KPMG LLP settled a multi-million dollar lawsuit Tuesday, a move that likely helped the Big Four firm close the door on similar litigation going forward.
Officials at KPMG agreed to pay $22.5 million to computer-case maker Targus Group International Inc., according to several published reports. The suit charged KPMG with failing to uncover an embezzlement scheme cooked up by a former chief financial officer at Targus.
Under the settlement, the California judge hearing the case agreed to set aside a sanctions order imposed on the accounting giant last July, noted the The Wall Street Journal. The sanction was imposed on KPMG last July by Orange County Superior Court Judge Geoffrey Glass for obstruction during pretrial proceedings. Lifting the sanction clears KPMG’s legal record of a disciplinary action that could have been used against it by other potential litigants in the future, the paper pointed out.
Targus sued KPMG in 2003 for failing to discover that the company’s former CFO — William Anthony Lloyd — had embezzled $40 million, according to Reuters. KPMG served as Targus’ global auditor and business and tax accountant between 1993 and 2001.
Lloyd was found to have “utilized the company’s credit facilities and cash flow for his personal benefit” and “covered up his activities by creating false and fraudulent entries on the company’s books and records,” reported the wire service, citing court documents. In 2001, the former finance chief pleaded guilty to 15 counts of wire fraud and was sentenced to 37 months in federal prison, Reuters added.
Targus officials claimed that the company lost another $10 million in costs associated with the embezzlement. KPMG, in turn, asserted that during the audits the accounting firm relied on false information and therefore did not detect a problem, said the Reuters report.
According to the Journal, KPMG issued a statement declaring that, “The parties have reached a settlement. We cannot discuss the terms, which are confidential. We have settled the case to avoid more costly litigation.”