Auditor of Madoff Feeder Wins Motion to Dismiss Claims
A New York Court dismissed claims against the auditor of a feeder fund that invested with Madoff. The Court stated that the plaintiff failed to allege privity between the auditor and the plaintiffs because there was no direct contact or communication. Merely receiving the financial statements was not sufficient. The court also noted that the auditor owed no direct duty to the plaintiffs. The court also dismissed aiding and abetting fraud claims because the plaintiffs could not allege the required intent. Mere recklessness was not sufficient in the absence of “specific red flags that the accountant disregarded that would place a reasonable accountant on notice that the audited firm was engaged in wrongdoing which is detrimental to the investors.” The court expressed its frustration that the law prohibited further exploration of the alleged wrongdoing.
OUR TAKE: Key to this case is that the auditor was engaged by the feeder fund and not Madoff. Nevertheless, it remains unclear what red flags would allow plaintiffs to show sufficient recklessness to prove aiding/abetting.