A Washington state jury found Ernst & Young at fault on Friday for millions of dollars in losses a Washington investment firm ate when Madoff’s Ponzi scheme collapsed.
Ernst & Young and FutureSelect Portfolio Management
Judge Beth M. Andrus of the King County Superior Court in Seattle presided over the case which saw Ernst & Young found liable for its auditing of a feeder fund that sent cash to Bernard Madoff. The jury was sent to deliberate last Tuesday; with the court closed for Veteran’s day on Wednesday the jury finally delivered its verdict on Friday.
Steven W. Thomas, attorney for FutureSelect Portfolio Management Inc., maintained throughout the suit that Ernst & Young was negligent in its auditing of Madoff as he sought to recover money for FutureSelect. Essentially, the suit accused Ernst & Young of supplying false information to FutureSelect, and by proxy, its clients who were put into Madoff’s failed investments.
The Ponzi scheme, which collapsed in 2008, lost investors around $17 billion of which $200 million was supplied by FutureSelect and its clients. Mr. Thomas said the jury awarded total damages of $20.3 million, which the firm lost during the time in Ernst & Young were serving as auditors.
Ernst & Young to appeal?
“EY was not the auditor of any Madoff entity; we were among the many auditors of funds that chose to use Madoff as their investment adviser. While we regret the investors’ losses, no audit of a Madoff-advised fund could have detected this Ponzi scheme,” Ernst & Young’s Amy Call Well said in an email to the Wall Street Journal.
Mr. Madoff is currently serving a “life sentence” of 150 years as his firm continues its liquidation.
Ernst & Young lawyer James Bennett continues to maintain that Ernst & Young did its job and that the firm was hardly the only one to be fooled by Madoff. He also maintains that the onus should be placed on FutureSelect and other firms to have researched Madoff better given that his firm offered returns that “were too good to be true.”
Clearly FutureSelect and its counsel disagree.
“They are the first auditor to be found liable in the Madoff case,” Mr. Thomas said. “We are incredibly grateful to this jury for listening to the evidence and finding that auditors are the gatekeepers, and where the financial statements are fraudulent, it’s their job to say whether they’re real or fake before they get to investors.”