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August 2, 2009

KPMG confident over Danish fraud suit

KPMG Denmark remains confident it will not
be liable for any significant damages for its audits of failed
Danish software company IT Factory.

Lawyers plan to sue the firm in a high-profile
fraud case for allegedly failing to pick up irregularities in IT
Factory’s accounts, particularly around lease agreements, following
its audits of the company from 2005-2007.

IT Factory was declared bankrupt last December
by chairman Asger Jensby, following revelations that at least 90
percent of its revenue was invented by its chief executive Stein
Bagger. Bagger hid a trail of fraudulent activity amounting to
DKK831 million ($157 million) by forging signatures allowing him to
sell and lease back non-existent software products to some of
Scandinavia’s biggest banks and lessors. He also forged KPMG
signatures and reports, and provided the auditors bogus leasing
contracts and confirmations. Bagger was sentenced to seven years in
prison earlier this month.

Civil action pending

KPMG Denmark foresees facing a
lengthy civil case after court-appointed bankruptcy lawyers
indicated they would launch a case against the audit firm and the
defunct company’s board of directors. The firm, which posted fee
income of DKK1.6 billion in 2008, is awaiting details of the

KPMG Denmark senior partner Jesper Koefoed
said the firm is confident in its defence and was heartened by
Bagger’s jail term.

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“There has been damage to KPMG’s brand in
Denmark [but] we have not experienced any client outfall, we have
been re-elected at annual general meetings and have had new clients
coming. So on that basis we haven’t seen any signs of losing
business,” he said.

Boris Frederiksen, IT Factory’s
state-appointed liquidator, indicated the plaintiffs would look to
issue a writ as soon as July.

“It’s a fact that KPMG was aware that IT
Factory had entered into a number of leasing agreements, but they
didn’t show the debt that was connected to those leasing agreements
in IT Factory’s 2005, 2006 and 2007 annual accounts,” Frederiksen

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