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Provide a recent example of a criminal liability against a CPA firm. What happened and what...

Provide a recent example of a criminal liability against a CPA firm. What happened and what was the result?

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Livent v Deloitte & Touche LLP

The receiver of Livent, a publicly-traded live theatre production company, brought a claim against Livent's auditors for failure to discover a fraud being perpetrated at the direction of Livent's former CEO and CFO, with the assistance of its accounting and IT departments and to the knowledge of most of Livent's audit committee. Livent hid its unprofitability through accounting manipulations, assisted by computer software it had designed to carry out these manipulations without a trace. After a change in management, Livent's accounting staff confessed and the fraud was discovered.

The court came to the conclusion that certain of the audit engagements were not performed in accordance with Canadian GAAS. It dismissed the auditor's argument that the fraud was in fact that of the company on whose behalf the claim was being brought, preventing the company from seeking redress from the auditors who failed to discover its own fraud (the ex turpi causa argument). In doing so, the court distinguished Canadian case law on the point. For the same reason, it also rejected arguments of Livent's contributory negligence.

A first in Canada, the court effectively allowed the receiver to claim for "deepening insolvency", i.e. an increase in liabilities of an already-insolvent company. In the result, it allowed "stakeholders" of the company to indirectly recuperate amounts from the auditor through the receiver's claim that they would have been unable to claim directly. The court also refused to give effect to bar orders resulting from the 2003 settlements of US class action complaints by noteholders and shareholders of Livent against the auditors on the basis that the receiver's claim was not brought on their behalf, although they might be the ultimate beneficiaries of the judgment. The auditor has appealed and Livent's receiver has filed a cross-appeal.

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