Sunday, 7 February 2016
Last updated 2 days ago
Feb 9 2009 | 3:01am ET
For the first time, KPMG finds itself caught up in the legal crossfire surrounding Bernard Madoff’s alleged $50 billion Ponzi scheme.
The auditor has been sued by an investor in a Madoff feeder fund, alleging it missed a series of red flags while looking over the books of the Rye Select Broad Market XL Fund. The hedge fund in question was managed by Rye Investment Management, the Tremont Group hedge fund unit that announced last month that it would close after losing all of its assets in the Madoff scandal.
The 2005 Tomchin Family Charitable Trust’s complaint, filed last week, alleges that KPMG ignored its obligations to carefully audit the once-$213 million fund’s financial statements, according to a press release from the Pomerantz law firm, which is handling the case. In particular, the lawsuit focuses on KPMG’s signing off on financial statements that claimed the fund’s assets were entirely invested in Treasury bills every Dec. 31, despite the fact that Madoff claimed to employ a split-strike strategy.
The lawsuit also targets Tremont and several of its executives, accusing them, like KPMG, of breach of professional, fiduciary and contractual duties.
“Tremont collected millions of dollars in management fees from the fund while turning a blind eye to numerous red flags indicating that Madoff was a fraud and that the fund's assets were in grave danger,” Pomerantz partner Marc Gross said. “Tremont could not have done this, however, without the imprimatur received from the Fund's auditor, KPMG, which told the fund that there was nothing to worry about and that its assets were safely invested. We hope this case is a major step in recovering the fund's losses caused by these derelictions of duty.”