Accounting firms that oversaw many of the “feeder” funds that invested billions of dollars into what prosecutors now describe as the largest Ponzi scheme ever perpetrated, are likely to be among the defendants, The New York Times’ Michael J. de la Merced reports.
ThoughBernard L. Madoff Investment Securities itself was audited by small firms, questions are arising over how major firms such as PricewaterhouseCoopers and KPMG overlooked several red flags related to the operations over a number of years.
The big accounting firms are likely to face queries about why they gave their seal of accounting to the astoundingly steady positive returns booked by a fund manager whose investment strategy was nearly completely opaque.
One investor in a feeder fund, New York Law School, has already sued BDO Seidman, the auditor of one of its money managers, arguing that the firm failed to notice warning signs related to the $50 billion scandal.
The Madoff case presents an unusual situation, ScottM. Berman, a partner at the law firm Friedman Kaplan Seiler &Adelman who represents investors in several feeder funds, told the NYT. Previouscases focused on the auditors of the firm at the center of the scandal,not the auditors of investment managers one rung removed.
“I expect that this is an issue that has not been litigated before,” Berman said.