$32 Million Settlement Reached in Deloitte Hedge Fund Case

Deloitte Touche Tomatsu's Bermuda affiliate has agreed to pay $32 million to settle lawsuits over its audits for the now-defunct Manhattan Investment Fund, a hedge fund that cost its investors millions when it collapsed four years ago.

The settlement was given preliminary approval last month from the federal district court in New York. A hearing on final approval is expected sometime next year.

"Deloitte & Touche Bermuda believes that it performed its audit work in accordance with all applicable professional standards," a Deloitte spokeswoman said.

The high-profile case has prompted calls for greater regulation over the hedge fund industry. The fund’s former manager, Michael Berger, has admitted to losing $400 million of investor money through poor bets on Internet stocks from 1996 through 2000. He has been a fugitive since skipping his criminal sentencing hearing last year. The Securities and Exchange Commission won a $20 million judgment against Berger, who allegedly created fake account statements to hide losses and overstate the fund’s value.

Deloitte in January 2000 withdrew its audit opinion letters attesting to the fund's 1996, 1997 and 1998 financial statements. In court papers, investors led by Cromer Finance Ltd. alleged that Deloitte "disregarded numerous red flags that should have alerted it to the fraud, and in consequence, Deloitte's 'audits' amounted to no audits at all."

A Deloitte spokeswoman said the firm "believes that the claims are without merit" but that it "decided to settle this nearly four-year-old case for a fraction of the claimed damages to avoid the time and expense of further protracted litigation."

Neither Deloitte Touche Tomatsu, nor U.S. affiliate Deloitte & Touche LLP will pay damages in the hedge-fund case. Both were dismissed from the lawsuit in 2001.

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