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Hughes Hubbard’s Professional Liability Practice Group The group’s lawyers represent large professional service firms, foreign firms that are members of their respective international networks, and individual partners, principals and employees during investigations by the Securities and Exchange Commission’s Division of Enforcement, the Public Company Accounting Oversight Board, the Department of Justice and other federal and state law enforcement and regulatory agencies. Partners Derek J.T. Adler Sarah L. Cave Scott H. Christensen Kevin F. Clines Jeffrey R. Coleman Hagit M. Elul John Fellas Savvas A. Foukas Vilia B. Hayes Christopher K. Kiplok Edward J.M. Little William R. Maguire Neil J. Oxford Seth D. Rothman William R. Stein Nicolas Swerdloff Marc A. Weinstein David W. Wiltenburg John F. Wood Counsel Kenneth M. Katz 1 5 7 9 11 13 14 16 The Continuing Impact of Omnicare on Auditor Liability under the Securities Laws The developing jurisprudence confirms that the Supreme Court’s decision in Omnicare has profound implications for civil suits against auditors. Madoff Litigation Against Auditors Winds Down Three significant events in the past year indicate that litigation against auditors connected to the collapse of Bernard L. Madoff’s Ponzi scheme may finally be nearing its end. Second Circuit Upholds Dismissal of Securities Fraud Claims Against Ernst & Young In January 2016, the Second Circuit affirmed the dismissal of a securities fraud class action against Ernst & Young Hua Ming arising from its client’s fraudulent financial reporting. Seventh Circuit Upholds Dismissal of Claims Against Auditor in Connection with Ponzi Scheme In Peterson v. McGladrey LLP, the Seventh Circuit affirmed, under the in pari delicto doctrine, dismissal of malpractice claims by the bankruptcy trustee for Lancelot Investors Fund Ltd. against the funds’ auditors. Deloitte Outruns Crocs Investor Suit In July 2016, the Tenth Circuit affirmed the dismissal of securities fraud claims against Deloitte & Touche LLP stemming from its audits of Crocs Inc., rejecting as a “red flag” Crocs’ “archaic” accounting systems. New York Jury Verdict in Lipper Case Nearly 15 years after the lawsuit was first filed, a New York state court jury awarded hedge fund founder Kenneth Lipper a $6.1 million verdict against PricewaterhouseCoopers stemming from the collapse of several of his hedge funds. New York Jury Finds in Favor of KPMG In November 2015, a jury returned a verdict for KPMG concerning claims brought by GSP Finance LLC relating to its loans to the owners of the Texas Rangers and the Dallas Stars. Section 11 Claims Against EY Dismissed On Summary Judgment In May 2015, a New York District Court granted summary judgment in favor of Ernst & Young LLP, ending a securities fraud suit arising from the bankruptcy of Overseas Shipholding Group.
This newsletter provides general information and should not be used or taken as legal advice for specific situations, which depend on the evaluation of precise factual circumstances. You are urged to consult legal counsel concerning any specific situation or legal issue. 17 19 21 23 25 New Jersey FEDERAL Court Declines to Dismiss Securities Fraud Claims Against Auditor In Sun v. Han, a New Jersey federal court denied an auditor’s motion to dismiss securities fraud claims by investors in Telestone Technologies. Federal Court Rejects Subpoena TO Global Deloitte Firm for Member Firm’s Files In March 2016, a New York federal court refused to compel the international organization of Deloitte member firms to comply with a subpoena seeking production of a letter held by a Deloitte member firm. New York Court of Appeals Limits Common Interest Privilege In June 2016, the New York Court of Appeals limited protection of communications between third-parties with a “common interest” to only communications concerning pending or anticipated litigation. Second Circuit Rules on Statutes of Repose In SRM Global Master Fund Limited Partnership v. Bear Stearns Companies LLC, the Second Circuit reaffirmed that statutes of repose are not subject to tolling. Toshiba Accounting Investigation As the dust settled following the revelation of a billion-dollar accounting scandal at Japanese electronics conglomerate Toshiba, the company’s auditor, Ernst & Young ShinNihon, found itself the subject of sanctions imposed by Japanese financial authorities. Associates Brett Collings Karen Goldberg Meaghan Gragg Amina Hassan Jesse L. Jensen Jeffrey S. Margolin Samuel C. McCoubrey John McGoey Carl W. Mills Jordan E. Pace Lena Saltos Yoshinori Sasao Fara Tabatabai Editors Sarah L. Cave Karen Goldberg Jesse L. Jensen 26 Recent SEC Enforcement Efforts Against Auditors In recent public statements, the SEC has reiterated its emphasis on enforcement efforts against so-called “gatekeepers,” signaling that auditors are still in its crosshairs. 27 PCAOB Concerned About Audit Quality, Self-Reporting, and Altered Documentation In several recent pronouncements, the PCAOB has expressed concern on issues ranging from general weaknesses in the audit practice to instances of altered documentation.
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