Thursday, September 21, 2006

Auditor Can't Escape ANR Action

KPMG Bermuda has lost it’s bid to be dismissed from the ANR securities class action. Senior Judge Ellen Bree Burns (D. Conn.) (pictured left) evaluated the audit firm’s alleged knowledge and intent, holding that “repeated restatements can… raise an inference of scienter.”

The other prong of her opinion addressed materiality, with Judge Burns finding that KPMG Bermuda’s audit opinions, which said that “ANR's financial statements fairly represented its financial position and were created in accordance with GAAP,” “were relied upon by investors making their investment decisions,” and “thus, plaintiffs have adequately pled the existence of material misrepresentations made by KPMG Bermuda.”

You can read Schnall v. ANR, issued August 30, 2006 at 2006 U.S. Dist. LEXIS 61898

Nugget: “While allegations of GAAP and GAAS violations alone are generally not sufficient to create a strong inference, of reckless behavior, where plaintiffs have alleged facts showing that there were numerous red flags that KPMG must have been aware of, if it were conducting any kind of audit, reckless conduct can be, and has been, inferred.”

No comments: