IPERS claimed the firm aided and abetted the theft of millions of dollars of pension money by failing to detect fraud, the DesMoines Register reports.
Iowa officials said Deloitte issued unqualified or “clean” audit reports that IPERS relied on in purchasing fraudulent securities.
The litigation is linked to the criminal case of California-based Westridge Capital Management and a registered broker-dealer, WG Trading Co. based in Greenwich, Connecticut. In 2009, two principals of the companies, Paul Greenwood and Stephen Walsh, were indicted in New York and accused of stealing as much as $554 million of investors’ money to pay for lavish lifestyles that included luxury homes, a horse farm, art and expensive collectibles (see “Iowa State Pension Hit for $339M in WG Trading Fraud”). Greenwood pleaded guilty and awaits sentencing. Walsh is awaiting trial.
The Iowa pension fund invested $496 million with Westridge in 2007 and 2008. IPERS officials announced last year they had recovered $215 million through a court-appointed receiver, and the investment also had some market losses. But, according to the DesMoines Register, the Iowa pension fund still has not recovered $38.1 million of its “net investment,” the lawsuit says. It also hasn’t recovered income or capital appreciation it would have earned if the money had been invested in a legitimate entity. The suit seeks compensatory and punitive damages and legal fees.A Deloitte spokesman said the suit is without merit and its employees did not audit the financial statements of the entities at which the fraud allegedly occurred. The news report said Deloitte spokesman Jonathan Gandal stated that Deloitte audited only the financial statements of WG Trading Co. Limited Partnership through 2007, and there is no information calling into question either the correctness of those financial statements or Deloitte’s compliance with professional standards.
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