by Brian Mahany
Two of the biggest brokerage industry failures last year were Peregrine Financial Group and MF Global Holdings. In August of last year we covered the Peregrine story after the firm’s CEO attempted suicide and left a note confessing to a massive theft from customers. At that time, we questioned why the firm’s auditors weren’t able to detect a fraud that had gone on for years. Now it seems the feds are asking the same questions.
When accountants and auditors fail to properly due their job, accounting malpractice occurs. Usually the malpractice claim refers to a breach of duty between the accountant and his or her client but third parties such as investors can also bring claims.
Almost immediately after the Peregrine fraud came to light, investors who lost money sued the auditor who gave the firm a clean bill of health. Investors say Veraja Snelling could have “easily detected” the fraud with “minimal investigation.” They say the audit company refused to lift a finger to stop or even detect the fraud.
Earlier this month, the Commodity Futures Trading Commission (CFTC) levied accounting malpractice charges against audit firm Tunney & Associates and owner Michael Tunney for its “audit” of Linn Group Inc, a Chicago firm specializing in trading grain futures.
The CFTC says that Tunney, who was paid $18,000 per year for audit work, had no experience with futures firms. Worse, he outsourced the work to another accountant. Ultimately, the feds say that both were guilty of accounting malpractice since neither was able to discover that Linn was commingling customer monies with its own. (Linn paid a fine and is still in business).
While clients of and even shareholders of investment firms have long filed accounting malpractice suits against auditors that were asleep at the wheel, the suit earlier this month by the CFTC marks the first time that regulators have taken an interest in the firms that audit brokerage firms and other financial institutions.
We have long believed that the millions lost in MF Global and Enron were preventable if the accountants charged with auditing the companies simply did their jobs.
The audit system is broken. Auditors and accountants find themselves in a “Catch 22”. If they fail to give their client high marks they run the real risk of losing the client. Who wants to pay for failing grades? Yet if they do’t tell the truth, investors and customers may sue for accounting malpractice.
If you lost money to a Ponzi scheme, investment fraud or dishonest stockbroker, you probably have a claim. Unfortunately, fraudsters often disappear or spend lengthy sentences in prison. It’s possible to win a judgment but not collect any money.
Successful fraud recovery lawyers find responsible third parties that can be held responsible for losses. That includes filing accounting malpractice actions against auditors that gave a clean bill of health to a company rife with fraud. Not every fraud is easy to detect. Auditors will never have 100% accuracy but should be able to pick up widespread systemic fraud. Particularly if the fraud has been going on for years.
The accounting malpractice lawyers at Mahany & Ertl have helped businesses and individual recovery millions in damages. For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct). All inquiries protected by the attorney – client privilege and are held in strict confidence.
Mahany & Ertl – America’s Tax and Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. Services available in many locations.
Need more information? Our Due Diligence blog has a search engine located in the upper right hand corner. For more information on specific topics, just click the tax or fraud tab or type in the name of a particular topic such as “accounting malpractice” in the search bar. We have posted hundreds of informative articles on our site.