Minnesota Investors Sue E&Y Over $12 Million Loss
An Illinois transportation services firm, Asche Transportation Services, Inc., declared bankruptcy last December, but not before Minnesota investors sunk $12 million into the company, relying on statements published by Ernst & Young.
Claiming the Big Five firm performed sloppy work, made fraudulent representations, and failed to report financial irregularities, Minnesota-based Churchill Environmental and Industrial Equity Partners LP has sued E&Y in hopes of recovering its investment.
The lawsuit claims negligent misrepresentation, common law fraud, and violations of Minnesota and Illinois securities law.
Ernst & Young prepared clean audit reports for Asche in 1997 and 1998. Late in 1999, E&Y withdrew its unqualified audit opinions after an embezzlement within the transportation firm was discovered and other irregularities surfaced. Larry Asche, former chairman and CEO of the company, and his wife Diane Asche, former VP and secretary, were terminated from the company for allegedly misappropriating $1 million. Also, Asche's controller was accused of embezzling some $60,000 from the troubled company.
E&Y was dismissed by the Asche board in November, 1999. Trading of Asche stock on the Nasdaq market was suspended in early 2000.
According to the lawsuit, "Churchill would not have invested in ATS, and would not have lost its $12 million, had it not reasonably relied upon E&Y's representations and unqualified audit opinions."
The lawsuit is pending in Minnesota.
Voice of the Editor
Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
Why is that, you might ask? My job is to replace the irreplaceable Gail Perry as Editor-in-Chief. What does that mean? I don’t really know! I think it’ll be fun getting a feel for things, throwing in my own thoughts here and there, and listening to the discussions you’re having about the accounting profession.