Professional Services Monitor: Today


July 18, 2007

KPMG May Get Pulled Into New Century Financial Bankruptcy Proceedings

Filed under: Firms,KPMG,Liability — psmtoday @ 12:03 pm

CFO.Com reports (via Jack Ciesielski’s AAO Weblog) that New Century Financial creditors are seeking documents from KPMG relating to the firm’s work for New Century.

While New Century Financial Corp. seeks to retain control of its Chapter 11 process in U.S. Bankruptcy Court, its unsecured creditors want to use the court to probe the relationship of former auditor KPMG to the collapsed subprime mortgage lender.

In a filing with the court in Wilmington, Del., the official committee representing New Century’s creditors sought the ability to force KPMG to produce documents related to its work for the company, according to the Associated Press.

The unsecured creditors want to examine documents related to KPMG’s audits, reviews of the company’s interim financial statements, audits and assessments of internal controls over financial reports, and other professional services provided to New Century, AP said…

While KPMG is still ostensibly New Century’s auditor, in that the company has not yet changed to another firm, the article notes that KPMG’s last opinion was on New Century’s fiscal 2005 annual report.

July 6, 2007

PwC Settles Tyco Litigation

Filed under: Firms,Liability,PricewaterhouseCoopers — psmtoday @ 4:17 pm

PricewaterhouseCoopers today paid $225 million to settle audit malpractice claims in conjunction with Tyco International. The firm said it settled due to the cost of defense and the size of the class action suit, despite saying that it was prepared to defend itself against the claims.

The settlement applies to claims from both Tyco investors, who had filed a class-action lawsuit against the accounting firm in federal court in New Hampshire, and the company itself. The agreement was disclosed Friday in a legal filing by PwC, Tyco and the class-action investors.
Tyco’s involvement in the PwC deal followed on its agreement in May to settle for $2.975 billion claims brought against it by the same class-action plaintiffs — removing a cloud of liability that shadowed the conglomerate as it split into three publicly traded companies. As part of that agreement, Tyco allowed investors to pursue its claims against PwC, while the company would pursue claims on behalf of shareholders against former executives including L. Dennis Kozlowski.

The WSJ article also included some interesting metrics on the size of the settlement relative to the case and PwC.

The PwC settlement ranks among the top 10 legal payouts made by accounting firms related to work on behalf of one company. Ernst & Young LLP’s $335 million settlement in 1999 related to work for Cendant Corp. remains the biggest-ever payout by an auditor.
As a percentage of the overall settlement reached by the company and other parties — a key metric considered by accounting firms — the PwC deal represented a payout on its end of about 7% of the total. That is generally in line with payouts by accounting firms, which tend to range from 5% to 15% of total payouts.

Tyco had reached its own agreement with plaintiff’s in May, paying out $3 billion to settle suits, ahead of its June split into three separate public companies. The terms of Tyco’s settlement turned Tyco’s claims against PwC over to the plaintiff shareholders.

PricewaterhouseCoopers didn’t settle. As part of the agreement, Tyco assigned to the shareholder plaintiffs the right to pursue the company’s claims against Pricewaterhouse for accounting malpractice and to keep any damages. Jay Eisenhofer of Grant & Eisenhofer, one of the lead-counsel firms in the case, said, “Pricewaterhouse is liable potentially for billions of dollars” for not spotting and stopping fraud while auditing Tyco’s books.