Grant Thornton Case: Another Evidence-Destruction Debacle? | AccountingWEB

Grant Thornton Case: Another Evidence-Destruction Debacle?

In a $2.1 billion action against Grant Thornton, a Baltimore Circuit Court has appointed a Special Master to investigate a possible violation involving the withholding and willful destruction of audit records in a manner likened to the contemporary but better-publicized Enron case.

The case against Grant Thornton was brought by Carnegie International, an Internet support and computer telephony holding company with specialization in telecommunications products, services and distribution, e-commerce and EDI. Carnegie alleges fraud and a failure to perform audit obligations with regard to 1997 and 1998 financial statements. A court action also alleges that a former director of risk management and senior partner of the firm, “willfully, knowingly and intentionally destroyed Carnegie documents with the full understanding that litigation was imminent.”

The accusations of withheld and destroyed records started in a pre-trial ruling in October 2001, when the judge said the partner had deleted computer files after learning of the lawsuit. Soon after the trial began the following month, it was temporarily suspended after Grant Thornton’s counsel announced in open court that a second set of “original work papers had been discovered,” and the firm’s attorneys admitted not producing these files during the discovery process.

Carnegie President Lowell Farkas said in a press release that the “many similarities to the Arthur Andersen & Company evidence destruction debacle” were “not lost on our shareholders or media. Our phones have been ringing off the wall.”

The Repsonse from a Grant Thornton Spokesperson

"The two situations could not be more different. In Carnegie, a limited number of emails were routinely deleted from a partner's computer, which occurred more than 8 months before any lawsuit was filed against Grant Thornton. Copies of these emails were kept and produced in the litigation.

There was no deletion of data or destruction of any paper documents -- unlike the alleged extensive and frenetic destruction of electronic and paper documents by Arthur Andersen in the Enron matter.

Forbes magazine said this in a recent article on Carnegie's suit against us: "With losses mounting and its telecom business in the dumps, Carnegie was hit by a dozen lawsuits, including a class action brought by shareholders. Carnegie's response? Blame its deeper-pocketed accountant. In May 2000 Carnegie sued Grant, demanding $2.1 billion in damages. There's a certain comic aspect to this suit--rather like a kid suing his parents for bringing him up wrong. Equally comical: A judge in Maryland is letting this farce go to trial."

Source: A Grant Thornton spokesperson

Meanwhile, Andersen issued yet another public statement indicating that it is committed to getting the facts, and is taking appropriate actions in the Enron matter. Andersen's policy statement on Record Retention and policy statement on actions in the event of an investigation have been made public.

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