Auditor Liability Following Client Bankruptcy

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Counsel for a large auditing firm retained Cornerstone Research in an action arising from the bankruptcy of one of the auditor’s clients.

Counsel for a large auditing firm retained Cornerstone Research in an action arising from the bankruptcy of one of the auditor’s clients. The audit client had hired the auditor to assist with due diligence related to two acquisitions, and to perform services in connection with the company’s interim financial statements. Following the audit client’s subsequent bankruptcy, the plaintiff alleged that the auditor’s professional services fell below the applicable standards of care, causing damages related to the audit client’s alleged overpayment for the acquisitions, avoidable losses, and the lost value of the company.

Ms. Hammer determined that the company lacked a viable strategy, did not have appropriate management information systems, and failed to properly integrate the acquired companies.

Cornerstone Research worked with Christine Hammer, a certified public accountant and senior advisor with Cornerstone Research, who analyzed loss causation and determined that the company’s bankruptcy was fundamentally caused by the mismanagement of the company by its officers and directors. Ms. Hammer determined that the company lacked a viable strategy, did not have appropriate management information systems, and failed to properly integrate the acquired companies.

In addition, Cornerstone Research worked with a damages expert, Professor Mark Weinstein of the University of Southern California. Professor Weinstein valued the acquired firms and measured damages related to plaintiff’s claims, including the measurement of damages related to the causes and timing of the company’s bankruptcy.

Case Experts

Mark I. Weinstein

Emeritus Associate Professor of Finance and Business Economics,
USC Marshall School of Business;
Associate Professor of Business and Law,
USC Gould School of Law,
University of Southern California

Christine M. Hammer

Certified Public Accountant;
Senior Advisor, Cornerstone Research