Fraud Complaint Against Accounting Firm Filed After Misleading Work
Medium- and heavy-duty truck maker Navistar International Corp. has charged accounting firm Deloitte LLP of malpractices, fraud, fraudulent concealment, and breach of contract in relation to advisory and accounting services that ran for three years.
Navistar, based in Warrenville, claimed in a complaint filed in Illinois state court in Chicago that Deloitte LLP had committed inferior work from 2002 to 2005 that forced the company to restate its financial reports during this period.
Deloitte, whose member firms that have been tagged in the scandal besetting Kabul Bank could face a forthcoming complaint from Afghan President Hamid Karzai, is ordered to pay $500 million in punitive damages and other remedies.
“Deloitte lied to Navistar and, on information and belief, to Deloitte’s other audit clients, as to the competency of its audit and accounting services,” Navistar said in the complaint.
The truck maker had a longstanding relationship with Deloitte LLP which served as its auditor for 98 years. On April 2006, Navistar sacked Deloitte LLP auditors, with plans of hiring KPMG LLP.
Navistar blamed Deloitte LLP for having to restate its 2003 and 2004 financial reports, including those covering the first three quarters of 2005, to patch errors in income taxes, underpayments, pension bookings, and warranty reservations.
According to Navistar, almost $2 billion of bookings were debts connected to pretax charges and additional income tax. In 2005, the company was delisted from the New York Stock Exchange after delays in its financial report, which also forced Navistar to heavily refinance its debts.
Navistar accused the accounting firm of running away from its advisory and accounting services due to the pressure exerted by federal regulators. The services included clean audit opinions from 2002 to 2005.
However, Jonathan Gandal, a spokesperson for Deloitte, contended the claims, saying Navistar’s allegations were meritless.
Bloomberg quoted Gandal as saying Navistar’s suit was “utterly false and reckless attempt to try to shift responsibility for the wrongdoing of Navistar’s own management.”
“Several members of Navistar’s past or present management team were sanctioned by the SEC for the very matters alleged in the complaint,” Gandal added.
In 2010, Navistar had settled an investigation conducted by the US Securities and Exchange Commission in relation several shortcomings across its internal controls.
The SEC identified fifteen material weaknesses from 2005 to 2006 in Navistar, which it attributed to the firms “failure to dedicate sufficient resources to those controls.”
Without admitting or denying the SEC’s allegations, Navistar chief executive Daniel Ustian agreed to pay $1.3 million, while former Chief Financial Officer Robert Lannert agreed to pay $1.05 million, all in compensation for the bonuses they each received during the restatement period.