In a ruling that could have sweeping implications, a federal judge says plaintiffs can sue Deloitte & Touche, its former CEO, and its affiliates for the role of the firm’s Italian affiliate in the collapse of Italian dairy giant Parmalat Finanziaria in 2003.
Deloitte Touche Tomatsu “exercised substantial control over the manner in which the member firms conducted their professional activities,” opined Judge Lewis Kaplan of U.S. District Court in Manhattan, Reuters reported. Deloitte Touche Tohmatsu is the worldwide membership organization of which Deloitte & Touche’s parent, Deloitte LLP, is the U.S. member. The Italian member is Deloitte & Touche SpA, or Deloitte Italy.
Plaintiffs’ co-lead counsel, Stuart Grant of Grant & Eisenhofer, said in a statement that the ruling “causes the law to reflect reality — that these global accounting firms function as a seamless worldwide organization — and the whole is indeed responsible for the actions of the constituent parts. In essence, Judge Kaplan has said that the parent can’t hide from the misdeeds of its children.”
In its own statement, Deloitte said, “Obviously, we are disappointed in the Judge’s decision, but we are confident of victory at any trial of this matter. As the Court pointed out, the evidence presented by the Deloitte defendants would support a jury verdict in their favor, but for purposes of summary judgment, it was ‘obliged to view the evidence in the light most favorable to the plaintiffs,’ and therefore could not grant the motion ‘as a matter of law.’”
The statement added that Deloitte U.S. issued no audit reports on Parmalat and had nothing to do with Parmalat’s alleged misconduct. “In fact, the same judge has dismissed two complaints filed against Deloitte US for their audits of Parmalat’s US operations,” Deloitte said. “Deloitte Touche Tohmatsu is a Swiss Verein (membership association) and provided no services of any kind to any Parmalat entity.”
Parmalat, known in the United States for its long-shelf-life milk products, filed for bankruptcy on Christmas Eve of 2003. Its collapse was one of the worst financial scandals involving a European company in recent memory, ultimately representing a loss of about $18 billion.
Last May Parmalat SpA itself announced that it had settled a securities class action with investors, and would distribute 10.5 million shares of stock, worth just under $40 million at the time. The company also agreed to pay up to $1.55 million as the cost of notifying the class members of the settlement.
In January 2008, Deloitte settled with a committee representing bondholders of Parmalat. Under the settlement, Deloitte agreed to pay the bondholders up to 6 percent of the nominal value of their investments made before November 11, 2003. However, it denied any participation in or knowledge of the massive fraud, as did Dianthus SpA, an auditing firm that operated in Italy under the Deloitte & Touche name until July 2003.
According to Reuters, Kaplan wrote in his ruling last week that Deloitte had argued that the shareholders did not present any facts as to whether Deloitte Touche Tohmatsu and Deloitte Italy had a principal-agent relationship. “Plaintiffs, however, point to numerous facts that could be taken as indicating that DTT structured and conducted itself in a manner that permitted it to exercise control over its member firms, including Deloitte Italy,” he wrote.