Category: Accountants

In a decisive win for the malpractice community, an independent auditor achieved dismissal in a securities fraud class action lawsuit by way of a 12(b)(6) motion. The Middle District of PA dismissed some of the claims against a troubled bank and all claims against the bank’s public offering underwriter and its outside auditor. The court accepted the auditor’s arguments that the plaintiff had failed to establish the requisite element of scienter necessary to maintain a securities fraud claim and, moreover, had failed to properly plead …

In a widely watched and long-awaited decision, the North Carolina Supreme Court definitively determined that an independent auditor has no fiduciary duty to the company, overturning a 2014 Court of Appeals decision finding that such a duty existed. The court, however, was evenly divided on the issue of whether the company’s claims were barred by the defenses of in pari delicto and contributory negligence, leaving undisturbed (albeit without precedential value) the Court of Appeals’ decision that the defenses did not bar the remaining claims. Certified …

The most common forum for malpractice claims is civil litigation. However, a professional may find himself in a potentially worse situation if the appropriate professional regulatory board also gets involved. Take for example a recent case of accounting malpractice that demonstrates the serious side effects that can occur when an accountant falls short of the standards of the profession.

In the underlying matter the SEC permanently suspended Accountant from appearing and practicing before the SEC for conducting a faulty audit of its client, a public …

If you are in the world of finance, accounting or tax chances are you have probably heard of Sam Wyly and his late brother Charles Wyly.  In recent years, the business mogul brothers have been the hot topic of litigation as they battled with the IRS and SEC over alleged tax and securities fraud that may have spanned decades.  In the most recent decision to come out of the Wyly saga, Sam Wyly was ordered by a Dallas bankruptcy court to pay $1.1 billion in …

In the face of corporate fraud and deceit, it is not uncommon for the defrauded entity to turn on its professionals. The inevitable issue becomes who is responsible for overseeing the enterprise: the business entity or the independent professional? Perhaps both. The in pari delicto affirmative defense can be an effective tool for professionals to shield themselves from liability arising from alleged wrongdoing of their underlying client. For example, we previously posted a victory for an accountant who successfully asserted the defense here. But, …

For the second time in a few weeks, the Second Circuit dismissed a securities fraud claim targeting an independent auditor. In Special Situations Fund III QP, L.P.,, the Court was tasked with reviewing the trial court’s dismissal of plaintiff’s second amended complaint.  The underlying allegations were that the company disclosed that its former CEO and other executives had committed fraud for years by misstating its financials and embezzling funds. Plaintiff alleged that the company’s independent auditor committed securities fraud by issuing a “clean audit …

Unlike most malpractice scenarios, alleged negligence is not enough to sustain a claim in the context of securities fraud against an independent auditor. Rather, in most jurisdictions the plaintiff must establish that the audit was of such little value that it was a “pretend” audit which provided no benefit. Alleging that the auditor could have done more is insufficient absent properly pled allegations that the auditor maintained an evil intent or acted with reckless conduct. This standard is fairly well-developed. Yet, the exposure is often …