Ernst & Young faces a civil trial following a claim by three leading US banks that it failed to detect serious flaws in a client's financial statements, according to the New York Law Journal.
The banks, led by LaSalle National Bank, claim that they increased funding to the now-bankrupt electronic wholesaler Kent International Associates by $65m on the strength of E&Y audits for 1995 and 1996.
No irregularities were discovered in the audits, but later it was discovered that net sales had been overstated by almost 400% at the firm, and three-quarters of its cash receipts were fictitious.
E&Y's appointment at Kent came prior to the investment, and was made to ensure that the wholesaler's books were in order. Now a State Supreme Court justice has ruled the firm can stand for civil trial.