Right to bring securities fraud and RICO action against auditors upheld.The U.S. District Court for the Southern District of Florida upheld investors' right to sue a company's auditors for alleged securities fraud and Racketeer Influenced and Corrupt Organizations (RICO RICO n. . ) Act violations in connection with private and public security offerings. Investors in Sahlen & Associates, Inc., brought an action against multiple defendants, including KPMG KPMG Klynveld Peat Marwick Goerdeler (accounting firm) KPMG Kaiser Permanente Medical Group KPMG Keiner Prüft Mehr Genau (German) KPMG Kommen Prüfen Meckern Gehen Peat Marwick (the company's auditor), after Sahlen declared bankruptcy and its stock became worthless. The investors alleged all the defendants had engaged in a conspiracy--known as "the Project"--to falsely represent Sahlen's true financial condition and induce investment in the company. To further the Project, defendants allegedly created false invoices, forged client's names, altered confirmation letters and set up a separate computer program to portray por·tray tr.v. por·trayed, por·tray·ing, por·trays 1. To depict or represent pictorially; make a picture of. 2. To depict or describe in words. 3. To represent dramatically, as on the stage. the falsified information as accurate. The alleged goal was to produce the illusion of a very successful and rapidly growing company. The scheme was discovered after the company began an internal investigation in response to notice the Securities and Exchange Commission was looking into its accounting practices. Shortly after public announcement of the scheme, Sahlen's common stock was cast into a free-fall and the company sought chapter 11 reorganization. The ruling allowed the investors to maintain a securities fraud case against KPMG. The court said allegations of violation of generally accepted auditing standards Generally Accepted Auditing Standards, or GAAS, are ten auditing standards, developed by the AICPA, consisting of general standards, standards of field work, and standards of reporting, along with interpretations. and generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting , together with allegations that KPMG knew of or recklessly reck·less adj. 1. a. Heedless or careless. b. Headstrong; rash. 2. Indifferent to or disregardful of consequences: a reckless driver. ignored other irregularities in areas such as recognition of accounts receivables accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying , were sufficient to sustain a rule 10b-5 claim under the Securities Exchange Act of 1934. The court also upheld the investors' right to bring a RICO action against KPMG, finding the allegations of multiple misstatements to investors over a period of several years--all to further a scheme to defraud--satisfied RICO requirements. |
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