Court Dismisses Ernst & Young Appeal to Block Probe

Michelle Remo, “Big 4″ observer
May 14, 2011 /

Fraud investigation into Ernst & Young’s role as former auditor to a failed bank is set to continue after a high court in Ireland dismissed its plea on May 13 to halt the inquiry.

John Purcell, a special investigator appointed by the Chartered Accountants Regulatory Board (CARB) on February 2009, will push through with his task of probing Ernst & Young’s conduct when it audited the failed Anglo Irish Bank.

The high court previously reserved last month the decision on Ernst & Young’s plea to trash the investigation being aimed against it in connection with the loan misappropriation in Anglo Irish Bank. The decision came shortly after three judges of the US Court of Appeals for the Ninth Circuit has reinstated the options backdating charges implicating Ernst & Young auditors over the $2.2 billion misrepresentations in Broadcom Corporation’s financial statements.

Purcell will determine whether there is ‘prima facie’ evidence to take Ernst & Young to task. The accounting firm may also be ordered to pay CARB for its costs.

Ernst & Young tried to block the inquiry on grounds that CARB has not yet filed an actual complaint against it as required by the board’s bylaws on such process and that CARB has not established a specific issue on which to focus the investigation.

Ernst & Young asked for the full 90-page transcript filed by former Anglo director Gary McGann and former chief financial officer Matt Moran, which was already forwarded to Purcell. But the firm claimed in an affidavit that Purcell has limited the prima facie case presented to the auditors to only 46 pages.

Judge Mary Irvine ruled yesterday that Ernst & Young ran out of time and failed to show its grounds to request for a halt on the investigation by Purcell, which is now on its second year.

Irvine ruled that Ernst & Young failed to present its case for proceedings to block a prospective report by forensic accounting firm FTI relating to Purcell’s inquiry from being forwarded to CARB.

According to the judge, “the onus was on the firm to provide a cogent, weighty and meritorious explanation” to request for a halt on the investigation, which she said was not provided.

She also ruled that Ernst & Young’s definition of ‘complaint’ was different from the definition in the by laws governing the appointment of a special investigator. She said it was impossible to say there was no complaint from the complaints committee as stated by Ernst & Young.

Ernst & Young disclosed in a statement its disappointment with the high court’s decision to “deny leave for a judicial review of the investigation process being followed by the Chartered Accountants Regulatory Board (Carb), in connection with the statutory audit of Anglo Irish Bank.”

The accounting firm added it “believes it was right to seek leave for this judicial review” as it raises concerns over CARB’s investigation process.

“We have no issue with active, constructive and comprehensive participation in any investigation of our work as statutory auditors to Anglo Irish Bank,” Ernst & Young said.


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