Firms braced for crunch claims

Firms could be vulnerable to law suits over their role in credit crunch
related securitisations, lawyers have warned, as the profession braces itself
for any exposure it may have to the global financial crisis.

Litigation experts have warned that firms could be sued over their roles in
the packaging up of US sub-prime mortgage assets, which triggered the crisis.

Separately, lawyers have warned companies to be wary of firms trying to use
liability limitation procedures to try and limit claims for prior year audits.

Nik Yeo, a specialist in finance litigation at barristers’
Fountain Court
, Temple, said accountants who had assisted banks in the design or
audit of structured financial
products may be vulnerable to legal action. ‘A firm who has put their name to
even part of an offering document could be in the firing line depending on what
they attested to,’ he said.

Lawyers suggested that there is no sign of major litigation coming through,
but many believe it is just a question of when rather than if.

Chris Warren-Smith, partner at Fulbright & Jaworski International LLP,
said the credit crunch may mean that accounting firms agree exclusions or
limitations in engagement letters with clients that would release them from
liability for past audits. ‘This may be an area to watch,’ said Warren-Smith.

The bulk of legal action is likely to begin within the next 12 to 18 months,
lawyers said.
Peter Wyman, head of professional affairs at PricewateerhouseCoopers, said the
profession had improved the quality of audits. He said he would be surprised if
any legal action against auditors had any foundation.

Chris Dickson, executive counsel of the accounting regulator JDS, said the
crunch might change how auditors treat credit ratings.

‘One issue must be whether the auditor can rely on the rating of [an asset]
from one of the ratings agencies and if not what more assurances it might be
reasonable for an auditor to obtain,’ he said.

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