Appeal lodged against Grant Thornton over its failure to spot fraudulent activity during its audit of now-collapsed technology company Winstar Communication
A FEDERAL APPEALS COURT has revived a lawsuit which accuses Grant Thornton of defrauding the shareholders and bondholders of a broadband services company.
Grant Thornton had audited Winstar Communications, which collapsed in 1999 during the dot.com bubble bust, Reuters reports.
The US district court of appeals in New York will review the original ruling by a Manhattan federal judge. The appeal court has suggested the original ruling was wrong to dismiss the suit, which claims Grant Thornton deliberately ignored signs of fraud when auditing Winstar’s financial statements in 1999.
Writing on behalf of a three-judge appeal panel, circuit judge Raymond Lohier said Grant Thornton failed to identify “red flags” and “repeatedly failed to scrutinise serious signs of fraud by an important client”.
“A jury reasonably could determine that the audit was so deficient as to be highly unreasonable, representing an extreme departure from the standards of ordinary care,” he said.
The case will return to the district court on appeal and is likely to go to trial.
Jonathan Levine, partner at law firm Girard Gibbs representing investors and other creditors, said: “We’re obviously very pleased.
“You can’t look at the quantity of the audit, but the quality.”