A group of investors can sue the audit firm KPMG for its role in certifying the financial statements of two hedge funds that invested their money with Bernard Madoff, an appeals court has affirmed.
In a decision last week, the Massachusetts Appeals Court ruled that 26 investors who lost a collective $20 million in the Madoff fraud may proceed in their lawsuit against KPMG. In their case, originally filed in 2010, the plaintiffs allege the giant firm did not adequately perform its audit and tax functions, failing to bring to light red flags that might have alerted them to the scheme.
KPMG, based in New York, had argued that the investors should be subject to arbitration, a private proceeding, rather than suing in open court. But the appeals court agreed with a lower ruling that the investors were not bound by any arbitration agreements.
KPMG declined to comment for this story. Kelly Pierce, a Minneapolis attorney for the plaintiffs, said the case will probably go to trial next year.
The two hedge funds in question are Rye Select Broad Market Prime Fund and the Rye Select Broad Market XL Fund. Both were managed by Tremont Partners, a unit of Massachusetts Mutual Life Insurance Co., and invested virtually all their assets with Madoff. Tremont and its Rye funds in 2011 agreed to pay more than $1 billion to the fund for Madoff victims, one of the largest settlements with the trustee in the case.
But Pierce, the attorney, said, Our clients have had no meaningful relief from the trustee. About a dozen of the investors in the lawsuit are from Massachusetts, she said.
Madoff is in prison for life for conducting a $65 billion fraud which collapsed in December 2008.