Moore Stephens London is attempting to
strike out claims it was negligent in a $95 million lawsuit before
the highest court in the UK, the House of Lords.

The lawsuit is linked to a fraud carried out
by Zvonko Stojevic, the owner of bankrupt trading company Stone
& Rolls (S&R), a former Moore Stephens audit client. The
case has been brought before the courts by S&R’s liquidators
and is the largest case of its kind to be funded by third party
investors.

In this month’s hearing, Michael Brindle, QC,
who is representing S&R’s liquidators, told the court that the
firm had missed a “pattern of fraud” and there came a point when
the firm “must have known” about fraudulent activities.

Moore Stephens has always denied the
allegations and is being represented by Jonathan Sumption, QC, on
behalf of the law firm Barlow, Lyde and Gilbert.

The current hearing at the House of Lords is
in relation to an application to strike out the $95 million
remainder of what was initially a $175 million claim. In an earlier
hearing, $80 million in what was described by the judge as
“hopeless” compound interest was struck out reducing the overall
claim to $95 million.

The UK mid-tier firm was the auditor of
S&R from 1996 to 1998. S&R was used as a vehicle by
Stojevic to defraud banks out of tens of millions of dollars.
Stojevic used the company to extract funds from banks, which
believed they were financing bona fide commodity trades. He then
paid away these funds to third parties who were under his influence
or control. S&R went into liquidation after one of the banks
was awarded substantial damages S&R could not pay.

In the lower courts, Moore Stephens
successfully argued that because Stojevic was the directing mind
and will of S&R and he procured the company to carry out frauds
on third parties, the frauds were the company’s frauds as well as
Stojevic’s. As the company is itself a fraudster, it cannot recover
its loss from its auditor.

S&R liquidators, backed by third party
funders, officially set their sights on auditors in December
2006.

The claim alleges negligence on the part of
the firm on the 1996-1998 audits, and dishonesty on the part of its
professionals Christopher Chasty and David Anstis in 1998.

The case could have wide implications for the
audit profession as it is another way for insolvent companies to
delve into the pockets of audit firms.

Moore Stephens reported fee income of £126
million ($179 million) in the year ended 31 December 2008.