Navistar Sues Its Former Auditor Deloitte & Touche

(Corrects company name in fifth paragraph of story published April 26.)

Navistar International Corp. (NAV), a maker of medium- and heavy-duty trucks, accused its former auditor Deloitte & Touche LLP of professional malpractice in a lawsuit seeking $500 million in damages.

Navistar claimed shoddy work by Deloitte & Touche accountants from 2002 to 2005 forced the company to revise its financial statements, according to a 134-page complaint filed today in Illinois state court in Chicago.

“Deloitte lied to Navistar and, on information and belief, to Deloitte’s other audit clients, as to the competency of its audit and accounting services,” the Warrenville, Illinois-based truckmaker alleged in its complaint.

Deloitte & Touche, based in New York, functioned as an auditor, accountant and adviser to Navistar for almost a century, a relationship that ended in April 2006, according to the complaint.

Navistar said in April 2006 that its restatements for 2002 through the third quarter of 2005 were related to warranties and product-development programs at suppliers. It also said it was replacing Deloitte with KPMG LLP. The restatements were made in 2007.

In its complaint today, the truck maker accused its former auditor of fraud, fraudulent concealment, breach of contract and malpractice relating to the advice and auditing services Deloitte gave Navistar.

Jonathan Gandal, a spokesman for Deloitte, said Navistar’s claims lack merit and that the firm would vigorously defend itself.

‘Utterly False’

“A preliminary review shows it to be an utterly false and reckless attempt to try to shift responsibility for the wrongdoing of Navistar’s own management,” Gandal said in an e-mailed statement. “Several members of Navistar’s past or present management team were sanctioned by the SEC for the very matters alleged in the complaint.”

The U.S. Securities and Exchange Commission last year said the truck company had resolved an agency investigation into its accounting practices under which Navistar wasn’t required to admit or deny the SEC’s findings.

“Navistar had numerous deficiencies throughout its system of internal controls during the relevant period, including fifteen material weaknesses during 2005-06 that were attributable, in part, to the company’s failure to dedicate sufficient resources to those controls,” according to the SEC.

Chief Executive Officer Daniel Ustian agreed to surrender to Navistar shares worth $1.3 million, while former Chief Financial Officer Robert C. Lannert consented to repay $1.05 million, each sum reflecting monetary bonuses they’d received during the restatement period, the SEC said. Four other company executives paid civil penalties without admitting liability.

Navistar rose $1.45, or 2.1 percent, to $70.17 in New York Stock Exchange composite trading. Earlier in the day it reached a 52-week high of $71.49.

The case is Navistar International Corp. v. Deloitte & Touche LLP, 2011L004269, Cook County, Illinois, Circuit Court, Law Division (Chicago).

To contact the reporter on this story: Andrew Harris in Chicago at aharris16@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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