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 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.
Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.