March 23 (Bloomberg) -- Deloitte & Touche LLP, one of the so-called Big Four accounting firms, was sued by a pension fund over WG Trading Co., the company allegedly used in a Ponzi scheme by former managers Paul Greenwood and Steven Walsh.
The Iowa Public Employees’ Retirement System suffered millions of dollars in losses as a result of the scheme, according to the lawsuit, which was filed in federal court in New York yesterday.
Deloitte & Touche served as the auditor of a company controlled by the operators of the scheme and “aided and abetted” it by issuing “unqualified and/or ‘clean’” audit reports that the pension fund relied on while purchasing securities that were issued as part of the scheme, according to the complaint.
Deloitte “acted in willful blindness of the scheme, and its auditing practices were so deficient that the audits amounted to no audit at all, or an egregious refusal to see the obvious, or investigate the doubtful, and the professional judgments which it made were such that no reasonable auditor would have made the same decisions if confronted with the same facts,” lawyers for the pension fund said in the complaint.
The claims are “ill conceived” and without merit, Jonathan Gandal, a spokesman for Deloitte LLP, said in an e-mail. Deloitte & Touche, based in New York, is a subsidiary of Deloitte LLP, the U.S. arm of U.K.-based Deloitte Touche Tohmatsu Ltd., according to its website.
“Deloitte & Touche LLP did not audit the financial statements of the Westridge entities at which the fraud allegedly occurred,” Gandal said. “Rather, Deloitte audited the financial statements of a separate entity, WG Trading Company Limited Partnership, through 2007, and there is no information which calls into question either the correctness of those financial statements or Deloitte’s full compliance with professional standards.”
Any wrongdoing is “solely attributable” to the principals of the Westridge entities, one of whom has already pleaded guilty to related charges, Gandal said.
Greenwood and Walsh were indicted in July 2009 on charges that they conspired to defraud investors of $554 million. The U.S. said the scheme stretched from 1996 until the men were arrested in February 2009. Greenwood pleaded guilty to six charges, including conspiracy and securities fraud. Walsh has pleaded not guilty.
The four largest accounting firms are Ernst & Young LLP, PricewaterhouseCoopers LLP, KPMG LLP and Deloitte & Touche.
The case is Iowa Public Employees’ Retirement System v. Deloitte & Touche LLP, 12-cv-2136, U.S. District Court, Southern District of New York (Manhattan).
To contact the editor responsible for this story: Michael Hytha at email@example.com