Retained by KPMG
Cornerstone Research and Professor Christopher James of the University of Florida were retained to assist KPMG in a dispute with a syndicate of banks over a secured line of credit for a retailer. The line of credit was secured by the retailer’s accounts receivables and inventory. After the retailer filed for Chapter 11 bankruptcy protection, the banks claimed they had based their credit decisions on the retailer’s financial statements and therefore KPMG, as the auditor, was responsible for their losses. Professor James demonstrated that the banks’ professed reliance on the audited financial statements was inconsistent with the typical practice of secured lenders. Moreover, his analysis of the banks’ collateral examinations demonstrated that they had ignored warnings of the retailer’s financial difficulties that would have allowed the banks to mitigate their losses.