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October 14, 2008

KPMG hit with A$200m civil action

KPMG Australia is being sued for A$200 million ($134.8 million) for alleged negligent conduct in its audit of property company Westpoint Group, which collapsed in 2006 with losses of more than A$300 million.

The claim against KPMG relates to the firm’s audits of several Westpoint companies for the years ended 30 June 2002, 2003 and 2004. It is the 16th civil action the Australian Securities and Investment Commission (ASIC) has commenced in an attempt to recover funds for Westpoint Group investors. If successful, the action could benefit up to 80 percent of the investors.

Commenting on the action, ASIC chair Tony D’Aloisio said: “The proceedings brought by ASIC allege that KPMG negligently carried out audits of the plaintiff companies by failing to identify issues related to the continuing solvency of the companies and failing to qualify audits of the companies.

“The claim also alleges that KPMG should have notified ASIC that it had grounds to suspect that breaches of the Corporations Act were taking place within the plaintiff companies, including breaches of directors’ duties and rules against insolvent trading.”

Auditor’s share

Aside from KPMG, ASIC has brought claims against five directors of the eight Westpoint mezzanine companies, six financial planners and trustees. The total claim now amounts to almost A$550 million and KPMG’s portion is about 36 percent.

KPMG said it is disappointed by the action and will defend itself vigorously.

“KPMG has co-operated fully with ASIC during its investigation into the Westpoint collapse since December 2005,” the firm said in a statement.

“While we understand that substantial monies have been lost by investors in Westpoint companies, and that various groups and individuals are naturally keen to recoup their losses, KPMG does not believe that the conduct of its audits of Westpoint entities caused or contributed to the collapse of the Westpoint group or to losses suffered by investors.”

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