Carnegie International announced it has received the report of an 8-month investigation into Grant Thornton's actions in connection with a pending lawsuit. Carnegie said a court-appointed Special Master found Grant guilty of negligence and recommended the firm be ordered to pay all reasonable costs of the investigation, which could amount to $1 million or more.

The investigation had been ordered during a temporary suspension of a trial that began in November 2001. It was precipitated by the production of a second set of "original workpapers" by Grant's attorneys. The original trial is scheduled to resume in September.

Carnegie President Lowell Farkas said the report "found Grant to be negligent in not searching, finding and reporting the second set of work papers before the start of trial on November 3, 2001." It also found that "the late production of a second set of audit work papers for the 1997 audit year was a substantial violation of the discovery rules."

A spokesperson for Grant Thornton explained the firm had been asked by its attorneys to search again for the originals at the time of the trial because the first set of workpapers contained mostly copies rather than originals. The Special Master concluded that prior searches could have been more thorough, but this was not because the firm had a motive to hide the original workpapers.

On balance, the spokesperson said, the findings are favorable to Grant on all significant points. The Special Master's report concluded that grave sanctions were not warranted, since Grant's failure to produce the workpapers at an earlier time was not purposeful, intentional, reckless or grossly negligent. The Special Master is reviewing Carnegie's fee petitions and assessing whether the claimed fees are reasonable.

-Rosemary Schlank