New York State Sues Audit Firm for Violating the Martin Act
York Attorney General has filed a lawsuit claiming that an audit firm violated
audit opinion that concealed the client’s true financial position. The complaint alleges that the audit firm
approved the use of certain repo transactions that made the client look less
leveraged. The complaint further argues
that, although the transactions may have technically followed certain
accounting rules, the clean opinion violated GAAS and GAAP by generally
misleading investors about the true nature of the client’s financial position.
seeks disgorgement of fees and restitution resulting from the client’s
TAKE: The New York State Attorney General is using the overbroad Martin Act to
allege generalized securities fraud against third parties. It is unlikely that this case could proceed
under the federal securities laws.