountancy improperly certified that the insurer’s loss reserves in 1999 was reasonable. That caused Reliance to take underwriting losses on payments that it could not really make, to avoid the wrath of regulators, and to go deeper into debt when it should have declared bankruptcy, according to The Legal Intelligencer newspaper.

Now the losers.

Looks like the Parmalat folks are still not letting Deloitte off the hook. Deloitte keeps settling and paying, but obviously, since they have not proven their “innocence” in a court, the shareholders, bondholders and others seeking damages will still keep going after the firms considered, “deep pockets.” And what’s to dissuade them when the firms are still willing to reach into those pockets and pay rather than go to trial?

Former auditor Deloitte has reached a settlement in an ongoing court case in Milan to reimburse some 16 million euros to former holders of Parmalat bonds. The agreement however has to be approved by the court in a hearing that will be held on September 19, Italian daily Il Sole added.

The report said that so far 88 percent of the bond-holders, mostly members of the Sanpaolo Committee, accepted the settlement and will receive some 14 million euros, while another two million euros will be paid to bond-holders belonging to other associations. Deloitte has already paid an additional 8.9 million euros on the bank accounts of 11,179 investors who have filed a civil claim.

Parmalat Suits Target Deloitte, Grant
Looking to milk more from the Italian dairy’s accounting scandal, investors also eye Citi and Bank of America, as well as the two auditors

In another round of lawsuits stemming from the Parmalat accounting scandal, individual investors claiming losses from the Italian dairy giant’s 2003 collapse plan to sue Deloitte & Touche and Grant Thornton, along with Citigroup and Bank of America. The plaintiffs will probably demand more than $77 million in damages in litigation filed in Milan, according to a Reuters report quoting Vincenzo Somma, head of legal and economic studies at Altroconsumo, an independent consumer protection association. A majority of the more than 6,000 retail investors are Italian, but they will be joined in the suit by a number of European institutional investors based outside Italy, according to Somma.

Citicorp Following Attanasio Lead In Parmalat Litigation

Francine — Sun, 18 May 2008 07:19:00 +0000

Hmmmmm

Maybe I should have copyrighted the term “dupe” when it comes to playing dumb to get off the hook in these accounting fraud cases. Looks like Citicorp’s lawyers see a winner, too, in the strategy Mr. Attanasio used to get Mr. Stulac of Arthur Andersen off the hook in the Peregrine case.

They actually use the word, “Dupe” with reporters!

Who’s next?

Maybe Grant Thornton in the Parmalat case?

Maybe Grant Thornton, EY and PwC in the Refco case?

Mr. Attanasio: Let me know if they call. I’ll take my commission in cash.

Parmalat’s CEO, Dr. Enrico Bondi, who is suing on behalf of Parmalat, claims Citi bankers were complicit in the company’s meltdown by helping Parmalat insiders loot the company and conceal off-balance-sheet debt. Bondi’s lawyer, Kenneth Chiate of Quinn Emanuel in L.A., said in his opening that the bankers were driven by “greed” and wanted to make “higher bonuses and higher salaries through making loans to a company” — i.e. Parmalat — “that they shouldn’t have been making.” Bondi is suing Citi for $2.2 billion.

But Citi’s lawyer — Paul Weiss’s Ted Wells — said in his opening that the bank lost more money than any other creditor as a result of the fraud committed by the allegedly corrupt insiders at Parmalat. “Citigroup was the biggest victim,” Wells said. “We were the biggest dupe. We were the biggest sucker and it was embarrassing.” Citi is seeking $699 million in counterclaims in the New Jersey case, which, reports Bray, is expected to last up to three months. Wells said the bank made only about $131 million in fees in about nine years of working with Parmalat. The bank has since recovered about $330 million it lost due to the fraud, Wells said.

Fine Company, Even Finer Conversation

Francine — Thu, 01 May 2008 13:32:00 +0000

Picture Source

My Twitter communiques (follow me!) reported my pleasure at the invitation to a private dinner Monday night with a delegation from the European Parliament. I accepted it immediately, when it arrived, not knowing how or why it had. But a luxe dinner with smart people, especially foreign visitors, is always my cup of tea.

The meal was sponsored by the Chicago Council on Global Affairs and the Konrad Adenauer Foundation for a delegation of German and Austrian European Parliament members. They’re on a whirlwind tour to Boston, New York, Chicago and DC to get an update on US business and political issues of interest. Here in Chicago they had several meetings earlier that day with business and academic leaders and with Barack Obama’s Chicago-based campaign manager.

According to several in the delegation, Obama is the hands-down choice for President of the US by Germans. If he were running in Germany, they said, he would win by a landslide. It was refreshing to be in a serious business setting and not have to make excuses for my more progressive views, for a change. I may not have been the most progressive in the room!

The delegation was very impressed at the organization of the Obama campaign and its success thus far but most distressed, as most anyone outside the US usually is, by the amount of money being spent on the campaigns. They find it obscene.

The first people to greet me as I arrived at the private dining room in the Park Grill restaurant at Millennium Park here in Chicago were Dr. Norbert Wagner and his beautiful wife Gabriela, the hosts of the dinner. Dr. Wagner is a distinguished looking diplomat-type and the Executive Director of the Konrad Adenauer Foundation in Washington DC.

It was explained to me later that each of the major political parties in Germany has such a foundation/think tank for advocacy and lobbying and conducts this kind of education and outreach on behalf of Germany’s and that party’s interests all over the world. The Konrad Adenauer Foundation is aligned with the Christian Democrats in Germany and, therefore, many of the parliamentarians present were of that persuasion.

Dr Wagner’s first question to me, after looking at my name tag, was, “Are you Andy McKenna’s wife?” It seems that the delegation had the pleasure of meeting earlier in the day withthe accomplished businessman and now Republican Party of Illinois Chairman, Andrew J. McKenna, Jr.

My answer to this question, and I get it all the time, usually is, “Why do you ask?” But I didn’t want to be coy with this crowd and, so, I said no. I’m not Mrs. McKenna. That’s my mother. Andy and I are from completely different sides of the world, literally and figuratively…

We had a lovely dinner, with plenty of German wine and then a few speeches. Afterward, an open dialogue was encouraged. The discussion was started by a gentleman named J. D. Bindenagel. He was quite emphatic in his points on Iraq, Afghanistan and was beating the “Iran is very dangerous” drum.

After some spirited discussion, the German Consul for Chicago Wolfgang Drautz, who was seated at my left, whispered in my ear, “Francine, please ask a question on regulation of capital markets and the accounting firms.”

I don’t often get such a plea, but for some reason he was anxious to change the subject.

My question:

What is the view of the European Parliament of the role of national regulators in the subprime crisis and the role of the Big 4 firms in ensuring scandals such as Parmalat, Northern Rock, Siemens, and Royal Ahold do not repeat?

The respondent to my question, deemed the expert in these areas, was Dr. Werner Langen, a member of the European Parliament and Chairman of the CDU/CSU Group in that body. He spoke in German and Dr. Wagner translated. His remarks, abbreviated and loosely translated, were:

The Parliament is very disappointed in local regulation of the financial markets in light of recent scandals. Recent capital markets upheavals and economic issues such as the subprime crisis are now threatening the economic health of the EU as well as of the US.

We are especially concerned at the failure of the rating agencies , Moody’s, Standard and Poor’s, and Fitch , to provide objective and competent ratings. We are looking at the lack of competition and lack of proper incentives in this industry for opportunities to improve reliability of information to investors.

In addition, outrageous salaries and compensation have distorted motives and values and made it difficult for senior managers, such as Deutsche Bank’s Ackerman, to sufficiently supervise bankers and traders that are being paid amounts more than 10 times more than he is.

The EU Parliament is considering whether tighter and more consistent regulation at the EU level can bring more accountability and transparency and prevent future economic scandals and dislocations.

The Topic Is BDO – Discuss

Francine — Sat, 25 Aug 2007 01:57:00 +0000

Neil McIntyre, CA-in-Waiting and Canadian boy-wonder blogger, wrote a post recently called, Sucks To Be Seidman. Neil is feeling this crisis personally and, if his picture wasn’t so darn cute, I would worry he was verklempt.

Reasonable assurance is neither reasonable nor assured.

Discuss.

Neil says:

“By now, the verdict in the BDO Seidman lawsuit has been covered by all the major industry blogs. All the heavyweights have registered their opinions in this great swirling mass known as the blogosphere. The mainstream media has tossed it around this way and that. There is near unanimity amongst all commenters: Sucks to be them.

I don’t disagree completely…”

I’ve joined the discussion between Neil, Krupo and Dennis. A few excerpts:

“Neil,two things:

1) Faked confirmations were the smoking gun in the Parmalat/Deloitte/Grant Thornton debacle. GT excuse? I was duped! ‘Nuf said.

2)BDO has been fighting (albeit successfully) instead of settling because they can’t afford to settle…”

Neil asks me:

“Francine, Is BDO doing the right thing compared to what KPMG did?”

My response:

“Neil,
I think KPMG did entirely the wrong thing for their partners, both the accused and those that remained…That being said, …(BDO has) been winning (even winning on the same tax shelter case that KPMG paid 400+ million on when they capitulated,) I would say they are very good at choosing very good lawyers, for sure…They are betting the farm every time they choose to fight instead of settle. If they’re in the right, then fight. But if they’re just being stubborn, cheap or irresponsible…”

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