Big Four firm KPMG is the defendant in a lawsuit filed last Thursday by the Missouri Department of Insurance. The suit, filed in Jackson County Circuit Court in Kansas City, Missouri, alleges that KPMG contributed to the 1999 downfall of General American Holding Company.

KPMG was auditor for General American and also acted as a consultant to the insurer. The lawsuit claims that General American was advised by KPMG to develop and sell certain funding agreements that included a clause whereby the investor could cash in the agreement with seven days' notice. After selling billions of dollars of the agreements, General American experienced a ratings downgrade which resulted in a stampede of investors giving their seven days' notice and hoping to cash in their funding agreement. When Great American couldn't meet the investor demand it was forced into receivership.

The lawsuit alleges that KPMG concealed information from investors as well as board members and did not require disclosure of the risk associated with the funding agreement.

KPMG spokesman Bob Zeitlinger stated, "We deny allegations that KPMG contributed in any way to the liquidity issues faced by General American in 1999. We stand behind the work we performed and will defend ourselves vigorously."