Ernst & Young is to return to court to face allegations it failed to
detect fraud at wholesale drug distributor CBI Holding Co more than 15 years
In a ruling on Monday, a US appeals court in New York reversed a lower
court’s decision that the company could not sue the accountancy firm for its own
CBI filed for bankruptcy in 1994 after the company’s managers schemed to
manipulate inventory figures to inflate its chief executive’s bonus and deceive
lenders about its true financial condition, according to court papers. Ernst
& Young had given the company clean audit opinions in 1992 and 1993.
In April 2000, the bankruptcy court ordered Ernst & Young to pay CBI’s
creditors about $70m (£36m) in damages, concluding the accounting firm had
departed from the accepted standards of practice for auditors. Then, a US
District Judge reversed that decision in favour of Ernst & Young in 2004.
But the three-judge panel on the US appeals court concluded this week that
the company could sue Ernst & Young and the dispute should be sent back to
the lower court for further proceedings.
Ernst & Young spokesman Charlie Perkins declined to comment on the
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