Deloitte Touche Bermuda Facing Fraud Claims In United States

by Glen Shapiro, LawAndTax-News.com, New York

25 June 2003

According to a New York Law Journal report published on Tuesday, Deloitte Touche Bermuda (DTB) is set to stand trial over its alleged role in the $400 million fraud perpetrated by the Manhattan Investment Fund.

The hedge fund's principal, Michael Berger admitted lying to and defrauding investors in the Southern District of New York Court in 2000, but reportedly fled before sentencing could take place, and has not been seen since.

DTB has been implicated in the fraud because of the audits which it conducted for the Manhattan Investment Fund in fiscal 1996 and 1997, and according to the NYLJ, faces claims alleging securities fraud, aiding and abetting common law fraud, breach of fiduciary duty, common law fraud, negligence, and professional malpractice.

However, the firm recently filed a summary judgement motion, arguing that the Southern District court has no subject matter jurisdiction.

Rejecting the motion, federal judge, Denise Cote announced this week that:

'All of the causes of action and defendants are tied together through their connection to the single scheme which was the fraud committed by Berger in New York. It matters not, therefore, whether any beneficial owner of shares in the Fund or the two named plaintiffs are United States citizens.'

She went on to add that:

'The issue is whether the court has jurisdiction over the transaction, not whether it separately has jurisdiction over the particular acts committed by each defendant in connection with the transaction. Indeed, it is the simple fortuity of litigation that Berger himself will not be sitting as a defendant in the upcoming trial.'

DTB has also reportedly argued that the securities fraud claims against it are invalid, suggesting that the plaintiffs in the case cannot prove that they relied on the audits that it conducted, or that their losses resulted from inadequacies in the audits.

However, Judge Cote dismissed this, announcing that:

'It is undisputed that the annual audit confirmed the reported year-end financial statements for the Fund, including the year-end NAV. That is sufficient to support the presumption of reliance.'

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