Academic journal article Journal of Accountancy

$36.5 Million Fraud Judgment against Accounting Firm

Academic journal article Journal of Accountancy

$36.5 Million Fraud Judgment against Accounting Firm

Article excerpt

$36.5 MILLION FRAUD JUDGMENT AGAINST ACCOUNTING FIRM

A Houston, Texas, jury ruled that Laventhol and Horwath violated rule 10b-5 of the Securities Exchange Act of 1934 and engaged in common law fraud in performing audit and tax services for a series of limited partnership. A judgment of over $36 million was levied against the accounting firm.

Approximately 1,000 investors put more than $40 million in a series of limited partnerships started by Herman Finesod of New Jersey. Finesod claimed he had purchased the rights to a new drilling product that would recover previously unrecoverable crude oil. The product was never developed. The investors alleged that instead of using the $40 million for product development, the promoter placed their money in a Swiss bank account to ensure the funds would be outside the jurisdiction of U.S. courts.

In addition to Laventhol and Horwath, there were 29 other named defendants; however, Laventhol was the one not to settle before trial.

The investors alleged Laventhol prepared tax forms that listed over $30 million in fees paid to the promoter as "reasonable business expenses associated with the development of this new product. …

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