Arthur Andersen Faces Multi-Million Dollar Baptist Lawsuit

A religious organization has filed a lawsuit against Arthur Andersen, claiming its former auditor's negligence led to its bankruptcy and the loss of hundreds of millions of dollars.

Arthur Andersen had acted as the auditor of the Baptist Foundation of Arizona (BFA) for 15 years. When accounting irregularities came to light, the BFA filed for Chapter 11 bankruptcy on 9 November last year.

The lawsuit filed on BFA's behalf by Bernstein Litovwitz Berger & Grossmann alleges that during its audits, Arthur Andersen overlooked numerous "red flags" that should have alerted it to suspicious transactions taking place.

The law firm has something of a track record in the field of auditor class action suits, having participated in the record-breaking case which saw Ernst & Young pay out $3bn in a case involving Cendant Corporation.

The Baptist suit alleges that senior managers at the BFA turned what was a legitimate investment vehicle into a "Ponzi Scheme," in which money from new investors was used to pay off old investors. BFA hid its losses by transferring non-performing assets to related entities in a series of highly suspicious, non-arms' length transactions. The lawyers argue that by failing to pursue these deals, Andersen let BFA's losses to escalate to hundreds of million of dollars, leading to its demise.

"The tragedy of BFA is an all too familiar example of accounting professionals failing to do their job, with innocent investors left holding the bag once the misconduct is disclosed," Alan Schulman of Bernstein Litowitz Berger & Grossmann told Business Wire. "By filing this lawsuit, we intend to hold Arthur Andersen responsible for the consequences of its failures."

You may like these other stories...

The Public Company Accounting Oversight Board (PCAOB) on Tuesday adopted a new auditing standard and amendments in three areas of the audit that could pose an increased risk of material misstatement in company financial...
Read more from Larry Perry here and in the Today’s World of Audits archive.In my last article, I presented an overview of one of the first steps in the preplanning phase of an audit engagement: reviewing prior year...
Read more from Larry Perry here and in the Today’s World of Audits archive.AU-C Section 800, Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks (SPFs),...

Upcoming CPE Webinars

Jul 16
Hand off work to others with finesse and success. Kristen Rampe, CPA will share how to ensure delegated work is properly handled from start to finish in this content-rich one hour webinar.
Jul 17
This webcast will cover the preparation of the statement of cash flows and focus on accounting and disclosure policies for other important issues described below.
Jul 23
We can’t deny a great divide exists between the expectations and workplace needs of Baby Boomers and Millennials. To create thriving organizational performance, we need to shift the way in which we groom future leaders.
Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.