Accountants’ Liability for Financial or Investment Losses
You probably understand that when your own accountant performs negligent work that causes you financial losses—such as making tax preparation errors or offering bad business advice—you have legal recourse.
But it is less commonly known that an accountant could be liable for your financial or investment losses even when you did not hire them directly.
You can file a lawsuit against an accountant you did not directly hire.
The latter scenario often arises in the context of investment losses. The Business Trial Group is currently representing two clients that filed lawsuits against accountants they did not hire directly, but whose accounting advice and statements they nonetheless relied upon. In both cases, our clients allege that their reliance on a third-party accountant caused them to suffer millions of dollars in losses.
If you think that an accountant may have contributed to your financial or investment losses, the Business Trial Group can help you determine if you have a case.
Lawsuit against McGladrey for Negligent Accounting Advice
We represent IDJB Investments, the majority shareholder and major creditor of Physicians United Plan, Inc. (PUP), a Florida Medicare Advantage Plan, in an accountant and auditor malpractice lawsuit against McGladrey, a major accounting and auditing firm.
The Orlando, Florida malpractice lawsuit alleges that McGladrey’s bad accounting and auditing practices lead to PUP’s failure and resulted in IDJB suffering millions of dollars of financial losses. While PUP hired McGladrey, IDJB alleges damages due to its reliance on McGladrey’s accounting and auditing representations.
PUP was formed in Florida in 2005. IDJB was PUP’s major investor and originally held 100% of PUP’s shares. As PUP grew, the company hired McGladrey as its accounting and auditing firm to monitor PUP so that it could grow, stay compliant with Florida law, and avoid insolvency.
Under Florida law, PUP’s growth necessitated larger capital investments. One way it sought to meet capital requirements was through a series of transactions with the Pacific Western Bank Corporation (PACWEST). The PACWEST transactions were presented to and approved by McGladrey.
While McGladrey assured PUP that the PACWEST transactions complied with Florida’s statutory requirements, they did not comply, leading to a misstatement of PUP’s true financial condition. Following an audit by the state of Florida and adjustments to PUP’s finances, PUP was determined to be insolvent by the state and, ultimately, failed.
IDJB claims that McGladrey knew or should have known that the PACWEST investment scheme did not comply with Florida’s statutory requirements and would have negative financial consequences for PUP—and by extension, IDJB. The lawsuit asserts that if IDJB had been timely made aware of PUP’s true financial condition, rather than relying upon McGladrey’s false and misleading approvals and audits, IDJB would have taken action to protect its interests.
Lawsuit Against Accountant for Financial Statement Errors
In another case concerning an accountant’s involvement in an investment, our client alleges that it relied on financial statements prepared by a company’s outside accountant, Laura Sims of Sims Munson CPA, to make a $2.4 million investment. The company appears to have been a Ponzi scheme and the investor’s money was lost.
Our client learned that the company had no sales at the time he invested.
According to the lawsuit, the plaintiff was considering investing in a company called Rollaguard Security. As part of his due diligence, our client was provided with financial statements from Rollaguard’s outside accounting firm. Based on the financial statements that Rollaguard’s accountants prepared, which showed significant sales, the plaintiff made a $2.4 million investment in the company.
Two years later, Rollaguard filed for bankruptcy. Since that time, our client learned that the company had no sales at the time he invested. The sales were fabricated and the financial statements the he was provided appear to have been false.
The West Palm Beach, Florida accountant malpractice lawsuit alleges that Rollaguard’s accountants knew—or should have known—that the financial statements they prepared and provided to our client were incorrect, misleading, and contained multiple errors. Because our client relied on the materially false and misleading financial statements to make a decision to invest in Rollaguard, the lawsuit states, Rollaguard’s accountants are liable for our client’s investment losses.
Accountants of Madoff Scam Feeder Funds Pay Investors
The two Business Trial Group lawsuits described above assert similar claims to those that investors have asserted against PricewaterhouseCoopers (PwC) and Ernst & Young for their role in the Bernie Madoff investment scam.
Investment firms Fairfield Greenwich Group and Tremont Group Holdings were the two largest feeder funds of the $3.2 billion Madoff Ponzi scheme. PwC units were responsible for auditing Fairfield’s funds from 2002 to 2007, while Ernst & Young audited Tremont’s funds from 2000 to 2003.
Fairfield investors filed a lawsuit against PwC, and Tremont investors filed suit against Ernst & Young. The cases claimed that PwC/Ernst & Young should have uncovered the fraudulent Madoff assets, and that their failure to conduct proper audits caused the investors’ losses.
PwC paid $55 million to settle the investor lawsuit. Ernst & Young was ordered by a Washington state jury to pay investors $25 million. These lawsuits provide additional examples of the circumstances under which parties can file a lawsuit against an accountant they did not hire.
Contingency-Fee Accounting Malpractice Attorneys in Florida
The preceding cases show that an individual or business need not have directly hired an accountant in order to suffer the consequences of an accountant’s negligence.
Pay for results, not hours.
No matter how complex an accountant’s errors, omissions, or misconduct, our Florida accountant malpractice attorneys work on a contingency-fee basis. You will never pay up-front fees; and you will pay no fees at all until we successfully resolve your case.
If you have suffered financial losses due to an accountant’s negligence, error, or fraud, we can help.