Deloitte Sued For Inflating Financial Statements
Reliance Insurance Company's parent company, Reliance Group Holdings Inc., collapsed last summer, filing what was at that time the 10th largest bankruptcy ever. CEO Saul Steinberg, who has also been named in the suit, ran Reliance Insurance Co. The Insurance Department claims that Mr. Steinberg "stripped nearly $200 million in cash from Reliance in the form of dividends, purported tax payments and loans." He and 17 of the company's executives and directors, also named in the suit, "continued to remove as much cash as possible in the form of excessive salaries and bonuses, misuse of corporate property and preferential payments," according to the lawsuit.
"Risk factors and red flags were ignored by Deloitte," states the lawsuit. "Instead Deloitte and Lomelle, in exchange for millions of dollars in fees, facilitated and prolonged Reliance's ability to continue operating."
Deloitte denies the allegations. According to a report in The New York Times, Deloitte spokeswoman Deborah Harrington said, "This suit relates to matters the Department of Insurance has been familiar with for years and is a cynical attempt to exploit the current environment by seeking to shift blame for a business and regulatory failure to the independent auditors." ("Regulators Sue Deloitte & Touche" The New York Times, October 17, 2002)
Deloitte spokesman Paul Marinaccio commented, "Deloitte & Touche performed its services for Reliance in accordance with all applicable professional standards and will defend itself accordingly."