This has the makings of an uncivil war.
Management at Bull Run Corp., a sports affinity marketing and management company, said it has filed a lawsuit against Ernst & Young LLP. Bull Run is charging the accounting firm with negligent misrepresentation.
Ernst & Young audited the financial statements of Universal Sports America, Inc., a company Bull Run acquired in December 1999. Bull Run claims it “placed significant reliance on Ernst & Young’s audit reports on the audited financial statements of Universal issued prior to the acquisition, and that those financial statements contained material errors.”
According to the suit, representatives of Bull Run’s wholly owned subsidiary, Host Communications, Inc., discovered material errors in the accounting for prepaid expenses and contract receivables included in Universal’s pre-acquisition audited financial statements. Bull Run alleges that, once the errors were discovered, the company was forced to restate its previously-issued financial statements.
Universal has since been merged into Host Communications, and all accounting functions for Universal’s operating businesses are now the responsibility of Host Communications.
Bull Run’s net assets were overstated by about $11.3 million as of December 1999, and $13.7 million as of June 30, 2000 and Dec. 31, 2000. The restatement, which also included a “change in historical operating results,” created an “event of default” under Bull Run’s credit facility, the company reported in July. As a result, Bull Run and its lenders agreed to an amended credit facility.