News Brief

Larkin Prevails in Second Circuit Appeal; Complaint Accuses Auditors of Disregarding “Red Flags” for Fraudulent Financial Statements

April 7, 2015

Peter J. Larkin (Partner-White Plains) obtaisd affirmation from the U.S. Court of Appeals, Second Circuit of a lower court’s denial of leave to amend a complaint against the firm’s client, auditors of a Chinese battery manufacturer. The complaint accused the auditors of misleading investors by disregarding numerous “red flags” that should have alerted them to the company’s fraudulent financial statements. Plaintiffs argued that their complaint should be expanded to include allegations that auditors had access to conflicting Chinese filings and financial information and that no reasonable auditor would have failed to obtain those filings. In 2007, for example, the company reported to the SEC profits of $10.2 million while it reported operating losses of $1 million in China. The Second Circuit noted that the plaintiff conceded at oral argument that none of the accounting standards on which he relied specifically requires an auditor to inquire about or review a company’s foreign regulatory filings.

This case was covered in Law360, March 25, 2015, “2nd Circ. Tosses Investor Suit Against Chinese Battery Co.”

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