Second Circuit Upholds Dismissal of Hedge Fund Investors’ Securities Fraud and Negligence Suits Against Fund Auditors, KPMG and Ernst & Young, Based on their Alleged Failure to Detect Madoff Fraud

Individuals and hedge funds that invested in certain Bernard L. Madoff feeder funds that were managed by Tremont Group Holdings, Inc. and its affiliates (Tremont) initiated lawsuits in the U.S. District Court for the Southern District of New York (District Court) against Tremont and accounting firms KPMG LLP, KPMG (Cayman) and Ernst & Young LLP (together, Auditors).  The plaintiffs claimed that the Auditors were liable for securities fraud, common law fraud, negligence and breach of fiduciary duty arising out of their audit of certain Tremont funds that invested with Bernard L. Madoff Investment Securities, LLC (Madoff) and their failure to detect the Madoff fraud.  The District Court granted the Auditors’ motion to dismiss the complaint for failure to state a claim against the Auditors.  The U.S. Court of Appeals for the Second Circuit has upheld that dismissal.  This article summarizes the investors’ claims as well as the Court of Appeals’ decision and reasoning.

To read the full article

Continue reading your article with a HFLR subscription.