Heller Creditors May Sue Accountant Over Its '07 Audit of Law Firm
Creditors of Heller Ehrman may sue its accountant for allegedly failing to note red flags in its audit report on the law firm’s 2007 financials, according to a bankruptcy liquidation plan filed in federal court last week.
Creditors contend that Ernst & Young was persuaded to list without qualification $11 million in 2007 profit distributions to partners of the firm as a “loan to shareholders,” reports the Recorder. This enabled the firm to present a rosier financial picture to the world by inflating its profits per partner, creditors contend, when in fact, they say, the firm may have been insolvent in 2007.
“Ernst & Young did not totally ignore this devious device in the conduct of its audit. It waffled on the treatment and on confirmation of the transactions in the audit process and the audit report,” states the disclosure filing, referring to the $11 million shareholder loan. “The debtor was damaged by this conduct through both the payments to former shareholders in excess of its distributable net profits, and through permitting it to incur greater losses before its ultimate demise.”
A spokesman for the accounting firm declined to comment.
