Delphi Investors Seek to Boot Deloitte

''The more Deloitte were to discover about Delphi's past accounting problems, the more it would implicate itself for having failed to detect them a...
Stephen TaubDecember 5, 2005

A group of large investors in Delphi Corp. are petitioning for a change of auditors.

The auto-parts maker, which filed for bankruptcy protection in October, has asked U.S. Bankruptcy Judge Robert D. Drain for permission to retain. Deloitte & Touche LLP, according to The Wall Street Journal. Deloitte has served as the company’s auditor since its 1999 spin-off from General Motors Corp., and it designed and implemented Delphi’s financial-information systems, the Journal added.

According to the paper, the investors have argued that Deloitte faces unmanageable conflicts of interests. “The more Deloitte were to discover about Delphi’s past accounting problems, the more it would implicate itself for having failed to detect them at the time,” they reportedly wrote in a court filing. “In fact, Deloitte has strong incentive to conceal pre-petition accounting and auditing problems, and to minimize its own liability.”

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The investor group includes the Teachers’ Retirement System of Oklahoma and the Public Employees’ Retirement System of Mississippi. With two other large institutional funds, the Journal reported, they are the lead plaintiffs in a lawsuit that seeks class-action status accusing Delphi, Deloitte, and several other defendants of misleading investors. In addition, they have objected to potentially lucrative pay packages that Delphi is seeking for a number of key employees.

Delphi, which has acknowledged a number of accounting violations, is also being investigated by the Securities and Exchange Commission and the Department of Justice.

In a statement, Deloitte spokeswoman Deborah Harrington told the paper that the accounting firm “does not believe it would be appropriate to publicly comment on a retention application that is currently pending before the federal bankruptcy court. However, any allegations that Deloitte & Touche LLP acted improperly with respect to its prior audit engagements for Delphi are untrue.” A spokesman for Delphi declined comment to the paper.

In 2004, Delphi paid Deloitte $14 million in audit fees and $1.7 million for other services, according to the paper and public filings.