A US judge has ruled Ernst & Young (E&Y) are not liable for the collapse of the Beacon Hill Master Hedge fund after liquidators sued the firm for performing a deficient audit, where the value of the hedge fund was said to be inflated.

Beacon Hill, which lost $US300m (₤154m) in 2002, was charged with inflating its mortgage-backed securities and its managers, denying the wrongdoing, settled the case in 2004 for $4.4m.

According to Euromoney, the case may set a precedent for handling accusations of blame which could occur as more hedge funds are forced into liquidation because of the credit crunch.

However, this will depend on the outcome of an appeal against the court judgment which has just been lodged.

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