MAXAM Fund Sues Auditors Over Madoff Losses

On Friday, January 30, 2009, MAXAM Absolute Return Fund L.P. (MAXAM) filed a lawsuit in Connecticut Superior Court against its auditors Goldstein Golub Kessler LLP (GGK) and McGladrey & Pullen LLP (M&P and, collectively, the Auditors) alleging professional negligence, with the goal of recovering losses in connection with MAXAM’s investments in Bernard L. Madoff Investment Securities LLC (BMIS).  Implicit in the suit is the recognition that investment funds that invested in Madoff’s purported investment management business are unlikely to see any material recovery from Madoff himself or the firm he controlled.  Accordingly, plaintiffs are looking to service providers – even those who, like the Auditors in this case, provided services to the investor rather than to BMIS or Madoff.  As a general matter, while the facts of each case are unique, courts have not been receptive to claims against service providers in connection with alleged investment frauds, in the absence of any privity of contract between the service provider and the bad actor, or any independent bad act on the part of the service provider.  We describe the allegations in the complaint, including the specific claims of failure to follow Generally Accepted Auditing Standards.

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