By Chanyaporn Chanjaroen and Alfred Cang
(Bloomberg) – A failed oil trader in Singapore who owes creditors more than US $ 3.5 billion is suing Deloitte & Touche LLP, alleging that the audit firm has not detected “serious irregularities” in its financial statements for more than a decade.
Deloitte audited the books of Hin Leong Trading Ltd. for at least 16 years before the firm collapsed last year when founding mogul Lim Oon Kuin admitted that the $ 808 million business loss was not reflected in the firm’s financial statements, according to a court file .
“Deloitte did not detect any material irregularities and inaccuracies” in Hin Leong’s financial affairs, alleges a March 5 lawsuit filed in Singapore High Court. “Deloitte acted in breach of the terms of its commitment to the plaintiff.”
A Deloitte representative said the firm cannot comment on legal issues before the court. Drew & Napier LLC, the law firm representing Hin Leong in this case, declined to comment.
In a statement last April, Deloitte said its audit of Hin Leong’s accounts “was conducted to the highest standards of auditing and compliance with the information that was disclosed to us at that time.” moment “.
“We are behind the quality of our work,” a Deloitte spokesman said in the emailed statement.
A hearing is set for next week in the case.
The oil trading company began to fall apart last year after wrong energy bets that eventually led to one of the biggest city-state collapses in Asia. Business losses led to demand for loan repayments from more than 20 banks, including London-based HSBC Holdings Plc and DBS Group Holdings Ltd. of Singapore.
According to the lawsuit, Deloitte audited and issued “unqualified opinions” for Hin Leong’s financial statements for each of the fiscal years from 2014 to 2019. In fact, the firm had been insolvent since at least 2012 and the assets they were exaggerated, according to demand. .
“The material misstatements of the plaintiff’s audited financial statements caused various banks and financial institutions to be seriously misled as to the financial health and state of affairs,” Hin Leong stated in the lawsuit. “Deloitte knew or should have known that these banks and financial institutions were recipients of the plaintiff’s audited financial statements and would have relied on the same to expand funding.”
The New York-based audit firm signed Hin Leong’s 2019 financial statements, which reported a 69% increase in profit over the previous year, to US $ 78.2 million. The March 12, 2020 report showed assets of $ 4.6 billion. A month later, Hin Leong went into interim judicial management, claiming liabilities of $ 3.5 billion and assets of only $ 257 million, according to the lawsuit.
“If Deloitte had properly performed the audits of the plaintiff’s financial statements, Deloitte would have detected the significant anomalies” and would not have issued unqualified audit opinions, according to the lawsuit. As a result, Hin Leong’s “fraudulent trade and illicit actions by executives and former CEO” would have been discovered much earlier.
Lim, 79, has been charged with forgery. The assets, which include bank accounts, property and club members, and those of his two children, have been frozen by the court. Lim has denied the counterfeiting lawsuit.
Hin Leong was headed by directors appointed by the Goh Thien Phong and Chan Kheng Tek courts since April 2020 and was liquidated in March this year.
Demand adds to a number of problems for global accounting firms after scandals. Deloitte has paid US $ 80 million in Malaysia this month for an agreement on the audit of the state fund firm 1MDB. The firm said in 2018 that it was cooperating with Malaysian authorities and maintaining its work.
Ernst & Young LLP allegedly did not detect the lack of € 1.9 billion in German payment provider Wirecard AG. An EY partner said his company fell victim to “criminals” on Wirecard, dismissing allegations that they didn’t do enough to uncover the violations in the now defunct payment processor.
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